Why Some Homes Sell Faster

A recent study by National Renewable Energy Labs found that home powered by a solar system sold 20 percent faster and for 17 percent more money that non-solar homes. Installing energy-efficient features can make your home more appealing to buyers, especially in a down market.

A great tip is to highlight the energy and money saving aspects of your home to prospective buyers in language the average person can relate to. For instance, "our average electricity bill is $8 a month" will mean more to a potential buyer than "our solar panels produce 6 kilowatt hours of electricity per day."

A 2011 study by the National Association of Home Builders showed smaller homes are selling faster than larger homes. One-bedroom homes actually sell 13 percent faster than others and homes with two stories or more took more than 20 percent longer than single story homes.

With the introduction of the Home Valuation Code of Conduct (HVCC) appraisers have become for more conservative, maybe even downright lazy, in their valuations. With no fear of adverse action for low appraisals because they are essentially accountable to no one, it would behoove a seller or Realtor to provide to the buyer's appraiser with important information such as comparable sales, great schools or low crime in the area, in addition to a detailed list of improvements made to the property and the approximate cost of each improvement.

A Canadian study of over 20,000 real estate listings found descriptions that focused more on "curb appeal" or general attractiveness helped a property sell faster than those focusing on value and price.

• Describing a property as in "move-in condition" quickened the sale by 12 percent.
• Listings with the words "beautiful" or "gorgeous" sold 15 percent faster.
• Using the word "landscaping" hastened a sale by 20 percent
• Language that conveyed desperation, such as "motivated" or "must sell" took 30 percent longer to sell.
• Homes that have been professionally staged sell at least 20 to 40 percent faster than vacant homes.

With homes sitting on the market so long, so many deals falling out of escrow due to low appraisals among other things, and the increased number of closings delayed by a variety of glitches, anything a seller can do to give himself/herself an edge may save a seller a lot of anxiety and headaches.

Borrow Smart Realtor CE Class is a Big Hit!

On December 15, 2011, I hosted my third Realtor Continuing Education Class and the feedback has been nothing short of amazing. Most of the Realtors that attended the class admitted that they came simply to get the 4 hours of continuing education credit. However, they also admitted that within the first 45 minutes they realized that they were going to get so much more, and that by the end of the 4 hours their knowledge and understanding had been transformed.

Of course, I had to ask if that transformation was a good thing or a bad thing and they responded by saying that they wish they had known this information earlier in their career. It definitely would have changed the advice that they gave their clients as well as changed some of the decisions they made for themselves around real estate and borrowing.

The class was designed to show the role the house plays in creating wealth for their clients, and themselves. The house is the greatest single asset and liability for most Americans and, yet, owning a house can be one of the best tools for creating wealth. It is likely that more wealth will flow through your house than all of your other assets combined. How you manage that wealth and the associated cash flow may well determine whether or not you achieve financial independence.

In the class I cover how the house compares to other investments as it relates to safety, liquidity, rate of return, and tax treatment. House equity, the net value of a house-related investment, is still the most common form of wealth in the United States today. For many of us, it is the first step toward wealth development. Options for managing the wealth in the house can be very confusing, yet that wealth as a percentage of total assets, may still account for a huge proportion of your total net worth.

We discussed in detail the four threats to the wealth in the house, more commonly known as equity, and the four hurdles to accessing that wealth. We also covered how the tax benefits of owning a house really work and explained how wealth in the house has a zero percent rate of return.

Financial institutions tell us to do one thing with our money while they do the complete opposite with the money we blindly give them. Americans are not afraid to borrow money. In fact, we borrow money in record amounts every year. However, it could be argued that our borrowing is not always smart.

If you know a Realtor that you believe would benefit from knowing and understanding this information have them click here for more details or here to reserve a seat.

The next class is:

Date: January 19, 2012
Time: 10:00am to 2:00pm
Location: El Cajon Library
201 E Douglas Avenue
El Cajon, CA 92020

Seating is limited to 20 attendees! The cost is $25.00. Lunch and 4 hours of continuing education credit are included!

To reserve a seat they should go to www.AgentCEClass.com. Click here to view a flyer about the class. Feel free to contact me at (619)994-1110 or e-mail me at SPerkins@NIOFE.org with any questions.

What is the Difference Between Price and Cost?

In a nutshell, price is what you pay for a product or service at the moment you pay for it, and cost is what you pay for that same product or service over time.

Let's say you decide to go to a store to purchase a TV because you just saw that it was marked down 25%. The amount you paid for the TV is $1,392.11. That is considered the price. When you add a 7.75% sales tax, your adjusted price is $1,500.00.

If you paid cash, then the price and the cost are the same, theoretically. The reason I say theoretically is because there is an opportunity cost that exists, but that is outside the scope of this example.

If you're like most people, you paid for the TV with a credit card, even if only to receive a 15% discount for opening an account with that retailer that day.

The following chart shows that if you financed the $1,500.00 and paid the minimum payment of 4% of the outstanding balance, a fairly standard formula for calculating a minimum payment, your initial monthly payment is $60.00.


Assuming that this is the only purchase you made with that credit card and you made the minimum payment until the balance was paid is full, it would take you 87 months to pay the credit card off. That would mean that you paid $2,274.00 for your TV. This number represents the cost of the TV.

That means that you paid $774.00 ($2,274 - $1,500) in interest over that 87 months. If you purchased that TV at 25% off and the price you paid was $1,392.11, then the original price was $1,740.14 ($1,740.14 - 25%). The 25% discount you received was $348.03, but you paid $774.00 in interest. Not only did you NOT save the 25%, you paid an extra $425.97 ($774.00 - $348.03) for the TV.

The opposite side of the chart shows the results if you had paid $100.00 per month instead of the minimum payment of 4% of the outstanding balance. In that example you would have paid the account off in 18 months and you would have paid back $1,712.00 for the TV. That $1,712.00 would be the cost of the TV. The interest would total $212.00. As we showed before, the 25% off saved you $348.03, but you paid back $212.00 in interest, so the real discount was only $136.03.

Credit has a cost and it can be a rather steep cost. This is just one example. This scenario is played out daily by millions of people all over the world.

Year-End Tax Planning: 10 Things to Keep in Mind

The window of opportunity for many tax-saving moves closes on December 31. So set aside some time to evaluate your tax situation now, while there's still time to affect your bottom line for the current tax year. With that in mind, here are 10 things to consider as the curtain closes on 2011.

1. Deferring income to 2012 means postponing taxes

Consider opportunities you might have to defer income to 2012. You might be able to delay a year-end bonus, for example. If you're able to push what would have been 2011 income into 2012, you may be able to put off paying income tax on the deferred dollars until next year.

2. Paying deductible expenses sooner may help you in 2011

Does it make sense for you to accelerate deductions into 2011? If you itemize deductions, it might help your 2011 bottom line to pay deductible expenses like medical costs, qualifying interest, and state and local taxes before the end of the year, instead of waiting until 2012.

3. Income tax rates to remain the same in 2012

The same six federal income tax rates that apply in 2011 will apply in 2012. So, depending upon your income, you'll fall into either the 10%, 15%, 25%, 28%, 33%, or 35% rate bracket. And, as in 2011, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15% in 2012; and if you're in the 10% or 15% tax rate brackets, a special 0% tax rate will generally continue to apply.

4. Is AMT a factor?

If you're subject to the alternative minimum tax (AMT), special rules apply. For example, the AMT rules can effectively disallow a number of itemized deductions, making it a potentially significant consideration when it comes to year-end planning. You're more likely to be subject to AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions. If you've been subject to the AMT in the past, or think that you might be for 2011, you'll want to make sure that you understand how the AMT rules might affect you.

5. IRA and retirement plan contributions

Employer-sponsored retirement plans like 401(k) plans and traditional IRAs (if you qualify to make deductible contributions) present an opportunity to contribute funds on a pre-tax basis, reducing your 2011 taxable income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) aren't deductible, so there's no tax benefit for 2011--they're still worth considering, though, because qualified distributions are free from federal income tax. The window to make 2011 contributions to your employer plan closes at the end of the year, but you can generally make 2011 contributions to your IRA up to April 17, 2012.

6. Special distribution requirements at age 70½

Once you reach age 70½, you're generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. It's important to make withdrawals by the date required--the end of the year for most individuals. The penalty is steep for failing to do so: 50% of the amount that should have been distributed. Barring additional legislation, 2011 will be the last year to take advantage of a popular provision allowing individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity (these charitable distributions are excluded from your income, and count toward satisfying any RMDs that you would otherwise have to take from your IRA for 2011).

7. Depreciation and expense limits to drop for business owners and the self-employed

If you're a small business owner or a self-employed individual, you're allowed a first-year depreciation deduction of 100% of the cost of qualifying property acquired and placed in service during 2011; this "bonus" first-year additional depreciation deduction will drop to 50% for property acquired and placed in service during 2012. For 2011, the maximum amount that can be expensed under IRC Section 179 is $500,000, but in 2012 the limit will drop to $139,000.

8. Last chance to deduct energy-efficient home improvements

This is the last year you'll be able to claim a credit for energy-efficient improvements you make to your home (up to 10% of the cost of qualifying property). Improvements can include a qualifying roof, windows, skylights, exterior doors, and insulation materials. Specific credit amounts may also be available for the purchase of energy-efficient furnaces and hot water boilers. However, there's a lifetime credit cap of $500 ($200 for windows). So, if you've claimed the credit in the past--in one or more years since 2005--you're only entitled to the difference between the current cap and the amount you've claimed in the past.

9. Other expiring provisions

Barring additional legislation, this is the last year that you'll be able to elect to deduct state and local general sales tax in lieu of state and local income tax, if you itemize deductions. This also will be the last year for both the above-the-line deduction for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.

10. Get help

Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities, and can keep you apprised of any last-minute legislative changes.

GAO Says Income Annuities May Be A Good Retirement Option

The U.S. Government Accountability Office (GAO) reports that financial experts typically recommend that middle-net-worth retirees use a portion of their savings to buy an income annuity (immediate annuity) to help meet necessary retirement expenses. The report, Ensuring Income Throughout Retirement Requires Difficult Choices, finds that while Social Security continues to be the primary source of fixed income in retirement, it is not enough to meet the income needs of most retirees. Also, the shift from employer-sponsored defined benefit pension plans to defined contribution plans, coupled with increasing life expectancies, is forcing retirees to assume more responsibility for managing their savings to ensure that they have sufficient income throughout retirement. An income annuity is an alternative to self-managing savings that offers retirees a steady source of income they won't outlive.

Why income annuities?

Generally, an income annuity, also referred to as an immediate annuity, is issued by an insurance company. It is typically purchased with a single lump sum of money (premium) paid to the issuer in exchange for payments made for life (single life income annuity), or for the joint lives of the annuity owner and his or her spouse or partner (joint and survivor income annuity). Payments generally begin no later than one year from the date the issuer receives the premium. The GAO report suggests income annuities:

• Help protect retirees against the risk of underperforming investments
• Help protect retirees against the risk of outliving their savings (longevity risk)
• Help relieve retirees of the task of managing their investments at older ages when their capacity to do so may be diminished, and
• Provide a base of guaranteed income that may serve as a dependable "cushion" for retirees who might otherwise spend too little for fear of outliving their assets (guarantees are subject to the claims-paying ability of the annuity issuer)

Why income annuities may not work?

Income annuities aren't for everyone, nor do they work in every situation. Particularly, income annuities may not be appropriate for people:

• With predictably shorter-than-normal life expectancies
• Who have limited savings, since the funds used to purchase income annuities generally are not available to cover large, unanticipated expenses
• Who are concerned about income taxes, since the income from annuities purchased with non-qualified funds is typically taxed as ordinary income, whereas some or all of the investment return on liquidated savings in stocks, bonds, or mutual funds may be taxed at lower capital gains or dividend tax rates
• Who want to provide a bequest of their assets at their death

When might an income annuity be appropriate?

The GAO study describes examples when an income annuity may be appropriate. In one scenario, the study suggests that a household with a total net wealth of $350,000 to $370,000, of which $170,000 to $190,000 is savings (and which does not have a defined benefit pension plan), should consider purchasing an income annuity with a portion of their savings. Retirees with defined benefit pension plans should consider an income annuity option rather than taking a lump-sum rollover to an IRA. Conversely, an income annuity may not be as useful for households with significantly greater net wealth or those households with appreciably less net wealth.

Proposals to access annuities and increase financial literacy

Typically, defined contribution plan sponsors do not offer account holders income annuities as an option. In response, the study makes several recommendations to promote the availability of income annuities for defined contribution plan distributions. These proposals include legislation that would require plan sponsors to offer income annuities as a choice to plan participants, or set income annuities as the default election for plan participants when accessing defined contribution plan benefits. The study also recommends options aimed at improving individuals' financial literacy, particularly concerning the risks and available choices for managing income throughout retirement.

Report recommendations

The report seeks to offer options to retirees on how to have an adequate income throughout retirement. Generally, the study suggests that middle-income retirees should consider delaying Social Security retirement benefits at least until full retirement age, consider working longer, draw down savings systematically and strategically (typically at an annual rate of between 3% and 6%), elect an annuity instead of a lump sum withdrawal for employer-sponsored defined benefit plans, and for retirees who don't have a defined benefit plan, purchase an income annuity with some of their savings. To view the report in its entirety, go to www.gao.gov/new.items/d11400.pdf.

If you have questions regarding whether an income annuity is a good option for you or you simply have questions please feel free to contact me at Shawn@YourFavoriteLender.com.

House Values Continue Downward Slide, But At A Slower Pace

According to the Case-Shiller Home Price Index, the leading measure of U.S. House prices, 18 of the 20 cities the index tracks show a drop in value in September 2011 as compared to September 2010. Only Detroit and Washington DC showed positive rates of change year-over-year.

Equally important is the month-to-month change in value. Only New York, Portland, and Washington DC posted positive gains from August 2011 to September 2011.


The national index posted an annual decline of 3.9%, an improvement over the 5.8% decline posted in the second quarter, which suggests that the pace of decline has slowed. Only 3 cities posted new lows in house values in September 2011; Atlanta, Las Vegas, and Phoenix. Nationally, house prices are back to their 2003 levels.


Living in San Diego, I am most concerned about my local market. Unfortunately, San Diego posted a 0.8% decline from August 2011 to September 2011 and a 5.4% decline since September 2010. Essentially, that means a drop in value of $2,400 on a $300,000 house from August to September and $16,200 from September to September.

The Case-Shiller Home Price Index tracks the price of typical single-family houses located in each metropolitan area provided. Condominiums, multi-family houses, and new construction are not included. Additionally, the data is a quarter old and may not reflect the current market activity. While the index can provide you with a general idea of the housing market, it shouldn't be used as the basis for a decision as to whether or not now is a good time to buy.

It is always best to seek the advice of a local real estate agent you trust because all real estate is local and they are in the best position to provide data relative to your specific purchase, be it a particular city, zip code, neighborhood, or street.

Mortgage Delinquencies Down Nearly 30% From The Peak, But Foreclosure Inventories Up

A new report by Lender Processing Services, Inc. shows mortgage delinquencies continue their decline, now nearly 30% off their January 2010 peak. Meanwhile, foreclosure inventories are on the rise, reaching an all-time high at the end of October 2011 of 4.29 percent of all active mortgages.

The average days delinquent for loans in foreclosure extended as well, setting a new record of 631 days since last payment, while the average days delinquent for loans 90 or more days past due but not yet in foreclosure decreased for the second consecutive month.

According to LPS, 7.93% of mortgages were delinquent in October 2011, down from 8.09% in September 2011, and down from 9.29% in October 2010.

LPS reports that a record 4.29% of mortgages were in the foreclosure process, up from 4.18% in September 2011, and up from 3.92% in October 2010. That's a total of 12.22% delinquent or in foreclosure. It breaks down as follows:

2.33 million loans less than 90 days delinquent
1.76 million loans 90+ days delinquent
2.21 million loans in foreclosure process

For a total of 6.30 million loans delinquent or in foreclosure in October 2011.

This graph shows the total delinquent and in-foreclosure rates since 1995.

The details in this report suggest slow improvement with the exception of the large number of loans stuck in the foreclosure process.

Is The Housing Market In Recovery Mode?

You may not want to crack the cork on that Champagne bottle just yet. While the government insists that the housing market is recovering, other, more reliable sources, say otherwise. I have heard and read many stories professing that the housing market is turning around and that we don't have to worry about a double-dip in home values. I'm not convinced.

It is not my intention to be a doomsayer. Simply to be realistic. We can't fix it if we don't know what's broke. It's obvious that the housing market has been in trouble for several years now, but the government manipulating the data and spreading propaganda through the media regarding economic recovery, in general, and the housing market, specifically, only serves to make matters worse and delay true recovery.

The National Association of Realtors says sales of previously owned homes dropped 4.8% to 4.91 million units last year, the lowest level in 13 years. Many economists believe it will take years for home sales to rise to a normal level of around 6 million units a year. Some say home sales in 2011 will be even weaker than 2010 due to more foreclosures and home prices that are likely to keep falling through the first six months of the year.

The Commerce Department says new home sales for all 2010 totaled 321,000, the lowest level in 47 years. New home sales in 2010 dropped 14.4% from the 375,000 homes sold in 2009. It's the fifth consecutive year that sales have declined after hitting record highs for the five previous years during the housing boom. Economists say it could be years before new home sales hit a healthy rate of 600,000 units a year.

While these are national statistics, it is important to remember that California's real estate market was hit harder than most and that these statistics could easily be representative of California exclusively. The bottom-line is that it is going to continue to be a bumpy ride in the housing market during 2011, despite what the media says.

Interest rates are on the rise and purchasing a home now, before rates go up any higher, is still the right thing to do even if home values settle a little further because it may be a very long time before we see interest rates this low again.

Waiting To Purchase a Home Can Cost You

With interest rates as low as they are and home prices at the lowest level since 2002-2003 there should be a lot more home buying activity than there is. There is no doubt that the $8,000 Homebuyer Tax Credit inspired a lot of aspiring homeowners to accelerate their plans to purchase a home, but there are still a lot of people that got passed by the last time home prices were this low and I don't want to see those same people get passed by again.

What most aspiring homeowners may not realize or simply don't know is that waiting to purchase a home can cost them thousands of dollars or the ability to purchase a home at all. With lending guidelines constantly in flux you never know when a new guideline may disqualify you from buying a home when just days before you were qualified. Something as simple as an increase in the minimum credit score required to qualify for a home loan can end your bid for a home overnight.

Not only have minimum credit score requirements been increased, but debt ratios (the percentage of your income that can be obligated to your total debt payments) have been reduced from 55% to as low as 40%, which can significantly reduce your buying power. The minimum required down payment has been increased from 3% to 3.5% for an FHA loan and there is talk of raising it again to 5%. It has become very difficult, if not impossible to obtain mortgage insurance, which is required when you intend to purchase a home with less than a 20% down payment. Many loan programs have increased reserve requirements and some programs have reduced the amount of the credit a seller can provide to pay a buyer's closing costs.

While changing lending guidelines can have a disastrous effect on your ability to purchase a home, rising interest rates run a very close second to hurting your ability to purchase a home. The combination of rising interest and decreasing debt-ratios can have an exponential effect on your qualifications. Then there's the possibility that as the housing market recovers seller's may be less willing to negotiate on the sales price and/or a credit to cover the buyer's closing costs.

There are countless issues that can come up that can at best interfere with your ability to purchase a home and, at worst, prevent you from buying a home altogether. I recorded a short video that goes into more detail. Click here to view the video.

If you, or anyone you know, is interested in purchasing a home and would like to discuss how today's lending guidelines effect you please feel free to contact me to go over your specific situation by e-mail at Shawn@YourFavoriteLender.com.