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Community Property with Right of Survivorship

Question: Our house was titled “joint tenant with right of survivorship” after my husband inherited the property in 1998. We were not married at the time. However we legally married in 2013. Will one of us get the step-up in tax basis when the other passes, or do we have to re-title the house some way? We also want to avoid probate. We live in California.

Answer: As you know, California is one of the community property states that allows both halves of a property to get a step-up in tax basis when one spouse dies. This double step-up can be a huge tax saver, since none of the appreciation that happened before the death is taxed. Other community property states include Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In Alaska, spouses can sign an agreement to make specific assets community property.

In other, common law states, only half of the property gets the step-up to a new tax basis when one spouse dies. The other half retains its original tax basis.

Although assets acquired during a marriage are generally considered community property regardless of how they’re titled, in your case the property was acquired before marriage.

The current title of joint tenants with right of survivorship would avoid probate but it would not achieve full step-up in basis when the first spouse dies, said Mark Luscombe, principal analyst for tax research firm Wolters Kluwer.

So you’d be smart to get the property retitled as “community property with right of survivorship,” which allows you to avoid probate and get the double step-up after the first death. California allows this “best of both worlds” option, as do Alaska, Arizona, Idaho, Nevada and Wisconsin, have this option. In other community property states, you’d have to choose between probate avoidance and getting the full step-up.

More here:

https://asklizweston.com/qa-a-look-at-property-title/

If you’re not sure about how you filed, email me and I’ll send you a copy of your grant deed:

klingerealty@gmail.com

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Buyer-Agent’s Commission Exposed

This is nothing. What would be entertaining is if they required the listing agent’s commission to be exposed too.

The Department of Justice today filed a civil lawsuit against the National Association of REALTORS® (NAR) alleging that NAR established and enforced illegal restraints on the ways that REALTORS® compete.

The Antitrust Division simultaneously filed a proposed settlement that requires NAR to repeal and modify its rules to:

  • Provide greater transparency to home buyers about the commissions of brokers representing home buyers (buyer brokers),
  • Cease misrepresenting that buyer broker services are free,
  • Eliminate rules that prohibit filtering multiple listing services (MLS) listings based on the level of buyer broker commissions, and
  • Change its rules and policy which limit access to lockboxes to only NAR-affiliated real estate brokers.

If approved, the settlement will enhance competition in the real estate market, resulting in more choice and better service for consumers.

“Buying a home is one of life’s biggest and most important financial decisions,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. “Home buyers and sellers should be aware of all the broker fees they are paying. Today’s settlement prevents traditional brokers from impeding competition — including by internet-based methods of home buying and selling — by providing greater transparency to consumers about broker fees. This will increase price competition among brokers and lead to better quality of services for American home buyers and sellers.”

According to the complaint, NAR’s anticompetitive rules, policies, and practices include: (i) prohibiting MLSs that are affiliated with NAR from disclosing to prospective buyers the commission that the buyer broker will earn; (ii) allowing buyer brokers to misrepresent to buyers that a buyer broker’s services are free; (iii) enabling buyer brokers to filter MLS listings based on the level of buyer broker commissions offered; and (iv) limiting access to the lockboxes that provide licensed brokers with access to homes for sale to brokers who work for a NAR-affiliated MLS. These NAR rules, policies, practices have been widely adopted by NAR-affiliated MLSs resulting in decreased competition among real estate brokers.

NAR is a trade association of more than 1.4 million-member REALTORS® who are engaged in residential real estate brokerages across the United States. NAR has over 1,400 local associations (called “Member Boards”) organized as MLSs through which REALTORS® share information about homes for sale in their communities. Among other activities, NAR establishes and enforces rules, policies, and practices that are adopted by the Member Boards and their affiliated MLSs.

https://www.justice.gov/opa/pr/justice-department-files-antitrust-case-and-simultaneous-settlement-requiring-national

Agent Referral Networks

Have you been seeing more of this guy lately?

He wants to hook you up with the top agents in your area – AND only charge you a 2% commission.

They keep the 2% circle at the bottom of the advertisement for the entire 30 seconds to engrain in your head that they have some magic network of top agents who will work for the discount rate.

Don’t believe it.

The agreement they have with agents is that you will be presented with a 2% option, which is the typical For-Sale-By-Owner plan – if you find your own buyer, then the agent will handle your paperwork for 2%. At that point, you’ll probably wonder about the more traditional plans where your listing agent handles the whole process. The next thing you know, you’ll be signing the listing agreement at 6%.

Why will these listing agents insist on the more-expensive plan?

It’s because they have to pay a finder’s fee to the advertiser.

Whenever a corporate third-party is referring you to an agent, there is a fee paid by the agent – and it’s hefty. Whether it is a TV-advertiser, an internet pitch, or relocation company provided by your employer, they all take a big cut out of your agent’s commission – usually 25% to 30%.

The great listing agents – the ones you hope will sell your house for the most money – will pass along this finder’s fee to you. It means you’ll be presented with 6% or 7% options, and/or a commission that drastically discounts the buyer-agent’s side of the commission.

The agent-referral industry relies on the bait-and-switch.

If this guy said that he had the top agents in your area that charge 6%, would he get any calls?  No.

No More Love Letters

The time-honored tradition of buyers hoping to sway sellers with a personal introductory letter came to an abrupt halt this month with the new FHDA form (see snip above).

Not only has it been customary to submit a letter of introduction with your offer, but if you don’t, the listing agent usually asks about the buyers. I had one last week say, “Tell me their story” which probably wasn’t meant to gather information to use against them, but who knows?

Paragraph 8A mentions ‘actual or unconscious bias’.  Agents who are stuck in their ways may not realize how this information is being digested.

It’s not just for agents either. Paragraph 7 specifically includes sellers and landlords too.

Nobody reads these forms so the practice will probably continue for a while, which means that those who DON’T include a love letter could be hurting their chances if other agents keep doing it.

(hat tip Annabama)

‘Swamp the Boat’ Offer

Here’s how I handle a hot one when I’m the listing agent.

My listing of 7206 Durango in Carlsbad was appropriately priced at $999,000, given what we were selling and the homeowners’ desire to move sooner, not later. What do I mean when I say ‘appropriately priced”?

Sure, it was 2,699sf but it wasn’t a standard tract house.

We had twelve showings in two days, and for those who had been used to seeing other similar-sized homes nearby in Aviara and La Costa Valley and expected the same….well, you could tell by the look on their face – even with a mask on!  They were stunned, and had trouble comprehending what they just saw.

It was because the house was a funky combination of a 1970s-built 1,517sf house with a pseudo-granny flat added on.

The challenges:

  • The original house was in decent shape, but not a full remodel like the last two comps.
  • The granny flat was one bedroom/one bath, and both were upstairs.
  • The granny flat had an unpermitted kitchen.
  • The granny flat was too big to be permitted as an ADU today.
  • The backyard was 15-20ft of concrete, then a slope that went up about 40 feet.

I knew from the beginning that the buyer pool for this combo was going to be much smaller than it was for the last two comps that both closed for $1,115,000.  They were both fully-remodeled one-story homes on culdesacs, and we were the opposite.

One of the showings on Day Two was a single guy who came with his mom and an older-guy agent.  The agent had only been licensed for four years (his license number on his card was over 2000000), and because they had sincere interest, he asked me what would it take to buy the property.

This is where I differ greatly from virtually all other agents.

Most agents will make some vague reference to how hot the property has been based on the number of showings, and tell you to do your best. If you ask about their rules of engagement, it gets more vague because they usually don’t have a strategy, other than spreading out all the offers on the dining-room table and telling the seller to pick one.

I gave the buyer, his mom, and his agent a couple of ideas. I told them that I had received an offer of $1,000,000 on the first day, and two other parties told me they would be writing offers too.

Then I described his two choices:

Idea #1: Either you can write an initial offer around list price or higher, and I will conduct a highest-and-best round.  You can probably expect that there will be at least one buyer who will pay 5% over list, so it you offer that much or a little more, you might win.

Idea #2:  You can swamp the boat. Make an offer so outrageously high that no one else will touch it.

An hour later, I received his offer for $1,125,000, with no appraisal! On a $999,000 list price!

I shopped the price around with the other three contenders, but nobody wanted a piece of that.

It was a fair and transparent process where everyone had a chance to buy the property.  It’s what is best for the sellers, plus none of the buyers thought they were robbed – they had a fair chance to buy it.

Being A Realtor in 2020

Here’s what it will take to be a successful realtor from now on – hat tip WSJ!

“It’s an attention game. It’s not who has the better postcards, it’s about who can attract the most eyeballs,” Mr. Serhant said. “I can walk into an appointment with a seller and say ‘there are 30,000 active real-estate agents in the city, there’s hundreds and thousands of us all over the world, but I have a level of exposure you can’t buy.’ ”

Mr. Serhant has decided that it’s time to cash in on his name recognition. After more than a decade at the brokerage Nest Seekers International, he is starting his own company, which will be known as “Serhant.” The new firm will have its own film studio, digital-marketing lab and a tech team dedicated to tracking the reach of the brand and its content across the web. Mr. Serhant said he decided to launch his company now because he believes “the traditional real-estate brokerage model is broken.”

“The brokerage company, open houses, and pretty photos don’t sell homes today the way they did 10 and 20 years ago,” he said. “Buyers of high-end real estate, and their children, go to YouTube and social media on their phones to research homes and agents now. I was already doing things differently from everyone else and it has been working incredibly well so I thought why not do it differently and build a firm from the ground up?”

Eddie Shapiro, Nest Seekers International founder and chief executive, noted that Mr. Serhant is not cutting ties with the company entirely. He will close out the business he signed at Nest Seekers, including his listings and new developments. Mr. Shapiro said that the company’s agents are now involved with a new reality real-estate show on Netflix called “Million Dollar Beach House.”

Mr. Serhant’s new business will crank out social-media content and multiple, dedicated short-form series for its YouTube channel, “Listed by Serhant,” based around his agents and listings. One series, provisionally called “3 in a Million,” will invite regular people into three listings and ask them to guess the price. Another, called “Meals in Mansions,” will be hosted by an agent at the firm who enjoys cooking and who will make meals in the kitchens of the firm’s high-end home listings.

Mr. Serhant, whose YouTube channel has one million subscribers, already produces his own YouTube videos weekly, putting together a mix of listing reveals, personal day-in-the-life style vlogs that showcase his family and personal life and business advice tutorials with titles like “How to OVERCOME self-doubt” and “How to SUCCEED in a VOLATILE market.” While these videos don’t directly sell his listings, Mr. Serhant said, they help him build a global following, which, in turn, gives his listings better exposure.

These tactics aren’t for everyone and some competitors snipe that Mr. Serhant is more interested in being famous himself than dedicating his time to his clients. Others said these stunts are more likely to attract voyeurs than actually result in deals, since ultrahigh-net-worth buyers aren’t likely to be shopping for multimillion-dollar properties on Instagram.

But Mr. Serhant argues that the numbers prove out his concept: His team at Nest Seekers did $1.4 billion in closed and in-contract sales last year, mostly in New York and in the Hamptons, making him one of the most successful agents in the country. He estimates that since he started in the business, he and his team have sold over $4 billion in property. Last year, they sold a $40 million house in Bridgehampton to a prominent executive who reached out to Mr. Serhant after finding him on YouTube, he said.

“If a listing video gets 10,000 views or a million views, that’s a big difference,” he said. “I tell clients, ‘I work incredibly hard to grow my brand for your benefit so I can put your listing in front of more eyeballs than anyone else in the business.’ ”

Mr. Serhant said many of his wealthy clients have secret accounts on Instagram that aren’t registered in their real names. One former client, so privacy-obsessed that his chauffeur-driven car had blacked-out windows, had an Instagram account and mentioned several of the properties he’d seen on Mr. Serhant’s account.

“Instagram isn’t a joke now,” Mr. Serhant said. “People will go to your Instagram to see who you are as a person before they pick up the phone. You don’t need a business card, you need a powerful social-media profile.”

(more…)

Realtor 101

An occasional commission might fall in your lap, but for the most part, you are going to have to earn every penny you make in real estate sales.  Let’s note what the job is, and how to get good at it.

Your job is to advise people about buying and selling real estate.

To advise people properly, you want to know more about the subject than they do. Preview homes every day, and learn something about them.  Remember the important details of each home that affect the value and be able to recite them later as part of your advice.

Be a master of the MLS – it is our tool that assists us in doing our job.  Know how to use it and other internet tools to help you be more efficient.

The contract is the bible – know it well. Your clients don’t read it, so know what they are getting into.

Work on your craft – particularly on your sales skills.

There are plenty of educational courses, seminars, and different levels of coaching available. But none of it compares to what you learn on the street.  You learn the most by doing!

Ideally you want to work with someone who is mentoring you in action. Every big franchise company has some sort of introductory crash course on sales, and then a weekly training class – but after that, it’s a long road to learn the trade. If you can hire on with a realtor who is active in the business and can show you the ropes, it will expedite your learning process!

Getting Into Real Estate Sales

Generally speaking, the realtor community is a nice bunch of folks who welcome newcomers into the business and offer encouragement…….while muttering under our breath, ‘They have no idea what they are getting themselves into’.

New agents bounce around like a pinball for a year or so, while the business is happening to them.  The more hours invested, the quicker the education, and the potential is truly unlimited.  It’s why agents stick it out as long as they can, in hopes of success being right around the corner. But seven out of eight don’t make it.

Last week we talked about getting your license first.

Next, recognize the hard truths about the business so you can position yourself accordingly:

The majority of your sales will involve another realtor you don’t know, and most of them won’t share your selling skills or desire to succeed. You want/need to be a chameleon and meet them on their level – and you will learn something every time.

You want to spend money on your business. Keep an eye out for the best options.

Get comfortable with failure – it happens a lot.  You’ll learn to live with losing fair-and-square, but there will be multiple times that the human condition will disappoint you. The majority of the time it’s inadvertent; where agents get in such a rush to sell something they forget about everyone else, including you and their seller.

Listings are the name of the game. If you want to minimize the negative impact of the things above, then concentrate on getting listings and everything else will take care of themselves.

Getting Started in Real Estate

I’m going to help a few people get started in the business, and hopefully make a career of selling real estate.  I figure I should just publish my guide right here on the blog, and Fridays are a good day to do it!

Let’s explore what it takes to become a realtor in 2020!

Where to get your license: First Tuesday

It’s so easy to get a real estate licensee, demonstrate your commitment to yourself and get one.

Online training courses give you the basics and prepare you for your state test, which is 150 multiple-choice questions – get 70% of the answers correct and you pass! You can’t sell real estate without one, so if you’re in it, to win it, get a license so you can get paid right away!

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There are two sides of the business; sales and transaction coordinating.

If you are a great people-person, then being in sales is for you.  It’s called a ‘salesperson’s license’, but so far all you’ve done is pass a test.  Getting out and speaking with people regularly about buying and selling homes is the job.

If you’re not a people-person, or want to work your way into the sales business, you can take a more clerical job in transaction coordinating. Once the salespeople have brought a buyer and seller together and completed a written purchase agreement, then we have staff assist with making sure all the necessary details get done to close the sale.  This job pays around $30,000 – $50,000 per year if you don’t mind working a few 12-hour shifts along the way. There is a limited future unless you can create your own company.

Oh, you want to be in sales? What’s the difference?

You don’t get paid anything along the way. You’re paid on commission. You need to sell, to get paid.

It’s not that comfortable for the first twenty years, but you’ll get used to it.

What’s realistic?

You probably won”t make much money during your first year, so have sufficient financial backing that you don’t have to sweat it.

Expect to spend money on your business.  You are an entrepreneur – a business owner – and it takes money to make money. But if you are a socialite who can generate leads from the yacht club then more power to you. We will help you pursue leads. Compass is touting our new AI engineering, and it promises to help.

You need someone to teach you the ropes. You need a mentor.

The big brokerages offer a mentor program with classroom training and a manager.  It’s the basics, and better than nothing.  But ideally you want on-the-job training where you are learning while doing.

In summary: Get a license, have some money in the bank, and find the best mentor you can.

More next week!

Home Prices to Decline?

One of the more-accurate forecasters is predicting that home prices will start dropping:

Strong home purchase demand in the first quarter of 2020, coupled with tightening supply, has helped prop up home prices through the coronavirus (COVID-19) crisis. However, the anticipated impacts of the recession are beginning to appear across the housing market. Despite new contract signings rising year over year in May, home price growth is expected to stall in June and remain that way throughout the summer. CoreLogic HPI Forecast predicts a month-over-month price decrease of 0.1% in June and a year-over-year decline of 6.6% by May 2021.

Unlike the Great Recession, the current economic downturn is not driven by the housing market, which continues to post gains in many parts of the country. While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. This prediction is exacerbated by the recent spike in COVID-19 cases across the country.

https://www.corelogic.com/insights-download/home-price-index.aspx

Expecting prices to fall that quickly is flawed, however.

They are ignoring that for home prices to go down, we would need a load – probably a majority – of sellers who are willing to sell for less than the last guy got.  In addition, it would take realtors who recognize what’s needed, and be able to properly advise their sellers on lower pricing.

It ain’t going to happen.

Listing agents only have one pitch – to berate the buyer agents into paying the seller’s price.  If we ever get to the point where buyers object to the constantly-rising prices, and/or we run out of buyers altogether, then there will be a long stall before sellers and agents re-calibrate.

Recognizing that a shift in pricing is needed will be hampered by all the usual excuses.

The seller retorts of “I’m In No Rush”, “I Don’t Need to Sell”, and the classic, “I’m Not Going to Give It Away”, will be doused with coronavirus blame before any sellers – even the desperate ones – would consider selling for less than what they think they deserve.

Sales will slow first, so keep an eye on them – but it would take 1-2 years of stallout before sellers and agents start believing that they might not get their price.

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