Real Estate Basis

Real Estate Basis …explained by a certified professional

Tax season is in full swing across the United States and in Alaska. We decided to talk to Mark Schneiter, local CPA at Schneiter & Moad, to see what important documents or ideas property owners should be aware of come tax time. Mark felt property owners should be more aware of what “basis” means and what impact it can have on property owners’ taxes. He was gracious enough to take some time to explain more about basis to our readers. We hope you learn something as you continue to read. If at the end of the article you would like more information, please contact Mark directly, or feel free to contact us and we’ll get you connected with Mark.

Real Estate “Basis”

What is “Basis”? 

The starting point for basis is the original purchase price of the property.  The basis is increased by the cost of any capital improvements made to the property and, if the property is being used for business (such as a rental property or office in home), the basis is reduced by any depreciation deductions.

What is the importance of Basis?

When property is sold, the gain or loss on the sale equals the amount realized on the sale minus the sold property's basis.  Basis is also used to compute depreciation deductions for tax purposes.

How to “document” Basis.

Start a permanent file for the property.  The first documents in the file should be the closing documents for the purchase of the property.  Whenever an improvement is made to the property, put a copy of the invoice or receipt for the capital expenditure in this permanent file.  If the property is subject to depreciation deductions, put a copy of the depreciation schedule from your tax documents for each year in the file.  When the property is sold, computing and documenting the basis will be a simple matter of adding these improvements to the original cost, and subtracting depreciation, if any.

How long do I need to keep the “Permanent File”?

The tax law says you only need to keep documentation for 3 years from the due date of the tax return on which the documented items are included.  This means you must keep documentation of basis for 3 years after the due date for the last year that the property you are documenting appears on your tax return.  For real estate, this could be many years.  For instance, let’s say you purchased a house in 2012.  If you live in this house until 2020, at which time you sell the house, you will have to keep the file containing basis documentation for 3 years after filing your tax return for 2020.  Since the return is due on April 15, 2021, the documentation must be kept until at least April 15, 2024! 

Mark E. Schneiter, CPA

Schneiter & Moad, CPAs, PC

Email: s.and.m@gci.net

Direct: (907)562-4242

Fax: (907)562-6225

Anchorage FSBO Market: Part 1

 

Anchorage FSBO Market: Part 1

The For Sale By Owner (FSBO) Market is a popular option for sellers looking to save money on the sale of their home. The common thought is that without the agent’s fee, a seller could save thousands of dollars. Given data from the National Association of Realtors, the following discussion sets out to debunk this belief.

Selling a home is a lot of work- even if you have chosen to use an agent’s services. Getting your house in tip top condition (and keeping it that way) can sometimes be next to impossible. Sellers will have an edge up on the competition if they fix all those “little” things around the house. However, more goes into selling a house than simply its condition. A competitive market price must be set, marketing must be conducted (again and again and again), lenders’ requirements must be met, home inspections, repairs, and appraisals each must occur, and title must be researched. In fact, there are potentially many more steps depending upon the complexity of the sale. As a seller in the FSBO market, you must be able to maintain your day job, keep your house in showroom condition, show your house, and if you get a buyer, you must be able to handle all those steps.  Sounds daunting, right? A REALTOR© is familiar with each and every step as well as the timeline for getting each step completed. He or she is able to effectively market your home and balance all the various parties involved in the transaction, allowing you to focus on living life and maybe spending time keeping your house in showroom condition.

Let’s take a look at some statistics:

·        Did you know 9 out of 10 buyers begin their home search online? Most use sites such as Realtor.com, Zillow, or Trulia, not to mention the many agent websites linking buyers to a local MLS. Homes listed FSBO often have no access to these websites.  Although several sites do exist for FSBO listings (forsalebyowner.com, etc.), you will not receive the exposure you would on traditional sites. Research shows that of the nearly 90% of buyers searching online, only 14% ever search on for sale by owner sites. Compare this to the 45% of these buyers who use realtor.com to search for homes. Listing your home with an agent ensures you get the exposure you need to sell your home with the best possible outcomes.

·        The national average selling price of a home on the FSBO market is $140,300. Compare this to the national average selling price of a home sold with the assistance of an agent which is $215,000. These numbers indicate FBSO sellers do not save money by selling on their own. Even with the cost of commission, sellers listing with an agent saw a higher sales price than those who chose the FSBO route. One of the primary reasons for this is that agents are experts at pricing houses and understanding the market. Many FSBO listings are either significantly overvalued or undervalued. Both scenarios result in the same thing: the seller did not receive the market price for their home.

·       The National Association of Realtors conducted a study in which they asked sellers who listed their home in the FSBO market what their biggest problems were while trying to sell their home on their own. Attracting potential buyers was the most difficult task for 14% of these sellers. Other problems included getting the price right (12%), understanding and completing all paperwork (11%), having enough time to give to this home selling process (6%), getting the house in showroom condition (5%), and selling within the desired timeframe (5%).

So what does all this mean for the Anchorage FSBO market? Sellers can and do list their homes without the aid of a REALTOR©. However, the national statistics hold true in our city as well. Buyers are online searching for homes. They land on websites that offer a large selection of homes. Paperwork is confusing, and the process that must be followed can be even more so. Choosing to list your home with a REALTOR© will afford you many advantages. First, you’ll give buyers instant 24 hour access to view your home online. Second, an agent will prescreen buyers before showing your home. You can feel secure knowing that all buyers who visit your home have qualified through their lender. Third, REALTORs© are experts at negotiating. They will work to get you the best deal on your home. Finally, agents understand the complexities of the escrow process and understand the time table in which various steps must be completed.

Want to learn more about the Anchorage FSBO market? Contact us today!


 

5 Signs the Real Estate Market is Recovering

5 Signs the Real Estate Market is Recovering

…and what that means for you if you are considering buying or selling a home.

We recently came across a great article and wanted to share the main points. New data shows the real estate market is in recovery compared with the past few years. The numbers are based on national data; however, we are already seeing the 5 signs the market is recovering in Anchorage, Alaska.

1.      Asking Price and Rent increased by 5% over this time last year. For sellers, this means you’ll be getting more for your house than you would have last year. For buyers, this indicates an urgency to purchase a home as rent is increasing and it won’t be long until it is more cost effective to buy versus renting. Already, in the Anchorage market, we are seeing instances where renting is more expensive than buying a home.

2.      The Consumer Financial Protection Bureau released new mortgage rules this month. For buyers, especially those who have been hesitant to trust lenders, these rules require all the information you need to be provided up front. The rules are designed to protect you as you purchase a home. For sellers, this is good news because there are a great number of people wanting to buy but hesitating for this very reason. Given these new rules, we expect to see an increased number of buyers enter the market searching for homes.

3.      Delinquencies and foreclosures are both decreasing. In fact, the foreclosure rate is at its lowest in 4 years. For the economy as a whole, this is good news. It means people are able to pay their mortgages rather than losing their homes.  For buyers who have been watching this number and lacking the confidence to take on a mortgage, you can be confident with the new rules previously mentioned and the data indicating more people are able to afford home ownership. Sellers, with fewer foreclosures on the market, you will most likely see an increase in purchase price.

4.      93% of millennial renters are now planning to buy a home. For sellers, this is good news as once again, this group of buyers will enter the market searching for a home. Competition will increase for each home listed on the market.

5.      Investors are beginning to buy up real estate again before the prices really jump. For buyers, this means you will be facing competition for the homes you find on the market. Be ready to make an offer. Get pre-qualified from a credible lender before starting your home search. For sellers, this means more potential buyers coming through your door to view your home. And the more showings you have the quicker you’ll likely have a great offer to work with.

If you are a buyer or seller looking to take advantage of the current market conditions, please visit our website and contact us today!