Blog Archives

The Famous 3.8% Real Estate Tax

There’s nothing like misinformation to cause confusion and despair.

The popular story we’ve heard circulating a lot is that—starting January 1st, 2013—anyone selling a home in this country will be hit with a new 3.8% tax to help pay for President Obama’s new healthcare plan.

Not true.

It’s true that the new tax does take effect with the start of the new year, and it’s true that some real estate sales will be subject to the tax.  But it’s not a real estate tax, per se, and many people selling homes will not have to pay the tax.

So, just what is it?

“It” is a tax on some investment income.  Interest, dividends, rent and capital gains will be subject to the tax, but only for people whose adjusted gross income is above $200,000, or couples who file jointly and whose AGI is above $250,000.

If you’d like information that makes this tax more understandable, check out this one page flyer showing the Top Ten Things You Need To Know About The Tax.

Hopefully, these facts will show that—while the tax is real and it’s about to take effect—its scope is more limited than many people have been led to believe.

David

Calera and Chelsea to Lose USDA Loan Coverage

If you’re thinking of buying a home in Shelby County’s Calera or Chelsea area and are planning on financing your purchase with a no-down-payment USDA loan, you better get moving with your purchase, because time may be about to run out.

As of October first, the USDA is expected to update the areas that qualify for its loans.  For Shelby Co., this means that Calera—which has long been a popular spot for home Buyers using USDA financing—will be dropped from the eligibility list.   Chelsea is also set to be dropped.

In Walker Co., Jasper will be dropped from USDA loan eligibility, as will Moody and Pell City in St. Clair Co., and Pleasant Grove in Jefferson Co.
In all, more than 90 communities will be removed from the list of qualifying areas.

The change in qualifying areas is not a 100% sure thing.  At least one U.S. Congressman—Republican Jeff Fortenberry of Nebraska—is pushing to get Congress to order a one year extension of USDA’s existing eligibility zones.  Others pushing USDA to grant an extension include the National Association of Realtors, the National Association of Home Builders and the Mortgage Bankers Association.

Why does USDA plan to change the zones?  The answer lies partly with the 2010 Census.   An existing grandfathering clause allowed any community considered ‘rural’ in 1990 to continue to be eligible for USDA funding until the 2010 Census, as long as it has a population below 25,000 and met other critera.  That clause, which was first enacted in 1990 and extended in 2000, is now set to expire.

So, unless Congress takes action, many communities that currently qualify for USDA financing will lose their eligibility—and for many of those areas, USDA loans are the only source of federal housing funding.

David

Birmingham Loans Not As Scarce As You Hear…

It’s no wonder that folks who rely on the news media to know about our world often wind up confused, or sometimes, downright misled.

With the possible exception of politics (no, I’m not going there), I see few better examples of consumers getting misleading information than in real estate.

I have to hand a blue ribbon for disappointment to Marketplace, a program by American Public Media which recently produced a report about the difficulty of getting a home mortgage.

Reporter Gigi Douban in effect focused her magnifying glass on one part of the real estate industry and left folks with the impression that it’s just flat hard to get a home loan. Period.

“Now it’s nearly impossible to get a loan,” the show’s anchor said, leading into Douban’s report.

Douban interviewed people active in the Birmingham real estate industry:  Woody Woodfin, a Lender with Mortgage America; Johnny Montogmery, a Realtor with ERA King; and Jon Mulkin with BBVA Compass.

“There are plenty of folks who want to buy a house, but there aren’t that many who can,” Douban said.

I have no issue with anything anyone interviewed in the report said.

Woodfin talked about the fact that more of the Buyers approaching him for a loan than in the past wind up not being able to qualify.  That’s true.  We all know that mortgage requirements have gotten tighter, something that, in my opinion, needed to happen.

The fact is that getting a loan is difficult.  For some people.

The timing of this story seemed particularly ironic.  On May 14th–the same day Marketplace aired Douban’s report–BBVA Compass announced that it’s expanding its–get this–mortgage operations, and–guess where–in Birmingham, as well as in Tempe, Arizona.

“Even in Alabama, it’s hard to get a home loan,” the headline reads on the Marketplace website.

“Even in Alabama.”  Hmmm.  Is our state supposed to have always been easy street for getting a home loan?  “Well, shoot, Maybel, it’s not lookin’ good for us here in Tupelo, so let’s just head past Pete’s barbecue joint and cross the state line into Alabama.  Anybody can get a loan there…”

In a news release, BBVA Compass cited the rapid growth of its mortgage business as the reason for the expansion.  They’re hiring 60 more people to handle loans.

Huh?

The bank said 270 people will be involved in mortgage operations in Birmingham.   Pretty impressive numbers, if you ask me.  It certainly suggests that BBVA Compass must have some reason to feel confident that they’ll be helping more people buy homes in the coming years, and, specifically, by writing loans.

Why else would they spend the money?

If the Marketplace report had provided a more balanced perspective, it would have mentioned that there are quite a few sales happening in the Birmingham and Shelby Co. real estate market.

Some in the business even feel the industry is turning around.

April home sales within the Birmingham and Shelby Co. area are up more than 10% compared to a year ago.

The fact is that if you have good credit–no, not absolutely through-the-roof sterling credit, but just good credit–you can get a loan.   Sure, some Buyers are paying cash, but don’t kid yourself; a lot of those sales are being financed.

It’s the people in less than sound financial condition, who are late or have missed payments, or who have judgements against them who likely face mortgage rejection.

With more homes selling, it’s only logical to realize that mortgages are not nearly as impossible to obtain as the media tells us they are.

The problem is that folks don’t always hear what the market is really like.

David

Will Birmingham’s Black Eye Heal?

If you’re thinking of moving to Birmingham from out of town or out of state, you will no doubt hear news that—at best—will seem unsettling about our area.

On November 9th, the county commission for Jefferson county–Birmingham’s home county–voted 4-1 to file for what will be the largest municipal bankruptcy in U.S. history. At $4.2 billion, the scale of this filing is mind blowing, making it more than double the famous Orange Co. California $1.7 billion bankruptcy filing from 1994.Jeffrson Co. Alabama

It goes without saying that this is a very unfortunate event, but it’s not exactly a surprise, either; the possibility has been mentioned and warned about for years.

The Chapter 9 bankruptcy filing follows the collapse of an agreement for the county to pay $3.1 billion in sewer debt connected to a series of financial dealings going back three years that cost county taxpayers hundreds of millions of dollars and caused sewer rates to rise sharply.

Complicating the county’s financial picture was the Alabama Supreme Court’s ruling in March 2011 that a controversial occupational tax the county had passed (and depended on for $66 million of its budget) was unconstitutional.

Alabama’s Legislature could have stepped in to try and help the county avoid bankruptcy, but didn’t.

The bankruptcy filing isn’t helped by the tarnished reputation of some of Jefferson county’s elected leaders the past few years.  The county’s leadership became a cesspool of corruption that saw at least 21 people—including five county commissioners—convicted of, or agreeing to plead guilty to, corruption charges, some of which were connected to the sewer debts.  At least the commissioners and department heads connected with the sewer scandal are out of office.

If you’re thinking of moving to Jefferson county, this filing raises questions about the quality of life you can expect. What impact is bankruptcy likely to have on county services, on rates for sewer service, and even how easy or difficult it will be to renew car tags, given the closing of satellite courthouses? What does it mean for the myriad of county services residents need?

County staff has gone through severe reductions, as well, and these cuts have affected everything from roads and maintenance to the courts to health to inspections to law enforcement.

All of these are legitimate concerns for people thinking of moving to the Birmingham area, and there are no easy answers.

So, what does the filing mean for real estate sales in Jefferson county?  The county has a lot of desirable communities that individuals and families have called home for decades.  There are conveniences and benefits that only living relatively close to the metropolitan area can provide.

In deciding where to live, the quality of local government is certainly an important consideration, but so are other factors.  The general feeling a community has, the geography, types of housing, price ranges and proximity to important locations are all major considerations.  Vestavia and Mountain Brook, two incorporated and very desired cities in Jefferson county, have some of the most expensive homes in Alabama.

No doubt about it:  Jefferson county has a black eye that will take years to heal and that could have major economic ramifications.  People are still going to buy homes in the county, but the financial implosion is likely to make at least some Buyers take a close look at living across the line in Shelby county; indeed, we have already seen evidence of this.

A Birmingham real estate attorney says he has seen Buyers purchasing homes in Shelby county who say they want no part of Jefferson county’s problems.

Regardless of the bankruptcy filing, the simple fact is that—for decades—a large number of people who work in the general Birmingham area have chosen to live in Shelby county, because of its great quality of life, financial stability, affordability of housing and proximity to the metropolitan area.

The vast majority of Buyers Colleen and I work with wind up buying in Shelby county.Helena Market Days

Some residents view Shelby county as a breath of fresh air, compared to the financial mess, criminal wrongdoing and political bickering that has plagued their neighboring county to the north.

What’s ahead for Jefferson county?  Residents will no doubt experience new belt tightening, and much of it likely won’t be pleasant.  It is virtually inevitable that services will be strained further, and costs (whether they be taxes, sewer rates or other fees) will go up more.  Real estate sales in the county—both commercial and residential—may well be affected, though no one is sure by how much.

Real estate Agents may find themselves being asked questions from bewildered home Buyers, like, “What’s all this we hear about Jefferson county?”

Can Jefferson county rise from the ashes?

It has to, because it has no choice.

Despite the massive negative nationwide publicity, Jefferson county will have to find a way to continue to provide needed services and facilities.  The county is fortunate to have many talented and dedicated people working within its government.

Those people will be needed more than ever in the coming months and years as the county works to restructure its operations.

The Birmingham area business community may find itself being called on in new ways to be an active participant in helping the county get back on its feet.  Perhaps the state will finally step in and become involved at some point, too.

Another reason to feel optimistic for Jefferson county is the recent hiring Tony Petelos, Jefferson Co. Alabama County Managerof Tony Petelos, the former Mayor of Hoover, as county manager.

With his established track record in the business and legislative community for getting things done, Petelos has drawn praise for his diplomatic skills and ability to bring sides together.

Petelos is well known for his willingness to face daunting challenges, and take them head on.

In Jefferson county, he has found one.

David

Interest Rates Heading Back Up!

Rising interest rates for Birmingham and Shelby Co. homesYet another indicator that the super low interest rates Buyers have been enjoying in the Shelby Co. and Birmingham real estate market may be coming to an end:

Click here to see an article in the 4/11/10 New York Times advising that rising interest rates are inevitable.

If you’ve been considering buying a home and have been waiting for the perfect time, it looks more and more as if the perfect time is about to pass you by.

It’s all the more reason to get serious, and soon!

David

Appraiser Tom Horn: Birmingham Prices Down, But May Be Recovering

If Sellers sometimes have an unrealistic idea of what a Buyer is willing to pay, Tom Horn brings them back to reality.

Tom is an appraiser in the Birmingham and Shelby Co. area, and owns appraisal-source.com, a company Lenders and homeowners trying to sell on their own rely upon for accurate residential market appraisals.

Colleen and I caught up with Tom and got his analysis of what’s happening with home values in the Shelby Co. and Birmingham areas. We found out pretty quickly that talking with Tom is very interesting!

From everything we learned about home price trends in the area, as well as the negative effects on home sales prices caused by government-mandated changes in the way appraisers are selected, we knew we needed Tom to share his expertise with us.

Thomas Horn, Appraiser

We’ve divided our interview with Tom into two segments. Click the players just below to listen to Parts 1 and 2.

Tom Horn Interview Part 1:

  • Price trends overall from 2006 are down, but may be slowly recovering
  • New homes are competing heavily with owners trying to sell existing homes
  • Foreclosures are now “making” the market
  • Increasingly, Foreclosures are higher end properties
  • What banks are doing that hurts Sellers and the community

  • Tom Horn Interview Part 2:

  • How Sellers can try to keep their home’s value at its highest
  • How the Government’s plan to manage appraisals is causing complications and affecting values
  • How Appraisers are being paid less while Homeowners are being charged more
  • How to sell sooner, rather than later: The value of getting a pre-appraisal
  • …or, if you’d like to listen by downloading to your portable device:

    Click here to download Part 1 (10 Mb).

    Click here to download Part 2 (7 Mb).

    Links to Thomas Horn’s websites:

    Click for Appraisal-source website

    Click for Tom’s Appraisal Blog

    We hope you enjoy … and thanks, Tom, for the great information!

    David Black

    Selling Your Home Without A Crystal Ball

    Ever wished for a crystal ball so you’d know what’s ahead? That might, or might not, be a good thing, depending on what you want to know…!

    On the one hand, having a crystal ball to look into the real estate market could sure help ease concerns for some folks here in the Birmingham and Shelby county areas. Or would it?

    Crystal Ball - Home For Sale Birmingham

    Suppose you’re thinking of selling your home. Would you be more inclined to sell sooner, if, say, the ball suggested values would continue to slide in 2010? What if the ball suggested you’d get more if you wait?

    I don’t think we really need a crystal ball to know that home values will rise. Nearly every expert out there predicts they will, at some point.

    It’s those last three words that are the kicker: At some point.

    Hmm. Does that mean in the next three months? Ten months? Two years? This is where having a crystal ball would be pretty handy.

    However, crystal balls are about as plentiful as bumper stickers in Alabama supporting the Texas Longhorns. People ask us questions frequently that would pretty much need a crystal ball to answer accurately. “What is my home going to be worth in a year?” would be one such question.

    “What will my home sell for if I list it right now?”

    Ahh. There’s a question that doesn’t need a crystal ball as badly to answer. We have good resources we can draw upon to come up with a figure that—more times than not—winds up being very close to actual selling price.

    Birmingham homeThe fact is that if your home ‘shows nicely’ as Agents like to say, and is priced where we know Buyers will bite, your odds of selling are promising. And, yes, that’s true even in the tough market affecting so many neighborhoods in the Birmingham and Shelby Co. areas as we plow into 2010.

    This might sound ridiculously obvious to some, but the ‘shows nicely, priced right’ concept is one we’ve seen trip up a lot of people trying to sell their homes. So, not everyone really understands how important this really is. Or put another way, not everyone really ‘gets it.’

    During 2009, we represented Sellers who agreed to price their homes where we suggested. Granted, they weren’t always thrilled with the price we recommended. But they swallowed hard and said, ‘okay.’ Why? Because they needed to sell. Helping ease this frustration was their knowledge that—when they turned around to buy another home—they’d be enjoying the opposite side of the tough selling market, getting a very good deal on the home they’re buying.

    We also dealt with Sellers in 2009 who disagreed with us. They felt they had a better idea than we did of what their home would would sell for. And guess what happened with their efforts to sell? Nothing. Zilch. Their homes didn’t sell, despite being on the market plenty long enough to sell. I remember several cases where other homes in the same neighborhood as our Clients’ house sold, and in the general price range we had recommended.

    There were some cases where our Client’s home never even got an Offer. We always talk about how important it is to listen to what the market is telling us. Let me assure you of one thing: If a home for sale doesn’t even get an Offer, that’s the market talking. It may even be shouting.

    sold Alabaster homeI know one thing for sure about trying to get a home sold in this market. You either have to ‘get it,’ or you have to trust your Agent’s advice. Otherwise, your home is probably not destined to sell.

    I think the real question that emerges is: How badly do you want, or need, to sell?

    Clearly, there are many situations for folks where—regardless of how the market may be performing at the moment—it’s important to sell sooner, rather than later. Some Sellers who contact us tell us they need to sell as fast as possible, and are waiting for us to tell them what to do to make it so.

    These are the people we feel confident we can help.

    And no, we don’t have a crystal ball to predict the outcome.

    But listening to the market and to your Agent go a long way right now, and will most likely mean you can start packing sooner, rather than later.

    David

    Birmingham Home Sales Picking Up…

    Here are a few news tidbits involving home sales:

    …Sales in the Birmingham area shot up 46% in November, marking the second straight month of increases over the previous year, according to the Birmingham Association of Realtors. In November, 879 homes sold, compared to 603 in November, 2008;

    …November sales of previously occupied homes surged to their highest point nationwide in nearly three years, according to the National Association of Realtors;

    …Lawrence Yun, NAR’s Chief economist, sees continued progress in 2010, even as some of the government’s efforts to stimulate the housing market ease. “We expect a temporary sales drop [before] another surge in the spring when buyers take advantage of the expanded tax credit,” Yun said. That “hopefully will take us into a self-sustaining market in the second half of 2010.”

    …Roughly 2 million homebuyers have taken advantage of the $8,000 First Time Buyer’s Tax Credit, according to NAR estimates;

    …Sales of new homes, however, dropped 11% in November, their lowest level since April (new home sales represent a dwindling share of the market). Bottom line: If you’re looking for a new home, chances are you’ll find builders extremely anxious to work a deal;

    Overall, analysts feel the housing market continues to recover from its recent downturn, with the government’s assistance programs getting much of the credit.

    If you’re thinking of buying a home in the Birmingham and Shelby Co. area, the market remains very much in your favor, thanks to a large selection of homes to choose from, motivated Sellers, and a continuation of some of the lowest ever interest rates on loans.

    Last, but certainly not least, keep in mind that the First Time Buyer’s Tax Credit, originally set to expire November 30, 2009, has been extended to April 30, 2010. The government has also expanded the program to provide incentives for current homeowners who relocate — click here for details.

    David

    First Time Buyer Tax Credit Extended, Expanded

    Congress has taken a step many people were watching for, and has extended the $8,000 tax credit for people buying a home for the first time. But the extension also carries a big change that could affect you if you own a home right now and want to buy again.

    The credit, which was originally set to expire November 30th, now applies to Sales Contracts in place by April 30th, 2010. Homeowners have an additional 60 days beyond then to actually close the sale.

    If you currently own your home and have lived in it for five consecutive years, the extension provides for a $6,500 credit if you buy another property by the new deadline. In the current market where so many homes have lost value, this may help Sellers frustrated over not being able to get an Offer for as much as they’ve wanted.

    Shelby Co. Homes

    So … either way, the extension is intended to make buying a home more enticing to a larger group of people. That’s exactly why Congress passed the bill, in a continuing desire to stimulate the housing market.

    Another point many buyers are not aware of is the fact that you can still qualify for the credit even if you owned a home previously. The government defines a first time buyer as someone who has not owned a home during the previous three years. So, if you owned a home in, say, 2004, but have not owned your residence since then, you would qualify for the first time buyer’s credit.

    The tax credit’s extension and expansion, coupled with such affordable deals and financing on homes in the Birmingham and Shelby Co. area really do suggest that—unless you plan to move again soon—you’re much better off owning, rather than renting, and—if you qualify as an existing owner and have been wanting to move—now’s the time.

    David

    October Birmingham/Shelby Co. Home Sale Stats

    Getting your home sold in Shelby County is taking longer in some communities and less time in others, while prices have dropped, according to October statistics from the Birmingham Multiple Listing System.

    The average number of days on market increased in Alabaster and Chelsea, but fell in Helena, Pelham and Calera:

    Days On Market  JUN-OCT 2009
    Click here to see a larger version of the Average Days On Market graphic

    Prices continued a downward trend in October, and substantially so, compared to September:

    Average Prices  JUN-OCT 2009
    Click here to see a larger version of the Average Sales Price graphic

    How many homes are selling?

    Except for Calera, the number of homes sold in October dropped from September. Chelsea saw the sharpest one month drop, while more homes sold in Calera during October than in September:

    Homes Sold  - JUN-OCT 2009
    Click here to see a larger version of the Number of Homes Sold graphic

    Why the uptick in Calera?

    Perhaps it’s the large inventory of low cost housing (both new and resale), making for some very attractive deals for first time home buyers, along with the fact that Calera qualifies for USDA financing (which means loans with no down payment required).

    I think these statistics are giving us some important messages.

    If you’re planning on buying a home, the market is continuing to work very much in your favor in the Birmingham and Shelby County area. Prices have dropped, inventory is in plentiful supply, and loans continue to be very affordable.

    If you’re trying to sell, the message these numbers present is that it’s going to take a lot more than just putting a For Sale sign in the yard.

    Marketing plays a more critical role than ever, and must be done in innovative ways if your home is to stand out among all the other properties for sale.

    Pricing is no less important and will be a huge deciding factor in how quickly you sell, or if you sell, at all (believe me, we have seen examples of both!).

    You may also benefit from an informed assessment of your property’s appearance and condition. With so many homes for sale right now, if your property doesn’t sparkle, Buyers will simply move on to another.

    These are some very good reasons for trusting the sale of your home to an Agent who’s knowledgeable about the market here in the Shelby Co./Birmingham area and who knows how to achieve success in spite of challenging economic conditions.

    David