Become A Victim Of Inflation Or Benefit From It

Inflation is here. How you react and what you do will make a difference in how it affects you!

In inflationary times like these, currently, the highest in 40 years, the purchasing power of your money diminishes each day; essentially, buying you less.  The biggest threat is to be without capital assets, like a home, that is benefiting from the increase in prices. 

Your money buys less gasoline now, than it did a year ago, by close to 50%. Beef prices are up about 20% since last year.  Used cars are about 35% more expensive than they were a year ago. Mortgage rates are near 5% after reaching their lowest of 2.65% in January 2021.

And then, there is the price of houses.  CoreLogic reports that home prices increased year over year by 20% in February 2022.  Their Home Price Index indicates an annual five percent increase in prices from 2014 to 2021.

For many people, the American dream of owning a home is slipping away.  Adjusting your expectations for the perfect home and when you expect to achieve it, can be a legitimate, long-term strategy for making the dream come true.  Delaying the gratification of getting everything you want in a home now and making compromises that would allow you to stair-step your way into the “forever home” could be the plan to incrementally reach your goal.

Owning a home in today’s market, even if it isn’t the ultimate home, provides a significant hedge against inflation.  Not only is the home appreciating faster than the rate of inflation, but the mortgage on the home also produces leverage that increases a homeowner’s return on their equity.

Homeowners have both the home’s appreciation and its amortization working in tandem to increase their equity.  Money in a bank account or the stock market can’t compare to the potential.

$40,000 invested in a certificate of deposit earning 1% would be worth $42,040 in five years.  If the same amount was invested in the stock market that earned 6% annually, it would be worth $53,529.  However, if the $40,000 were invested in a $400,000 home, with a mortgage at 5% for 30 years, that appreciated at 5% annually, the equity would be close to $180,000 at the end of the same five-year period.

Connect with me and let’s put together a plan to help you benefit from inflation.

McKee Smith, REALTOR®, has been selling and buying homes in Dallas and Fort Worth for many years. He knows and understands the intricacies of the DFW housing market. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

When Are Negotiations Over?

Experienced agents know negotiations continue through inspections, repairs, financing, contingencies and much more!

The primary negotiation in a home purchase takes place when the contract is agreed upon which includes the price, closing and possession.   With inventory down over 19% in the past year and multiple offers being more of the norm than the exception, the first round of negotiations can be challenging.

Buyers and sellers alike feel relieved once it has resulted in an agreement, but experienced agents know there is more to come if there are contingencies for financing, inspections, or other things.  The competition for the home may be so tough that the buyer waived their rights for what would be normal contingencies.

Financing is one of the most common contingencies in normal situations but when multiple offers are involved, the cash offers tend to have the advantage.  If you don’t have the resources to make a cash offer, the next best position is to be pre-approved with a commitment letter from the lender.  Arrange for the lender to confirm the pre-approval directly with the listing agent prior to the listing agent presenting the offer.

There have been buyers who know they don’t have the cash to close and apply for a mortgage anyway and try to reinsert the provision outside of the contract.  Experienced listing agents will advise the seller to have the buyer provide proof of funds necessary to close and verify that they do indeed exist.

The purpose of an inspection is for the buyer to receive an objective evaluation of the condition of the home and its components to identify existing defects and potential problems.  The expense for inspections can be several hundred dollars and it’s reasonable for buyers not to want to spend the money before they find out if they can come to terms with the seller.  From a different perspective, sellers want to know quickly if the buyer is going to reject the home due to the inspections because they could be losing time.   For that reason, inspection time frames are limited to a few days from acceptance of the offer.

Sometimes, buyers will expect sellers to make all the repairs listed on the report and this is where the second round of negotiations begins. If the seller refuses, the negotiations can go back and forth until the other party accepts the offer on the table.

When purchasing a new home from a builder, it is expected for everything to be in working order; after all, it is new.  However, it is reasonable to expect that existing homes, that are not new, have a different standard.  While it’s understandable that buyers would want to be aware of major items that are not in “working order”, normal wear and tear of components based on their age should be expected.

In a highly competitive seller’s market, buyers might do whatever they can to get their contract accepted, realizing that there is another place to negotiate when they’re not competing with other buyers’ offers to purchase.

The negotiations involved in a home purchase are not complete until the buyer and seller have signed the papers and the title has passed to the buyer.  Up until the closing is finished, any item that comes up could prolong the negotiations.

For this to be a WIN-WIN situation, both seller and buyer must feel good about the negotiations that led to the transaction closing.  Neither party should feel that the other party had an unfair advantage over them.

McKee Smith, REALTOR®, has years of experience in the DFW area housing market. He knows the many unique features of Dallas and Fort Worth area home sales. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

Skills Market

The skilled and experienced negotiator understands that every transaction is different because of dealing with individuals, their families, their needs, and their emotions. 

In today’s ultra-competitive real estate market where there is only 1.7 months supply of inventory compared to 6 months in a balanced market, and the average home is getting 4.8 offers per sale, it is more important than ever to have the right person “champion” your cause.

In the Middle Ages, it became customary for a person of nobility to appoint a “champion” to fight for them in their stead.  Trial by combat ended in the 15th to 16th centuries but the practice of “fighting” or speaking on one’s behalf continues even to this day.

Lawyers will take up the cause of their clients to win justice for them.  Professional athletes are recruited for their abilities to help their team become victorious.  Craftsmen of every type imaginable are in high demand because of their finished products.

Sellers’ and buyers’ objectives are different and, in many cases opposing in nature.  Sellers, rightfully so, believe they should get the most for their home while minimizing expenses and avoiding any issues that could cause delays.  Buyers want to be treated fairly; have an opportunity to buy the home of their choice and enjoy the protections of normal contingencies for things like mortgage approval and inspections.

In most situations, there are two real estate agents involved in a single sale. While there could be legal agency distinctions, it is commonly felt that the agent on their side of the transaction is “championing” their cause.  It is natural to want your champion to be the most capable person available.

There are skills that agents need in today’s market not the least of which is negotiations.  Regardless of which side of the fence you’re on, your agent needs to be skilled in negotiating on your behalf.  Every part of the contract is a negotiation starting with the price, then, whether it is cash or subject to a mortgage.  What’s a reasonable amount of earnest money?  Can it be “as is” and still allow the buyer inspections so they’ll be fully aware of what they’re buying?

The buyer wants to negotiate the best terms possible with the seller and they are depending on their agent to work for them to get them.  The home inspector has been hired by the buyer to determine the condition of the home and will most likely, ask the seller to make any necessary repairs.

The lender hires an appraiser to determine the value of the home so that the loan will be secured by the property.  Recent sales are used as comparables, but they trail the market which becomes a challenge in rapidly appreciating markets, especially, when there are multiple offers. 

And since multiple offers are the norm currently, what is the best way to handle them based on the seller’s or buyer’s perspective.  There could be legal and ethical procedures that must be followed but an agent’s experience may also contribute to a favorable outcome.

The skilled and experienced negotiator understands that every transaction is different because of dealing with individuals, their families, their needs, and their emotions.  The role of the third-party negotiator can be invaluable to the success of the transaction based on not only their experience but the juxtaposition to the principals and their objectivity of trying to reach a compromise.

McKee Smith, REALTOR®, has years of experience in the DFW area housing market. He knows the many unique features of Dallas and Fort Worth area home sales. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

Equity Gives Homeowners Options

You can estimate what your equity would be in the old home versus selling it and buying a larger home over the same period.

Americans have seen the equity in their homes increase by 29.3% year over year in the fourth quarter of 2021 according to the CoreLogic Homeowner Equity Insights.  The average home equity gained $55,000 during the same period.

CoreLogic’s Home Price Index reported a 19.1% increase in appreciation for the previous twelve months ending in January 2022.  This increase in value is fueling the increased equity that homeowners are experiencing.

Some homeowners are doing cash-out refinancing and using the funds for a variety of purposes like home improvements, investing, saving for retirement, college or rainy-day funds.

Other homeowners are seeing the increased value of their homes as an opportunity to move up to a home that meets more of their current lifestyle.  In some cases, adult children have moved back home, and in others, working remotely has made their current home not as ideal as it once was.

Homeowners now realize that their home has been quite the investment and are willing to re-invest in a larger home that meets their current needs.  With their increased equities and mortgage rates still under 4.00%, they can get into a home for a relatively small increase and the higher value home will continue to increase.

One way to justify moving to a larger home is to estimate what your equity would be in the old home in a specified number of years from now compared to selling it and buying a larger home to see what the equity would grow to in the same period.

A $400,000 home appreciating at 4% annually would be worth $526,000 in seven years compared to a $600,000 home appreciating at the same rate that would be worth $789,000 in the same time frame.  This doesn’t tell the whole story because the mortgage amounts are different.

The comparison in the table below doesn’t show the higher payment on the larger home but can be explained by the benefits of enjoyment and practicality of having a larger home to live in during the comparison period.

Hold or Sell & Buy Analysis

Hold Current Home
Current Value $      400,000
Value in 7 years at 4% appreciation $      526,373
Unpaid Balance … Original mortgage $225,000 @ 3.5% for 30 years $      191,350
Wealth Position $      377,998
Sell Current Home & Buy Another Home
Equity from Sale after 7.5% sales costs $      178,650
Purchase Price of New Home $      600,000
Value of New Home in 7 years $      789,559
Unpaid Balance – 75%Mortgage @ 4% for 30-years EOY 7 $      387,268
Wealth Position $      424,863
Difference in Positions $        46,864
Percentage Increase12.40%

To make your own analysis, use the Hold or Sell & Buy financial app on my website. Contact me to find out what your home is worth or to help you with any questions you may have.

McKee Smith, REALTOR®, has been selling and buying homes in Dallas and Fort Worth for many years. He knows and understands the intricacies of the DFW housing market. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

The Dynamics of Home Equity

Having equity in a home gives the homeowner a lot of flexibility!

Appreciation and amortization are key factors in building equity for homeowners with mortgages.  As the home goes up in value due to appreciation and the unpaid balance goes down due to amortization, the equity increases.

Appreciation is the increase in value of a home and is usually measured year over year.  In recent years, appreciation has been robust (19% nationwide in 2021) due to high demand and low inventory.  Many times, the news will quote annual appreciation rates from a national or regional level.

Occasionally, you may see a chart that tracks the annual appreciation over a period, but it is more interesting than it is practical.  It can be used to determine an average rate over a longer period that you can use to project future growth.

The reality is that supply and demand determine appreciation along with location and condition.  To reflect more accurately what your individual home has appreciated, you’ll need to find local numbers which your real estate professional can provide.

The amortization of a loan is consistent with regular monthly payments based on the term of the mortgage.  Homeowners frequently receive a monthly statement, either through the mail or online, from their lender declaring the current unpaid balance.

If a homeowner makes additional principal contributions toward the loan, the unpaid balance will accelerate the normal amortization schedule.  Additional principal payments on fixed-rate mortgages shorten the term of the mortgage.  Additional principal payments on adjustable-rate mortgages will lower the payment on the next anniversary date.

Equity in a home is the difference between the value of the property and what is owed on in.  If there is no mortgage on a property, the equity and value of the home are the same.

To illustrate how equity is influenced by appreciation and amortization, let’s look at an example of a $400,000 purchased today that appreciates at 3% a year using a 90% mortgage at 4% for 30 years.  The $40,000 would grow in seven years to $182,135 in equity with $91,950 coming from appreciation and $50,186 from amortization.

If the appreciation in the same hypothetical example is increased to 5% annually, the equity would be $253,026 with $162,840 coming from appreciation and the same $50,186 from amortization.  The same loan amount, rate and term will result in the same unpaid balance as the example with lower appreciation.

With the considerable appreciation experienced in recent years, the values are going up fast and benefit the people who currently own a home while making it more expensive for would-be buyers.  Another factor facing buyers is rising interest rates.

It is important to get the facts about the market and your individual situation to determine what alternatives you have to purchase a home in the near future.  Your agent can provide this objectivity and recommend a trusted mortgage professional to be pre-approved.

For more information, download my Buyers Guide.

McKee Smith, REALTOR®, has years of experience in the DFW area housing market. He knows the many unique features of Dallas and Fort Worth area home sales. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

June is National Homeownership Month!

June is National Homeowership Month

Get the facts on what price home you qualify for and what mortgage interest rate is available.

June is National Homeownership month encouraging people to enjoy the social, security and financial benefits.  According to the Joint Center for Housing Studies at Harvard University, the following reasons were given for Americans buying a home.

  • Good place to raise children and provide them with a good education
  • Physical structure where you and your family feel safe
  • More space for your family
  • Control over what you do with your living space, like renovations and updates
  • Good way to build up wealth that can be passed along to my family

There are significant financial benefits to homeownership that include:

  • The net worth of homeowners is over 40 times more than renters
  • Each payment on an amortized loan reduces the principal and builds equity
  • Appreciation increases the value of the home and the owner’s equity
  • Some homeowners will benefit by taking itemized deductions including interest and property taxes
  • Exclusion of capital gain … up to $250,000 for single taxpayers and $500,000 for married filing jointly
  • Stepped-up basis for heirs which results in reducing or eliminating gain

For more information, download the Homeowners Tax Guide and the Buyers Guide.

McKee Smith, REALTOR®, is an experienced real estate agent that specializes in the Dallas and Fort Worth market. He understands the intricacies of the DFW housing market. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

Coordinating the Sale and Purchase of Your Home

It is very important to depend on the experience of McKee Smith to guide you through the best solution for your situation.

Usually, it is easier to buy a home than to sell a home but that isn’t necessarily the case currently. In today’s market, it can be scary to sell your home before buying another because you could find yourself without a home.

Most sellers will not accept a contingency on the sale of a buyer’s home in today’s market.  So, let’s look at some of the alternatives that homeowners are using to facilitate the transactions. 

If you have the income, credit, and cash available, the replacement home can be purchased with a new 80-90% loan-to-value mortgage and sell the existing home after you have moved into the new home.  This would require making two payments for a while but probably gives the seller the least amount of pressure to find the replacement property before the existing one is put on the market.

If the mortgage on the new home has the option to recast the payment, additional down from the equity in the previous home after it sells would lower the payments without causing any additional expense to refinance.

Another alternative may be available if your home has enough equity to borrow against it in a Home Equity Line of Credit or a bridge loan.   This type of loan is generally made by banks who will loan qualified owners up to 80% of the appraised value less the current mortgages on the property.  Freeing up the equity in your existing home will give you a down payment for purchasing the new home before you sell the previous one.

If a seller has assets in qualified retirement programs, it is possible to do temporary loans against them to facilitate the interim purchase.  There can be penalties on some of these if they are not repaid in a timely manner.  It would be good to investigate with your tax professional to see if this is a viable option.

Hard money lenders provide a source that will be more common to investors than homeowners.  These types of loans are generally approved and funded quickly, have less requirements than bank loans and provide funding for projects that cannot be financed elsewhere.  Interest rates are higher than bank loans, are written for short terms (1-2 years), and usually require 25-30% down payment or equity.

Power Buyers and iBuyers offer to purchase your home for cash and provide a quick closing.  Deeper investigation into these options may reveal that you will not receive the full equity of your home because they have to discount the home to cover the expenses they will incur as a seller.    

In today’s very complicated market, the value of a real estate professional representing your best interests, providing you advice, options and experience has never been greater.  While there are similarities in transactions, each one is unique, and you certainly need a professional to be guiding you through the process.

Agents are trained and experienced in coordinating the purchase and sale of homes.  This can be especially beneficial in navigating unfamiliar waters.

McKee Smith, REALTOR®, is an experienced real estate agent that specializes in the Dallas and Fort Worth market. He understands the intricacies of the DFW housing market. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

Will Selling Your Home Increase Your Tax Bill?

Consistently keeping a record of expenditures on your home can help lower possible capital gains tax that you might owe.

With home prices rising 20% nationwide in the past year and in some markets, even dramatically more, many homeowners are excited about the equity in their homes.  In the past, most homeowners were not concerned about profit from the sale being taxed but some may be surprised.

The profit homeowners make on the sale of their homes have enjoyed a generous exclusion.  Since 1997, for qualified sales, single taxpayers exclude up to $250,000 of capital gain and married taxpayers filing jointly, can exclude up to $500,000 of gain.

Prior to the Taxpayer Relief Act of 1997, homeowners over the age of 55 were only allowed a once in a lifetime exclusion of $125,000.  The new rule greatly increased the amount of excluded profit to the extent that most homeowners did not think about paying tax on the profit from their principal residences.

Section 121, commonly called the Home Sale Tax Exclusion, requires that you owned and used the property as your principal residence for two out of the previous five years.  This allows for a temporary rental of the property and still be able to qualify for the exemption. It can be claimed only once every two years.

The cost basis is determined by Purchase Price plus certain closing costs at acquisition plus capital improvements made to the home during ownership.  Sales price, less selling expenses, is considered net sales price from which the cost basis is subtracted to arrive at capital gains on the sale.

If the capital gain is less than the applicable exclusion, no tax is owed.  When the gain exceeds the exclusion amount, the overage is taxed at long-term capital gains rate which could be 0%, 15%, or 20% depending on the taxpayer’s taxable income.

Capital improvements made to a home increase the cost basis and effectively, lower the gain in the sale.  It is important for homeowners to keep records of the money they spend during the time they own the home.

Some improvements are apparent like a swimming pool, new fence, or roof but some are not so obvious.  Replacing a faucet or a light fixture can be a capital improvement and even though the cost is small, lots of these items over the lifetime of owning the home add up.

The three rules for identifying capital improvements listed in IRS publication 523 are: 1) does it materially add value to the property? 2) does it extend the useful life of the property?  3) does it adapt a portion of the home to a new use?

While taxpayers are allowed to reconstruct a register of the improvements made during the time they owned their home, some things will undoubtedly, be overlooked.  It is much better to have a written record of all money spent on the home in a contemporaneous manner and keep receipts for items over $75.

It is better to have the record of all items available when you are ready to make the capital gain determination.  You’ll save time and probably pay less taxes having the list readily available whether you do your taxes or have a professional do them.

For more information, download the Homeowners Tax Guide

McKee Smith, REALTOR®, has been selling and buying homes in Dallas and Fort Worth for many years. He knows and understands the intricacies of the DFW housing market. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!

Seven questions to ask before you chose a real estate agent

7 questions

A successful sale of your home has to do with maximizing the sales price while minimizing the sales expenses and the time on the market.

The concern today when putting your home on the market should not be whether you’ll get a contract; it’s whether you are going to recognize the majority of your net proceeds without any unnecessary delays.

What you realize from the sale of your home has to do with maximizing the sales price while minimizing the sales expenses.  Interestingly, the buyers will be trying to minimize the price they have to pay for your home and possibly, have you pay some of their expenses.

Taking a few pictures with a cell phone and putting a sign in the yard may be enough to get a buyer but successfully selling a home in today’s market requires expert marketing and expert negotiations. 

Marketing begins with the preparation of the property to optimize the first impressions it makes to potential buyers.  A skilled professional can make recommendations that can help the home sell for the most money and in the shortest amount of time.  Cleaning, painting, depersonalizing, removing unnecessary items and possibly staging are a few of the recommendations you might receive.

93% of buyers rely on the Internet to search for properties and information and is something they engage in even before they find an agent.  Positioning the home so it only can be found effectively in the search is making it appeal favorably and requires careful consideration.

Professional-level photography will make the property look appealing.  Experience knowing the right angles, the proper lighting, and having the right lens are only a few of the things that can make a property stand out from the competition.

Negotiations play a huge part in the sale of any home.  There will be negotiations during the offer/contract stage with the buyer and the other agent.  After that, there may be negotiations regarding inspections, repairs, the appraisal, or anything that might threaten the ultimate closing.

The following are seven questions that you can ask when interviewing an agent to market your home.  The answers should help you evaluate and select an agent who can represent you and your interests.

  1. Do you use a professional photographer?
  2. Have you sold homes in this area recently?
  3. Explain your timetable for preparation, “going live” and market exposure.
  4. Describe your efforts during the negotiation process.
  5. Do you have a pricing analysis, showing actives and solds, for my neighborhood?
  6. Which properties will be our strongest competition?
  7. How do you get the most exposure to get competing offers?

On the surface, it may appear that all agents are the same.  They are all be licensed to sell real estate and can put your home in the MLS for other agents to find.  Experience and skillsets can vary widely among agents and the questions provided in this article can help you determine who the best job for you in today’s environment and the market in which your home is located.

McKee Smith, REALTOR®, is an experienced real estate agent that specializes in the Dallas and Fort Worth market. He understands the intricacies of the DFW housing market. He works out of his home in Coppell, Texas. He is a Senior Real Estate Specialist® (SRES®) and new home construction buyer representation certified.  Remember – McKee has the keys to selling your home!