Why Sellers Should Cut Prices

By Lauren Baier Kim

Here's a look at what's new in real-estate markets across the U.S. from around the Web. (Some links may require registration or subscriptions.)

Hope for borrowers in California

Under a plan announced last week by Gov. Arnold Schwarzenegger, help may be on the way for half a million California homeowners whose subprime mortgages are due to reset to higher interest rates within the next two years, says Carolyn Said in a San Francisco Chronicle article.

According to the story, four lenders -- Countrywide, GMAC, Litton and HomeEq -- have voluntarily agreed to maintain the initial lower interest rates on mortgages for these borrowers, as long as they live in their homes, are making payments on time and can prove they cannot afford to pay higher rates, the Chronicle says.

It's not known how long lenders will freeze rates, but Larry Litton Jr., chief executive of Litton Loan Servicing, says his company will maintain the initial interest rates for as much as five years. Such a move may make sense for both investors who hold the loans and for homeowners: "It feels like a no-brainer for a loan servicer to keep the payment where it is, keep another piece of real estate off the market and keep the borrower in the house," Mr. Litton says in the article.

Forget the incentives -- cut the price instead

Thinking about throwing in a new car with your home sale, or perhaps offering your broker a bonus to move your property? Forget about it. Price discounts are the most effective way to get your house sold in today's housing market, according to a Bloomberg.com article by John F. Wasik. "Buyers just want price," he quotes one real-estate broker and consultant based in Stuart, Fla., as saying. "Buyers have become more educated and they can easily cut through the fluffy incentives," he says.

Related Links

Read news and analysis on the housing market at WSJ.com's Developments blog.

More Open House columns

Mr. Wasik notes that about 2 million homes may fall into foreclosure this year and that living near such a property could slash as much as $5,000 from your house's value. In many markets, homeowners should offer an asking price that's at least 10% below the competition, he says. He points out that in Boston and in Calif.'s Orange County and Sacramento, more than half of the homes on the market have already been reduced.

Brits snatch up U.S. homes

Americans may have hit the malls on Black Friday, but across the pond, Britons are looking for a different kind of bargain -- U.S. residential real estate, says an article in the London-based the Observer. With the exchange rate above two dollars to the pound and with housing prices on the decline in the U.S., Brits are buying up stateside holiday homes, selling their own U.K. properties to relocate to the U.S. and even purchasing U.S. residential real estate in the hopes of renting it out, the Observer says. Twenty percent of overseas buyers in the U.S. are purchasing for investment purposes, while about 50% are buying second homes, the newspaper says. Top places of interest for British buyers are Manhattan, California and Florida, the article says. "People can't believe the amount and type of property you can get," says the owner of one Florida firm who advertises to overseas buyers. "They would expect to pay twice that amount for the same thing in the U.K."

Grosse Price Declines

Grosse Pointe, Mich., is one of the most exclusive suburbs of Detroit, but it's now a place "Where Mansions Go Begging," according to the headline of a recent New York Times article by Keith Schneider. Mr. Schneider notes that since June, home prices in the exclusive suburb have been dropping by about $100,000 a month. Homes on the market number at 700 -- twice as many as there were at the same time in 2005 -- and may take 12 to 18 months to sell. Sixty homes foreclosed in the suburb this year as of last month, the article says.

For instance, one home buyer mentioned in the article purchased a 5,900-square-foot house in the area for $1.5 million, or $500,000 off the asking price.

Grosse Pointe has been hit by the same slump that's affecting the general Detroit area, where housing prices have dropped at least 20% in the past year, the article says. There are 41,000 homes on the market, twice as many as there were in 2005, and thanks to a flagging auto industry, the state has an unemployment rate of 7.7%, the highest in the nation.

Сити - будущее или вчерашний день?

Сейчас в России в каждом городе есть проект делового центра с большим количеством высотных бизнес-центров. Но нужны ли такие деловые центры с учетом развития современных технологий связи и обмена информации? Создание деловых центров приводит к новым пробкам и крупным ежедневным "миграциям" жителей. Сейчас на Западе в моду входит создание самодостаточных районов, где есть и жилье, и торговля, и офисы. При этом снижается общее количество перемещений людей по городу (экономия времени, бензина и нервов) и количество пробок.

вопрос:

"Я в США никогда не был, поэтому очень интересно Ваше мнение о будущем развитии городов. У нас сейчас активно строятся коттеджные поселки. А я читал, что часть из пригородов в США пришли со временем в упадок, так как первоначальное единство социальной среды со временем начинает нарушаться. Это действительно так?"

Ответ:

Мы живем в городе Коламбия, Мариланд, где такая планировка началась 50 лет назад. Город разделён на центры (их пока 5) Центр - магазины, банки, химчистки и т.п. Многоквартирные дома, дальше по более широкому радиусу домики на 2-4 семьи и самые удалённые от центра отдельно стоящие дома...выбор жить здесь выпал по географическому положению-близко к Вашингтону и Балтимору-два больших города где есть всегда работа и здесь хорошие государственные школы. Вы немного ошибаетесь насчет упадка пригородов ...Я бы привела пример Балтимора.


30-25 лет назад центр города распродовался за один доллар за дом, если хозяева обязались зделать капитальный ремонт. Почему Балтимор пришел в упадок...есть разные причины: экономические, социальные и даже вина губернатора - плохое руководство...Но в пригорадах Балтимора очень много хороших преуспевающих рай-онов. Живет много обеспечанных и преуспеваюших людей...30 лет назад была тенденция расселения в пригорадах (был дешевый бензин), сейчас наоборот -люди переезжают назад в центр города - хотят выть ближе к событиям. Например старые заводские здания переделываются на современные комфортабельные открытые квартиры и т.п. Там, где выла фабрика, делают кафе...
Нарушается ли социальная среда? Скорее нет...люди разных соц положений крутяться в своей среде и только если необходимо выходят за свои рамки...

When can my rental become my dream home

Clearing up confusion over 1031 property exchanges


By Benny L. Kass
Inman News

DEAR BENNY: In a recent column, I read that 1031 property transfers had to be held for a period of one to two years to establish "intent." I thought that a law was passed in October 2004 that stated the "intent" period was five years. I bought a 1031 property in California in 2005 and would appreciate this being clarified. Thank you for column! --Nancy M.

DEAR NANCY: The column was correct and so are you -- but you both are referring to different aspects of a 1031 (often called a "Starker") exchange.

Issue #1: Here, too, there are two issues: (a) How long can you hold the replacement property before you can exchange it again? and (b) How long do you have to keep the property as investment before you can move into the property and treat it as your principal residence?

As for (a), the statute clearly says that in order to get non-recognition of gain, you have to keep it for at least two years. As to (b), as that recent column properly stated, there is absolutely no IRS official guidance. Some tax lawyers take the position that one year and one day (i.e. go through one tax year) is sufficient. Others rely on what we call the "old and cold rule," namely that if the transaction took place more than two years ago, the exchange will generally not be reviewed by the IRS.

I have lots of clients who exchanged their investment rental property for a retirement home in Florida or Nevada, and want to know how long they must rent it before they can move in and establish it as their principal residence. The safe harbor is two years.

Issue #2: That leads us into the second part of your question. You are correct in that Congress a couple of years ago made some changes to 1031 exchanges. If you do an exchange and then convert it to your principal residence, in order to take advantage of the up-to-$250,000 exclusion of gain ($500,000 if you are married and file a joint tax return), you have to own the property for a full five years before it is sold. You also have to meet the two-year occupancy requirement. The actual text of the law reads as follows:

PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE -- If a taxpayer acquired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or exchange of such property if it occurs during the five-year period beginning with the date of the acquisition of such property.

I hope this clarifies the confusion.

DEAR BENNY: My wife and I and another couple are in the middle of buying a condo together and should be closing this month. The other couple has already been preapproved for 100 percent financing. We've been told that since they are already approved that they should go ahead and buy the condo and then amend the title while we're in escrow and add my wife and I to the title. I was curious as to whether this would work. --Josh

DEAR JOSH: I don't think so. Your friends have been approved for a loan, but you have not. At closing (you call it escrow) the lender will give specific instructions that will include that your friends will have to sign the promissory note and deed of trust. I seriously doubt that the escrow company will permit you and your wife to be added without the approval of the lender.

Can you qualify for the loan? Have you discussed the situation with the lender? The lender may also want to consider this an investment loan, which could result in an increase in the mortgage. Your friends could, of course, add your name to the title after escrow, but that might be grounds for the lender to call the loan based on the "due on sale" clause that I am sure will be in their deed of trust (the mortgage document).

So, I suggest that you talk to the lender and see what can be done between now and the escrow date.

But, your question raised two additional issues that concern me. First, you state that the loan is 100 percent. I don't know your financial situation (or that of your friend) but such loans have recently been associated with the many foreclosures that are taking place throughout the country. Have you -- or your friend -- carefully examined the terms of that loan? At some point, that loan will change whereby you will have to start paying principal and interest -- but at what interest rate? I am not a fan of such 100 percent loans.

Of equal importance, do the four of you have a written agreement as to how you will handle the property? What if you and your wife want out of the deal? What if someone dies? What if one of the partners gets divorced? What if someone cannot pay his or her share of the monthly mortgage payments?

All of these issues must be reduced to a written partnership agreement. The time to resolve these issues is when you are talking to each other.

DEAR BENNY: My wife and I are considering helping our son buy his first house. He is a recent college graduate with a well-paying professional job. He has been working for about a year, with about four months in his current job. He is living in our home paying some rent while saving the bulk of his paycheck. Given the cost of homes in the area and his lack of credit history, my wife and I figure he would need our help to buy his own home. Do you have any suggestions on how to approach this situation? We are not crazy about the idea of co-signing, as we consider that a risky proposition, but would be more amenable to co-ownership. Even if we agree to co-ownership, how can we protect our interest if the property is not maintained properly? Any tax consequences for us? --Steve

DEAR STEVE: Good question and very timely. As you suggest, property values nowadays are out of reach for many young adults.

There are several ways to approach this. First, do you have the money to buy the house and then rent it to your son? Every year, you and your wife could gift him up to $24,000 of the value of the house (you can gift up to $12,000 per person tax- and gift-tax free). You will need an attorney to assist you with this arrangement.

Next, can you be the bank? Can you lend him all the money and take back financing? He would pay you a fixed interest rate, which could even be greater than you are currently getting from your investments.

Finally, you could enter into what is known as a "shared-equity" arrangement. For example, you and your wife would own 50 percent of the property and your son would own the other half. You have to discuss with your attorney how title will be taken. But with a shared-equity arrangement, you both pay your share of the mortgage, taxes and insurance, and your son pays you rent for the half of the house that you own.

You need a written agreement, which will spell out all of the terms and conditions regarding the property. You asked about maintaining the property; the agreement will include provisions that should give you the protection you need.

There are two benefits for a shared-equity arrangement. Many lenders will give you a loan based on a personal residence rather than as an investment loan. Thus, you would get the benefit of a lower interest rate. Second, while you would have to pay tax on the rental income you receive from your son, you will also be able to deduct for tax purposes your share of the mortgage interest and real estate tax. You should also be able to take depreciation on the portion of the property that you rent to your son.

DEAR BENNY: What is a "hard-money lender"? I have read that they are entities that lend money out at 10 to 12 percent interest. They stay in business because the people who borrow their money will pay the higher interest to get the money faster and without a credit check.

Do people who buy at foreclosure sales or get involved with short sales use this as a means of financing these properties? Where do I find these "hard-money lenders"? --John

DEAR JOHN: There are good and bad hard-money lenders. These lenders usually make short-term, high-interest loans, and often they are "bridge loans.. For example, you want to buy a new house but have not yet been able to sell your current one. You have sufficient equity in your house, so you borrow money using your house as collateral. You hope that your house will sell quickly and thus are not concerned that the interest rate is higher than you can get from a commercial lender.

Usually, these hard-money lenders rely on the equity in your house rather than on your financial ability to pay.

But that's where problems start. Too many lenders make such loans knowing that the borrower will not be able to make the monthly payments, and thus the lender will ultimately foreclose on the property. In effect, these loans are designed to fail. They are called "predatory lenders."

You can find hard-money lenders just by typing those words in your favorite Internet search engine. But they should be the "lender of last resort." If you have to rely on a high-interest, short-term loan, maybe you are not ready to make that purchase.

Calculating the Cost Of Building a New Home

By June Fletcher
From The Wall Street Journal Online

Question: I want to build a 2,800-square-foot home with four bedrooms, two and one-half baths, a gourmet kitchen, walkout basement with media room and three-car garage in Pennsylvania. How can I estimate the cost to build the house? And what do you think about modular homes?

-- Sheila, Spring City, Pa.

Answer: According to B4UBuild.com, which sells books on the subject of cost estimating, the average cost-per-square-foot to build a home on site is between $95 and $150.

Contractors generally agree that cost-per-square-foot is a terrible way to budget for a home, because there are so many variables involved. Do you insist on top-of-the-line cabinets and appliances for your gourmet kitchen, or will mid-range ones do? Are you planning to side the house with cheap vinyl or expensive stone brick? Is the house going to be one story, or two? (The latter is generally cheaper because the foundation is smaller.) Will you have simple, rectangular rooms that minimize the materials and the labor required for framing, or unusual shapes like octagons with vaulted ceilings? What sort of flooring, bathroom fixtures and heating and cooling system will you have? Is the lot easy to access, relatively flat and easy to dig, or is it rocky, heavily wooded and uneven?

There are a few Web-based calculators that can help you make rough cost calculations. One easy-to-use, free one is Building-Cost.net, which adjusts not only for the quality levels of finishes and fixtures, but also for location, down to the city level. But bear in mind that this and other calculators won't give you an exact estimate, since ultimately that will be determined by the profit margins of the contractor you hire -- information you can't really know in advance.

So if you go the site-built route, I suggest that you start with a dollar amount that you're willing to spend. Interview at least three contractors and check their licenses and references and look at their work.

Once you've found someone you like and trust, the two of you can take your preliminary budget and work backwards, including the must-haves and eliminating the mere wish-I-hads as money allows.

Be sure to keep a cushion of at least 10% to 20% of the total project cost to cover last-minute changes, delays and other problems you can't foresee (for example, the cost of lumber spiking mid-project).

Now to your question about modular homes. Manufacturers of these homes, which are built in a factory in sections, say they are a lot more durable than site-built ones, since they are constructed in controlled conditions. But modular homes still make up only a tiny fraction of new home sales -- only 3.6% of the 1.06 million new homes sold last year, according to the National Modular Housing Council. (Click here for a list of manufacturers.)

That's partly because some consumers remember how uninspired modular homes looked in the 1980s and because some people still confuse them with so-called "manufactured homes," also known as mobile homes or trailers.

But these days, computer-aided design means that almost any house plan you choose can be made into a modular home. I think modular homes are fine and definitely worth considering, as long as you can visit a model or a nearby factory. Don't assume you'll save a few bucks, however. In fact, by the time the house is delivered to your lot and assembled, it may cost as much as a site-built one.

Can tenant break lease because of illness?

Rent it Right

By Janet Portman
Inman News

Q: We rent a single-family house and have a two-year lease. A month into the lease, the owners told us they'll be selling the property, and sure enough, we've had droves of real estate agents and potential buyers traipsing through our home. My wife has a serious medical condition (she's in a wheelchair and uses a ventilator) and needs peace and quiet so she can rest, but with this commotion it's impossible. The landlord refuses to be reasonable. We want to leave, but do we have grounds to break our lease? --Steve F.

A: Most states have laws governing when, for what reason, and with how much notice a landlord may enter a tenant's home. Entry to show the property to prospective buyers is always on the list of permitted reasons. As disruptive as it is, if your landlord is following your state's access rules, there's not much you can do on that front. But if your landlord is violating state law -- by not giving adequate notice or insisting on inappropriate showing times -- you may have some recourse. Practically speaking, however, unless the landlord's violations are extreme and repeated, you won't be justified in breaking your lease (you'll have to sue in small claims court for invasion of privacy and ask for money damages).

But don't give up just yet. First, consider whether your wife's condition qualifies her as a disabled person under the Fair Housing Amendments Act. Does she have a physical or mental condition that substantially limits one or more major life activities? If so, the owners are legally bound to adjust their business practices so that she can live safely and comfortably in her rented home. This accommodation should mean at the minimum a willingness to work with you to minimize the disruptions caused by showing the property.

If the owners still won't budge, suppose you break your lease and move. The owners will probably retain your security deposit to cover unpaid future rent -- and may sue you for the rest of the rent, too. In your defense (and request for the return of your deposit), could you prove to a judge that the owners knew they'd be placing the property on the market when you all signed the lease? If so, and if you can also provide credible evidence that the owners knew of your need for peace and quiet, you may be able to convince a judge that the owners should have disclosed their plans, and this failure justifies your breaking the lease. You'll be relying on a garden-variety legal principle that when one side to a deal has information that it knows is critical to the other side's decision but fails to disclose it, the contract can be voided.

Q: The quiet street where our rental property is located is about to be widened, to make way for a four-lane roadway. This will take away the front yard and expose the residents to considerable traffic noise and pollution. We're upset, as are the neighbors. We all suspect that the large shopping center nearby is the driving force behind this project. Can we stop it?--Barry and Katie S.

A: It sounds like your city is about to exercise its power of "eminent domain." This power traditionally gave government the ability to seize private property (and pay for it) in order to build roads, hospitals, schools and other structures that benefited the public in general. But what about taking private land to benefit private interests? The United States Supreme Court addressed this question in the Kelo case (Kelo v. City of New London, 545 U.S. 469 (2005)), where it allowed New London to seize property that would be used by a private developer.

The public, however, was not happy with the Kelo decision. In the 2006 midterm elections, citizens in 12 states placed initiatives that would rein in eminent domain use. Many states now prohibit outright the use of eminent domain for economic development, and others permit it only to eliminate slums and blight.

If your state has trimmed the permissible use of eminent domain, you and your neighbors may have an argument that the city is using it improperly. You'll want to know who will benefit from that wide new road other than the shopping center owners. Are other developers circling, ready to begin commercial or residential building once access is improved? For more information on the states' reactions to Kelo, and suggestions on how to protest an eminent domain taking for private development, check out castlecoalition.org.

Q:We rent a home in a neighborhood that has a homeowners association. We have a problem with our next-door neighbors -- they don't like the fence our landlord put up, and have taken to dumping trash and yard cuttings on our side. Worse, they yell racial epithets at us. We've secured a restraining order, but it doesn't help. Our landlord has gotten nowhere with the homeowners association, which says it's a private dispute. The landlord is willing to let us out of our lease, but we don't want to move. Any suggestions on what we can do to stop this harassment?--Tim and Diana F.

A: It's time to talk again to that homeowners association. Traditionally, these associations left neighbor-to-neighbor disputes alone, figuring that if the dispute didn't involve common areas or external appearances, it was a matter for the neighbors to work out or refer to the police. But now, they ignore disputes like yours at their peril. That's because courts are increasingly recognizing that condominium and even homeowners associations are subject to the Fair Housing Act (the federal law that prohibits discrimination in housing sales or rentals). This means that they need to take steps to stop the kind of situation you describe (lawyers would call it a hostile housing environment based on race.)

Your association needs to take action to stop this obnoxious behavior in its midst. The association surely has a rule against illegal activity among its members, with consequences for its violation, including fines or suspension of privileges. Failure to address this situation will set the association up for a fair-housing lawsuit brought by you, which can be extremely expensive -- especially if the association's insurance policy does not cover such claims.