Why Your Real Estate Agent's Incentives May Not Be Aligned With Your Incentives

Uncertain whether to accept an offer for the sale of your home or keep your home on the market to get a higher price?

This is often the most difficult question to answer when selling your home. To make matters worse, your real estate agent is incentivized to push you to accept a low offer even if they could get you a higher sale price with a bit more work.

Why is that the case? Well, your real estate agent earns a commission on the sale price of your house (often 2.5% to 6% depending on the location and whether the real estate agent just represents you or represents both you and the buyer).

If you believe the true value of your home is $1,100,000 but you accept an offer for $1,050,000 your real estate agent might earn $26,250 (2.5% of $1,050,000).

In contrast, a real estate agent who has your best interests in mind might offer to work even harder to find a buyer to buy your home for $1,100,000 but by doing so would only earn an additional $1,250 (2.5% of the $50,000 higher purchase price).

Many real estate agents might be tempted to encourage the home seller to instead accept the offer of $1,050,000 because on an hourly basis they would be earning far less working an additional twenty hours to possibly obtain a sale price of $1,100,000 (only $1,250 more) than encourage the home seller to accept the $1,050,000 low ball offer and then moving on to the next client to get another 2.5% commission on the full sale price of a million dollar home.

This is particularly the case given that the real estate agent would not only be spending more time but also likely more  money on advertising to get the optimal sales price of $1,100,000.

And to top things off, there is the risk that even after the additional work and expenditures the real estate agent might not find a buyer that is willing to pay $1,100,000 for the purchase of the home. 

It is, therefore, crucial that you work with a real estate agent who is going to keep your best interests in mind to help you get the best purchase price for your home instead of accepting a low offer.

Do a gut check: Is your real estate agent likely to accept a lower offer so they can move on to the next deal to earn the 2.5% commission on the full purchase price on the sale of another home? Or will they make every effort to help you squeeze out another $10,000 or $20,000 to make sure you get the top price for your home?

As a home seller, you should also take a real estate agent's advise as to whether accept an offer with a grain or two of salt. Is it really a good idea to accept the offer? Or should you work with a different real estate agent who is willing to work twice as hard to make sure you get the top purchase price for your home?

Need help with the sale of your home? Give us a call at (415) 295-6370. We will put in as much time and hard work to make sure you get the highest possible sale price for your home.

9 Pro Tips For Buying A Home

Buying a home is likely the biggest investment you will ever make. Here are eight pro tips to help you get the best deal possible:

1. Don’t Mentally Move In Until The Fat Lady Sings.

If you have already mentally moved in to your home before closing you will lose your ability to objectively determine whether that property is the best fit for you and your family. You may also lose leverage in negotiating fair terms as the seller can tell if you have taken the bait hook, line and sinker. Instead, when you think you may have found your ideal home, stay objective on whether it is indeed the best home for you and your family.

2. Set Aside Money For Expensive Surprises.

When you move in there are likely to be surprises. Some of these will be inexpensive such as light bulbs being out, but other surprises can be more expensive.

Particularly if the seller has disclosed flaws in the home, be prepared to spend money to fix those right away. Chances are if the seller has disclosed a troublesome hot water heater, washer or roof it is not a problem that can wait to year 4 or 5, but instead will need to be fixed sooner rather than later.

3. Set Aside Money For Design Improvements.

You will likely want to make some design changes (“My goodness those drapes are awful!”). You may also need to purchase furniture and other items for your home ("We thought the couch would fit, but it looks like we will need a new one").

4. Set Aside Money To Treat Yourself.

Moving into a home is an exciting, life changing experience. Be sure to set aside money to customize your home to make it a true oasis from your work life. For example, if it is your first time owning a yard, buying a grill and patio furniture. Be smart and set aside a few thousand dollars to pay for design choices that will be hard to delay once you move in.

5. Don't Forget About Closing Costs.

Also set aside a few grand for closing costs for your home. Your mortgage broker can provide you with an estimate of how much to anticipate for these costs.

6. Strategically Select Your Mortgage.

A 30 year fixed mortgage is not a one size all solution. You should work with a savvy mortgage broker to see if a 7 or 15 years mortgage might fit your circumstances best, particularly if you plan on selling the home in a few years.

7. Be Prepared To Provide A Blood Sample To Get A Mortgage.

Getting approved for a home loan can be a tedious process. Just when you think you have provided every last piece of financial information, the mortgage broker is likely to ask you for more. To keep from going crazy, plan for the time it will take to complete the paperwork. It is also helpful to keep in mind how much documentation you would ask for if you were going to loan a large amount of money to a stranger.

8. Strategically Time Your Home Purchase Around Other Life Changes.

If possible, try not to purchase a home when you are going through other major life changes, such as changing jobs or having a child. Getting approved for a mortgage, purchasing a home and moving can be extremely stressful and time consuming. If possible it is best to focus on it when you already do not have other big points of stress occurring in your life.

9. Beware Of Your Own Hubris.

We all hate paying fees, but it is unwise to learn on the fly when you are making the biggest investment of your life. Instead of trying to figure out all of the home buying wrinkles yourself, work with a knowledgeable real esate agent to guide you through the process.

Are you looking for a rockstar real estate broker to help you purchase a home? If so, give us a call at (415) 295-6370.

What Do you Need To Get Approved For A Mortgage?

Requirements vary bank to bank, but many require the following documents to get approved for a mortgage:

1. A pay stub showing the amount of income you have earned so far in the current year.

2. W-2s from the past two years.

3. K-1s from the past two years.

4. The name and phone number of your employer whom the bank will then contact to verify employment.

5. If you already own property, the bank will require you to provide a mortgage statement and property tax information for that property.

6. Bank statements and financial statements for your securities and retirement accounts.

7. A loan application from the bank.

8. If you own your own business you will have to provide your business returns from the prior two years and a profit and loss statement for the current year.

9. A form verifying your social security number.

10. If you are not a U.S. citizen you will have to provide your permanent resident card or your U.S. visa and foreign passport.

11. Finally, you may have to write a letter of explanation for any questions the bank has during its review process. For example, if there has been a recent ping on your credit report you are likely to have to explain the hit.

Getting approved for a home loan can be a very tiresome and grueling process. One of the challenges is you are likely to have to provide the same updated docs again and again as the mortgage company wants the most recent snapshot of your financial status. For example, if you get a pre-approval letter in July and request an updated pre-approval letter in September you will have to provide statements for August and September as the bank will need to confirm that everything is on track from the July pre-approval letter.

That being said, by planning ahead and getting the above documents ready ahead of time you will best position yourself for the easiest pre-approval process possible.

Need help buying or selling a home? Please give us a call at (415) 295-6370.

6 Ways Owning A Home Saves You Money On Taxes

Thinking of buying a home to save some money on taxes? Here are a few reasons why buying your dream home might help you pay less to Uncle Sam.

1. Mortgage Interest Deduction.

Each year you can deduct from your taxable income the amount of money you paid in interest on up to $1 million in mortgage debt. 

In particular, a huge portion of your mortgage payments in the first few years of owning your home will mostly go to interest and only a small portion will go to the principal of the loan.  This deduction alone can add up to thousands of dollars. Your lender should send you IRS Form 1098 which will show how much  interest you paid on your home mortgage in the prior year.

2. Home IMprovements.

In addition to mortgage interest, you may be able to also deduct the interest on a home equity loan or line of credit for improvements to your home.

There are limits on the amount you can deduct if the home equity loan or line of credit is more than $50,000 if you are filing single or $100,000 if you are filing married or jointly. In addition, the amount you can deduct also has a limit if your mortgage is more than the fair market value of your home.

3. Expenses When You Move.

You might be able to write off the expenses you incur moving to your new home if you purchase a house that is at least fifty miles closer to where you work.

4. Taxes On The Appreciation Of Your Home Value.

For most assets, you have to pay capital gains tax if you sell the asset for more than what you paid for it.

For example, if you buy Apple stock and the stock increases in value before you sell it, you might have to pay capital gains tax on those gains.

In contrast, if you buy a home that is your "primary residence" for at least two of the past five years and it increases in value, you might not have to pay capital gains tax on the first $500,000 in gains if you file jointly or $250,000 if you are single. 

5. Mortgage Insurance Premium.

You are likely paying a mortgage insurance premium if you paid less than a 20% down payment on your home. You may be able to deduct this mortgage insurance premium as mortgage interest on Schedule A of your Form 1040 if you and your spouse earn less than $109,00 each year.

6. Property Taxes.

Finally, you may be able to claim an income tax deduction for the property taxes you pay on the assessed value of your home.

As an added bonus, unlike the $1 million limit on the home mortgage interest tax deduction, there is no dollar limit on the amount of real estate taxes that can be deducted.

Your county's acssessor's office should send you a statement showing the amount of property taxes you paid.

Propety taxes taxes can be written off in the year they are paid, not the year they are due. 

What can't you deduct?

Unfortunately, you cannot deduct:

(i) Utilities, such as electricity or water;

(ii) Home and title insurance;

(iii) Homeowner association fees or

(iv) Transfer taxes in a personal home sale.

This article provides some of the most common tax savings for home owners. That being said, because each person's tax scenario is unique you should definitely consult with your CPA to see if these potential tax breaks might benefit you.

Are you looking for a rockstar real estate agent to help you purchase a home? If so, give us a call at (415) 295-6370.

Disclaimer: This article discusses general tax issues, but it does not constitute tax advice.  No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of tax counsel.  BLG Properties expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.