New Tax Plan "Bad News for Homeowners and House Prices"

The U.S. Senate passed tax reform legislation over the weekend that the National Association of Realtors® (NAR) believes puts home values at risk and dramatically undercuts the incentive to own a home.

NAR President Elizabeth Mendenhall offered strong concerns over the bill and said Realtors will continue to work with members of the House and Senate as the process moves forward into a conference committee to reconcile differences between the two versions of the bills.

"The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country," says Mendenhall. "When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas."

Speaking for NAR, Mendenhall says that Realtors favor tax cuts done "in a fiscally responsible way," and that current efforts in Congress produce some winners. But "millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase. In exchange for that, they'll also see much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren.

"That's a poor foot to put forward, but this isn't the end of the road," she adds. "Realtors will continue to advocate for homeownership and hope members of the House and Senate will listen to the concerns of America's 75 million homeowners as the tax reform discussion continues."

How FCC Plan to End Net Neutrality Hurts You

The Federal Communications Commission released a plan Tuesday to reverse net neutrality rules, a move that the National Association of Realtors® is concerned will make it harder for real estate companies, multiple listing services and property data aggregators to provide their services in a cost-effective way.

"We are looking carefully at the FCC's plan to reverse net neutrality, which has been an effective and proven way to ensure a level playing field for businesses that depend on a neutral online playing field," NAR President Elizabeth Mendenhall said in a statement. Small and large players in the real estate industry could be affected if internet service providers such as Comcast and Verizon create fast and slow lanes of web traffic based on financial arrangements they've made with content providers.

NAR is part of a coalition of business interests that support existing net neutrality rules as the most fair and competitive form of internet regulation. Current rules prohibit internet service providers from throttling or slowing web traffic to some sites while giving faster services to other sites that have entered into financial arrangements with them. The FCC is expected to vote on the plan – which was proposed by its chairman, Ajit Pai – in mid-December. Should the commission vote to reverse current rules, proponents of net neutrality are expected to sue.

NAR sent comments to the FCC in July urging it to maintain net neutrality.

"NAR supports open internet rules that protect American businesses and consumers by preventing Internet Service Providers (ISPs) not only from blocking, throttling, or discriminating against internet traffic and prohibit paid prioritization arrangements, but also interconnection issues and other anti-competitive practices," NAR said in its comments.

Can a Seller do That?

A seller gives explicit instructions to the listing office: No showings take place unless the buyer supplies proof of funds first. The listing agent puts this information in the "Broker Remarks" section of the MLS listing. A buyer's agent then sees the listing and requests to see the property with his buyers. The listing agent agrees but reminds the buyer's rep about the proof of funds requirement.

The buyer's agent is furious – he feels his customers shouldn't have to show personal information like this before even seeing the inside of the property. This has to be illegal, right? Or at least unethical behavior on the part of the listing agent?

In short, the answer to both questions is no.

A seller has a fairly wide range of prerequisites he can choose from before he allows a property showing; he can even demand an actual offer from the buyer. While this tends to happen with high-end or celebrity-owned properties, it's important to understand that a seller can require information from a buyer before the buyer can step onto the property.

Many times, a seller requires information, such as proof of funds, as evidence that the buyer has a serious interest in the property.

If you are a listing agent with a specific seller request, make sure to get this instruction in writing – i.e., as part of your listing agreement or in an email sent by the seller. If you're a buyer's agent, let the buyer know what the seller requests when you bring the listing to them.

Please note: In many cases, personal information regarding the buyer can be redacted or blacked-out. For instance, an account number or a social security number or a home address could be redacted in any document requested by the seller, such as a proof of funds.

Standard of Practice 3-9, which supports Article 3 of the Code of Ethics, says Realtors shall not provide access to listed property on terms other than those established by the owner or the listing broker. When a seller requires a buyer to meet certain prerequisites before entering the property, Realtors are obligated to comply.

If the listing agent permits access contrary to the seller's instruction or if he ignores the seller's instructions, both Realtors could be the subject of an ethics violation. If the listing agent is at fault, it would be a possible violation of Article 1 based Standard of Practice 1-16 and in the case of a cooperating agent, Article 3, Standard of Practice 3-9, could apply.

To Avoid Taxes, you Can’t Sell your Home for Five Years

Under current tax reform proposals making their way through Congress, one of the rule changes has the potential to change the way American homeowners behave.

Currently, up to $500,000 in capital gains from a home sale are tax exempt as long as the seller owns and occupies the residence for two of the five years before the sale. But under Congressional tax-reform proposals, taxpayers would have to own and occupy their homes more than twice as long – five of the past eight years – before they can qualify for the tax incentive.

That means first-time buyers looking at starter homes would have to consider "starting" to last a minimum of five years. Millennial families and first-time buyers would be hurt the most from this rule change, since these groups trade up more frequently than older, more established homeowners.

More than half of home sellers age 18 to 34 have owned their homes for five years or less, according to a 2017 survey by the National Association of Realtors® – and more than one in four sold their house within three years of buying it.

"This change will discourage homeowners from selling their homes in an already tight-inventory market," according to a letter from a number of large real estate brokers, including Coldwell Banker, Long & Foster and Berkshire Hathaway. They sent to letter to lawmakers Nov. 14. The Senate Finance Committee is expected to finish work on its plan this week.

The Real Estate Tech Tsunami!!

Technology-oriented attendees of the 2017 Realtor® Conference & Expo in Chicago last week were told to embrace the future of blockchains, artificial intelligence and big data.

"Real estate agents fear being replaced, and they will be. They'll be replaced by a real estate agent with technology," said broker Carrie Little during her session on big data during the conference. Panelists highlighted the major real estate disrupters coming to the industry and showcased new tools to help real estate pros stay ahead of the curve.

Overview of new technology

Real estate's tech 'tsunami': Blockchain and AI
Blockchain – a continually growing chain of records – is expected to make real estate transactions faster, less costly and more fraud-proof. It could also usher in the era of the "smart contract" – an automated real estate agreement that makes digital transactions swifter and cheaper to manage.

Realtors should also learn how artificial intelligence, or machine learning, will change the way real estate professionals do business.

Add more 'big data' to your content
Big data can help agents craft more relevant content that builds stronger ties with buyers and sellers. Little offered advice for using sources such as MLSs and Realtors Property Resource to create infographics for social media, blogs, videos or when hosting community seminars.

The missing piece in measuring affordability
Home shoppers using the "drive 'til you qualify" mentality may be missing a critical factor in selecting a truly affordable home. Transportation costs are typically the second largest household expense behind housing, and can make a home that appears affordable become less so, said Scott Bernstein, founder and chief strategy officer at Chicago's Center for Neighborhood Technology.

Bernstein highlighted his organization's Housing and Transportation Affordability Index, which factors housing and transportation costs into the affordability equation. Plug in an address at to get a breakdown of the average percentage of their income households spend on housing and transportation in your area.

What consumers want from you
In choosing a tech solution, consider what buyers and sellers really desire. Research shows they want rapid responses, market knowledge and greater transparency within the process from start to finish. In a session on Sunday, executives highlighted several tools that aim to help real estate pros improve their communication speeds and outreach with consumers.

Former catch me if you can conman offers identity safeguards
Former con artist Frank Abagnale was the master of assuming others' identities. His story was depicted in the 2002 hit movie, Catch Me If You Can, starring Leonardo DiCaprio. Abagnale now uses his first-hand knowledge to help save others from getting duped. At the RISMedia Power Broker Reception Friday night, the former con man offered up tips for keeping business and client information safe from identity theft.

When to Use an Addendum

In an ideal world, after a buyer and seller execute a contract, things proceed seamlessly, no issues arise at all, and the parties close on their agreed-upon closing date.

The reality: While that can occur in your transactions, many times it just isn't the case. One thing or another pops up along the way, and the parties need to change their current agreement, whether that's an extension of a closing date or amending the contract to add a new term. Before you race to grab an addendum, though, first consider whether or not it's actually needed. Depending on the details, it's entirely possible you don't need to do anything.

This article considers a few different scenarios that can occur and whether or not an addendum is needed. (For purposes of this article, the Florida Realtors/Florida Bar ("FR/Bar") contract is referenced).

Scenario 1
The title company handling the closing finds a lien on the property that the seller didn't realize was there. The seller says he'll handle it, but it probably can't be settled on time for the agreed-upon contract closing date.

Do the parties need to sign an extension for the closing date? In short, no.

Per Standard 18A of the FR/Bar contract, the buyer is supposed to notify the seller, in writing, of any defect in the title commitment within five days after receiving it. The seller then has 30 days after receiving this notice, defined as the seller's Cure Period, to "take reasonable diligent efforts" to remove the defect. Assuming the seller is able to fix the defect within the Cure Period, the seller needs to notify the buyer in writing, along with proof of the cure acceptable to the buyer, and the parties should proceed to closing.

If the closing date has passed during the 30-day cure period, the closing is to take place "within 10 days after buyer's receipt of seller's notice." In this example, there's no need for the parties to sign an extension since the contract already addresses how the closing should proceed in the event of a title defect.

Scenario 2
The buyer and seller have an "As-Is" version of the FR/Bar contract. The buyer performs her inspection and decides she wants to ask the seller for repairs. The buyer's agent emails the listing agent to ask about the seller's willingness to make repairs. The seller verbally indicates he is willing to fix the some of the items the buyer is asking about – but not all.

Is an addendum needed? In short, it probably is.

It could be an addendum extending the inspection period so the parties can further negotiate the repairs, or it could be an addendum to address the agreed upon repairs. In either case, the parties should have something in writing. It's not a good idea to rely on verbal representations about a party's willingness to make repairs; and it's not a good idea to think that simply inquiring about repairs provides more time or an automatic extension of the inspection period. The seller could refuse to honor the repairs later and the buyer likely would have little recourse.

Additionally, there is no "pause button" on your inspection period clock. Even if the parties are negotiating repairs, the clock is still ticking. If the buyer can't get an agreement in writing with the seller about the repairs or an extension for the inspection period, she will need to decide whether to cancel the contract before the inspection period ends or her deposit could be at risk.

Scenario 3
A hurricane sweeps across Florida. While the property isn't damaged, power is out around the state and the title company doesn't have any power to conduct a closing on the agreed-upon contract closing date.

Do the parties need to get an addendum to extend the closing date? In short, no.

Standard 18G addresses this scenario and states, in sum, that neither party will be required to perform any obligations under the contract when the non-performance is due to Force Majeure. All time periods will be extended "a reasonable time up to 7 days after" such Force Majeure no longer prevents performance. So, in this example, the parties should close within 7 days after the title company regains power and can process the closing. No addendum is necessary since the contract already addresses what happens when a defined Force Majeure event prevents performance.

Note: It's important to keep in mind that all contracts are different, and the above examples are specific to just one contract. In general, when in doubt over whether an addendum is necessary or not, look to the contract provision that covers the issue. Many times, these types of "what if" scenarios are considered by the contract terms and can save the agent from taking additional – and possibly unnecessary – steps.

US House Releases Tax Reform Plan: Housing Takes a Hit

House Republicans on Thursday released their highly anticipated plan to reform the U.S. tax code – which aims to cut the corporate rate and reduce the number of tax brackets.

It is the first tax code revamp since 1986.

The bill would cut the corporate tax rate from 35 to 20 percent, double the standard deduction, increase the child tax credit to $1,600 and eliminate the estate tax. It does not, however, change the rates for 401(k) and Individual Retirement Accounts.

Also, the cap on the mortgage deduction would drop from $1 million to $500,000 – and it would cap the state and local tax deduction at $10,000. Republicans in high-tax states, including New York and California, had been opposed to SALT (state and local tax) changes.

The plan retains the top individual income tax rate of 39.6 percent but cuts the number of brackets from seven to four. The highest bracket's plan is for individual income of more than $500,000 compared with the current rate of $418,000. For those married filing jointly, the cutoff is more than $1 million from the current $470,000.

The other new brackets are 12 percent, 25 percent and 35 percent.

The lowest individual bracket is $45,000 from the current lower rates of 10 percent up to $9,325 and 15 percent up to $37,950. For married filing jointly, the lowest bracket proposal is up to $90,000 from the 10 percent of up to $18,650 and 15 percent up to $75,900.

The other brackets are 25 percent (up to $200,000 for individuals and $260,000 for married) and 35 percent ($500,000 for individuals and $1 million for married).

The standard deduction increases from $6,350 to $12,200 for single filers, $12,700 to $24,400 for married couples and $9,250 to $18,300 for head of household.

For an average family of four making $60,000, The Wall Street Journal estimates their tax bill will drop from $1,608 to just $472.

House Republicans delayed revealing the plans from Wednesday to Thursday as they worked on parts of the plan.

Republicans in the House hope to get the legislation passed before Thanksgiving and advance it to the Senate before the end of the year. President Donald Trump said he wants to sign the bill before Christmas.

The House of Representatives narrowly passed the 2018 $4 trillion budget resolution last week in preparation of moving toward tax reform. The budget allows Republicans to pass a tax overhaul that adds up to $1.5 trillion to the deficit.

HUD Cuts Red Tape to Help Speed Up Hurricane Recovery

The U.S. Department of Housing and Urban Development (HUD) announced a package of 19 regulatory and administrative waivers aimed at helping communities to accelerate their recovery from Hurricanes Harvey, Irma and Maria.

While HUD granted a number of individual waivers after earlier disasters, HUD says the latest announcement is one of the largest collections of regulatory and administrative waivers ever issued by the department at one time.

"The recent storms are unprecedented so it makes sense that our response be unprecedented as well," says Assistant Secretary for Community Planning and Development Neal Rackleff. "We must be as flexible as we possibly can to help our state and local partners at a time they need our help the most."

The relief covers the following HUD programs:

  • The Community Development Block Grant (CDBG) Program
  • HOME Investment Partnerships (HOME) Program
  • Housing Opportunities for Persons with AIDS (HOPWA) Program
  • Emergency Solutions Grant (ESG) Program.

To expedite the use of funds, HUD says that state and local partners can access a waiver through a new simplified notification process.

HUD's latest relief efforts

  • HUD is allowing an abbreviated public comment requirement on changes to a grantee's community redevelopment plans. Upon notification, HUD will reduce the customary 30-day comment period to seven days.
  • Hurricanes Harvey, Irma and Maria destroyed communications networks, particularly in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. Therefore, HUD is waiving the normal communication requirements and allowing these grantees to determine what constitutes reasonable notice and opportunity to comment.
  • The hurricanes also caused extensive damage and destruction to the housing stock in certain impacted areas. To accelerate construction, HUD is suspending normal rules to enable CDBG grantees to replace affordable housing units that were lost as a result of the hurricanes and flooding.
  • HUD will suspend a cap limiting CDBG expenditures for public services to 15 percent. HUD will temporarily allow CDBG grantees to pay for additional support services for individuals and families affected by the hurricanes. Services could include, but not be limited to, the provision of food, emergency shelter, case management and related services to help residents in declared-disaster areas until long-term recovery resources become available.

HUD offers more info online about the regulatory and administrative changes.

Will Florida Real Estate Prices Fall? No Chance!

 Orlando and Tampa are among the large U.S. markets least likely to see home prices fall in the next two years, according to a report from Arch Mortgage Insurance.

The report finds that home prices have only a 2 percent chance of falling in Orlando and Tampa over the next two years, a low-risk level that tied 36 other U.S. markets.

At the other end of the spectrum, Fort Lauderdale and Nashville probably won't see prices rise over the next two years either, but they still have a noticeably higher risk with a 35 percent chance of that happening. Austin, Texas, has the third-highest probability, at 25 percent, followed by Miami's 17 percent and West Palm Beach's11 percent, according to Arch MI.

In explaining Fort Lauderdale's and Nashville's rates, Arch MI cites "home prices growing faster than incomes, which is hurting affordability."

Arch MI estimates that the average probability of home-price declines for America's 401 largest cities is 4 percent, which it calls "an unusually low number."

The report suggests that Florida will remain the best economic performer in the South for at least another year, led by tourism, residential and public construction.

The report also found that Orlando is one of America's 10 hottest housing markets, when looking at the country's 100 biggest metros. Orlando's home price index grew 12.5 percent in the past year.

What Bubble? Future of the Housing Market Still Looks Solid

U.S. housing markets are expected to remain healthy through at least the end of 2018, with no housing bubble in sight and no projection of home prices falling, according to the Fall 2017 edition of The Housing and Mortgage Market Review (HaMMR), released by Arch Mortgage Insurance Company.

The HaMMR features the Arch MI Risk Index, a statistical model based on recent housing market indicators. The index suggests that over the next two years, the probability of home price declines in America's 401 largest cities averages just 4 percent – an unusually low number.

The trend reflects broad-based favorable fundamentals, such as a tightening job market, relatively low interest rates, a low number of homes for sale and an overall housing shortage.

"People waiting for home prices to fall before buying may want to change their strategy, as the overall housing market is expected to stay strong for the foreseeable future," says Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services of Arch Capital Services Inc. "Our research shows no housing bubble is forming in the United States, with prices overall near historic norms compared to incomes."

The HaMMR also finds that some recent concern about U.S. home prices hitting all-time highs is overblown because, after adjusting for inflation, national home prices are still 10 percent below their prior peak.

However, recovery from the housing crash is not universal. While prices have increased in Colorado, Idaho, North Dakota and the Pacific Northwest (Washington and Oregon), areas like New England and energy-extraction states like Alaska, West Virginia and Wyoming are growing more slowly.