Tax Exemptions May Leave Many More Not Paying Any Tax

TAMPA, Fla. – May 24, 2011 – Florida’s turbulent housing market has had an unintended consequence: Thousands of homeowners don’t pay a dollar in property tax.

No, this isn’t a real estate scam. Blame higher homestead exemptions and falling home prices that essentially removed houses from the tax rolls.

“It’s a basic fundamental in American society and tax policy that everybody should pay something,” said Warren Weathers, chief deputy for the Hillsborough County property appraiser’s office. “Some of these (exemptions) were created for people who barely have anything, and that’s not bad. But there are people ... that have the ability to pay that don’t pay some of their fair share.”

It couldn’t have come at a worse time for budget-conscious municipalities. The exemptions cost the county millions in property tax revenue, and that’s on top of millions lost because of falling values. Hillsborough County saw property taxes owed go from $1.9 billion in 2008 to $1.7 billion in 2009 to $1.5 billion in 2010.

For many of those with tax bills of zero, their properties are valued less by county property appraisers than their qualified homestead exemption, usually $25,000. For properties worth more, a $50,000 exemption brings the tax bill down to almost nothing.

In Hillsborough, more than 7,000 homeowners didn’t pay property taxes last year, according to data from the property appraiser’s office. That’s up from 4,920 in 2008.

An additional 5,700 pay some tax, such as to the school board, but they don’t contribute anything toward the county’s general fund. And that’s where the money comes from to pay public services such as roads, sewer service and libraries. That number is up from 1,238 in 2007.

The homes range from modest to middle-class to extravagant. Most owners who don’t owe property taxes live in poor neighborhoods where home values have plummeted.

For example, a shotgun-style home at 2809 N. 10th St., in the Ybor City area north of Interstate 4, is valued at $23,569 by the county property appraiser. The owner has a $25,000 homestead exemption. Taxable value: zero.

Sybil Faulker, 86, has owned the 10th Street home for 50 years and has never paid property taxes. Faulker, who lives on Social Security, said the lower tax bill is critical for the poor, especially in a deep recession.

“It’s a huge help, and I live in a 91-year-old home,” Faulker said. “When people have a brand-new home worth $200,000 to $300,000, that’s different. They have the income to pay.”

Even the housing boom wasn’t enough to push up the value of Faulker’s home enough to cause her to owe property taxes, county records show. But for many, rising values caused property taxes to increase beyond what they could afford. Exemptions were provided to help alleviate the burden, but now that values have plummeted, the exemptions allow more people to pay little or no tax.

During the housing boom, the homestead exemption was raised from $25,000 to $50,000. The Legislature mandated that the second $25,000 could not bring the taxable value to zero. Instead, the property would have to be worth more than $75,000 to get the full $50,000 exemption.

Still, the extra savings is big for some.

Consider a home at 2810 N. 10th St., which sold in 2004 for $145,000. It’s now valued at $67,287 by the property appraiser. The owner has a homestead exemption of $42,287, bringing the taxable value to $25,000.

Few homes in this neighborhood sold, even during the housing boom. Many of the owners are elderly and have stayed put. So these homes weren’t affected by investors who flooded other neighborhoods, artificially driving up prices during the housing bubble.

Hillsborough has always had low-valued homes, especially in the inner city and some rural areas, Weathers said. But other changes to real estate, such as apartment-to-condominium conversions and toxic drywall made in China, have sent taxable values plummeting.

Consider this condo conversion at the Towers at Carrollwood Village. One condo unit sold for $90,000 in 2005 and is now valued at $19,657. The homestead exemption is $17,250, bringing the taxable value to zero.

The rest of the 114 condos in the complex have a similar tax situation, said Chris Weiss of the Hillsborough County property appraiser’s office.

A condominium complex in New Tampa is in the same boat. The Villas Condominiums has 282 units, Weiss said, and was also saturated with investor-owners. Both complexes have been hit hard by foreclosures, he said.

A condo at the New Tampa development sold for $106,900 in 2005 and is now worth just $16,230. The homestead exemption brings the taxable value to nothing.

Toxic drywall costs the county about $1 million in property taxes, Weathers said.

“That’s because Florida gives owners of houses with the tainted drywall a break on their taxes. As long as the drywall is in the house, it isn’t worth anything, say state legislators who passed the bill.

“No one wants to buy a home with this drywall problem,” Weathers said.

The owners of a million-dollar home on Davis Islands saw their tax bill go from $20,192 in 2009 to $6,310. The home’s toxic drywall has made it worthless, according to the county property appraiser. The taxes due for the property are on land only.

Judy Redmiller, a homeowner in South Tampa, says she pays hefty taxes now but didn’t when she lived in Ybor City because her home was valued lower. She says she supports some tax breaks for people who need it, but paying nothing is unreasonable.

“I think everyone should pay some amount because the money goes to schools, streets, services that benefit us all,” Redmiller said.

Private property appraiser David Teacher said he understands people wanting their neighbors to pay their fair share but, he said, there is an upside. Falling home prices and no – or low – property tax is a big incentive for investors to buy.

“There have been some people that say, ‘Oh, that doesn’t sound fair.’ But I have to say the good thing about this is all the cash purchases and investors who are coming and helping us stabilize this market.”

Teacher said he has seen homes in East Tampa selling for as low as $7,000. Sure, he said, they need work, but most still could be good deals.

“What better investment,” he said. “Look at the return on your money. Some homes are selling for less than the cost of a car.”

Copyright © 2011 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.

Sarasota Realtors Report Rebound in Sales and Prices

by Harold Bubil

Both the number of sales, and, more importantly for homeowners, the average selling price of homes sold in March rebounded from February’s level, according to a just-released report from the Sarasota Association of Realtors.

SAR members sold 800 properties in March – which was the most since September 2005, when the real estate boom started to fade.

March’s selling prices rose by double digits for both houses and condos from the previous month, and pending sales were at the highest level since the real estate boom ended in 2005.

Inventory dropped to 5,501 – less than a third of the available properties on the market during the bad years following the boom.

“Sarasota is clearly a recovering market,” said SAR President Michael Bruno. “Agents are very busy showing properties and writing contracts, and people are excited about our strong market rebound. Obviously, we haven’t seen numbers like these in several years. There is a buzz in the local market that’s reaching out to buyers across the nation and even internationally.”

Highlights of the report:

– House sales, at 580, were up 23 percent from the previous month, and 5 percent from March 2010, when the home-buyer tax credit encouraged 555 purchases.

– Condo sales, at 220, were up 10 percent from February, and 11 percent from March 2010.

– Median sales prices for both houses and condominiums increased to $159,250 for houses and $173,000 for condos, representing a 16 percent and a 26 percent jump, respectively.

– Distressed property sales fell to 43 percent of the total. In February, 47 percent of all sales were foreclosures or short sales.

– The inventory of for-sale houses fell to 6.0 months, down from 8.0 months in February. This could represent “the cusp of a seller’s market,” said the report. For condos, the remaining months of inventory dropped to 9.2 months from 10.4 months in February. Realtors consider a 6-month supplyof for-sale homes to be a balanced market between buyers and sellers.

“Price appreciation normally follows a declining inventory and increased competition among buyers,” explained Bruno. “I’m still hopeful that this trend, which has been evident now for several months, continues into the summer months. Last year, we saw strong activity in April, May and June, probably connected to the federal tax credit. But there is evidence the trend will repeat this year after seeing the March sales and pending sales figures.”

FL House Flippers Seek Inner-City Profits

WASHINGTON – April 18, 2011 – More investors are taking on the risk of flipping homes, despite falling home prices and sluggish real estate markets across the country. But investors say there are still profits to be made in the house flipping business.

Nearly 1 million homes were bought as investment properties in 2010, according to the National Association of Realtors®, and a record number of buyers purchasing properties with cash currently are flooding the market.

Flipping homes for profit is easier in rising markets, but not many markets are reporting increases in home prices, analysts say. In Washington, D.C., Justin Konz of RestorationCapital says his clients are going through four or five properties a month and are making gross profit margins of 35 percent or higher.

Where to find the deals

Flippers mostly are finding their homes through foreclosures auctions, REOs and short sales. They seek homes at rock-bottom prices that will have low fix-up costs, no more than about 5 percent or 10 percent of the purchase price.

In Florida, where investors are finding it more difficult to flip homes because of the drastic drop in prices and high inventories, flippers are targeting inner-city properties that are being sold at steep discounts. For example, some of houses are selling for $30,000 when they once sold for $200,000.

Perry Henderson, a real estate agent and investor in Austin, Texas, says the biggest opportunities in flipping are the “ugly” houses that have lingered on the market or “old houses that somebody’s grandma lived in for 40 years and didn’t do anything to. Now, she’s passed away and her family wants to sell quickly.”

Real estate investor Brian Fuller, who with partners buys and sells more than 200 properties a year in the San Diego area, says he’s drawn to the “biggest eyesore on the block.” He says they then “ turn it into the best-looking house there. We’re helping pull up values in the neighborhood.”

Source: “Vulture Investors Flipping Their Ways to Big Profits,” CNNMoney.com (April 13, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Buyers Ready to Snatch Bargains This Spring

WASHINGTON – March 23, 2011 – Bargain prices on housing combined with low interest rates below 5 percent may bring the real estate market its busiest spring season in years, economists say.

Distressed sales continue to put downward pressure on home prices, which may lure more buyers off the fence and ready to snag a deal during the typical prime-time buying season.

Some builders are ramping up discounts on new homes as well as boosting commissions to brokers to try to spark more transactions.

Sellers of existing-homes also are getting more competitive in pricing their homes.

“After three years of the housing downturn, people are becoming much more realistic in terms of valuing their homes,” says Lawrence Yun, chief economist at the National Association of Realtors®.

An improved job market with better income potential may also motivate more people to buy, says David Berson of the PMI Group. “Household formations are also very important,” Berson says. “Kids may have moved back in with their parents, or two people may have moved in together because of job concerns. Now they can move into their own place.”

While interest rates are sitting comfortably below 5 percent for now (30-year fixed rates averaged 4.76 percent last week), economists warn the attractive low rates won’t last long.

“Few think mortgage rates are going lower,” says Mark Zandi, Moody’s Analytics chief economist. “It’s more likely they will be 6 percent than 4 percent next spring. This lights a fire under buyers.”

Source: “Discounts expected in spring housing market,” The Wall Street Journal (March 22, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Banks are Fixing Up Their Home Before Putting on Market

More banks pay to fix up foreclosures for resale CHICAGO – March 17, 2011 – More banks are investing thousands of dollars to fix up foreclosures in trying to spur sales and appeal to a broader buying pool. Banks have inherited plenty of foreclosed homes that have everything from water damage, mold, broken windows, and missing plumbing fixtures.

But while banks used to be hesitant to invest much money in fixing up these homes, more real estate pros say that banks are heeding their suggestions for repairs and seeing the benefits of how a little investment can make these properties more sellable. As such, they are paying for new paint and carpet, refinishing damaged floors, replacing old windows, and repairing leaky roofs.

They hope to extend the foreclosed homes’ appeal past traditional investors and professional rehabbers. For example, a homebuyer would have trouble securing a mortgage on homes that lenders deem “uninhabitable” because of needed repairs.

The banks interest in fixing up these properties also can help the overall real estate market because the foreclosed properties can sell at a higher price.

Real estate agents say they are making more suggestions to banks on how to spruce up the properties. First, they identify the target customer for a property. For example, if the home will likely appeal to owner-occupant, agents may recommend fixes such as paint to a $25,000 kitchen remodel.

Source: “Banks Fixing Up Foreclosures to Spur Sales; Strategy Aims to Give Them Broader Appeal, Reduce Big Inventory,” The Chicago Tribune (March 13, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

What Does REO Stand for in Real Estate?

by Tricia Chaves, Demand Media

Overview

REO stands for Real Estate Owned properties, which get reclaimed by the bank or government agency which financed their mortgage after failing to sell at a real estate auction. Generally, REO properties get sold on the open real estate market using a real estate agent or in bulk sales to investors. REO properties generally get sold at a discounted price when compared to comparable properties.

History

Foreclosures in the United States date back to the early 1930s. Following the stock market crash in the fall of 1929, unemployment rose and caused the housing and bank markets to fall. At the same time, a sandstorm- and drought-filled season caused farmers' businesses to fold. By 1933, almost 0.73 percent of the homes in the United States became bank REO properties with about a thousand occurring daily. The nation's first REO auctions, referred to as "penny auctions," forced profit-hungry banks to purge unsold properties, which became liabilities.

Features

An REO property can be any age or style, in virtually any neighborhood. The majority of REO foreclosed properties require work to rehabilitate or repair problems. Typical REO property issues include damaged walls, missing fixtures or appliances and faulty mechanical components. A former property owner's unwilling and unhappy departure coupled with a long period of vacancy is a recipe for property damage.

Benefits


Eager banks may offer attractive financing programs to buyers to unload REO properties. Some REO loan incentives include zero percent or a reduced down payment when compared with conventional loans, lower interest rates, less stringent credit criteria, faster approval and financing for homes which other lenders may not approve.

Negotiation


Vacant REO homes are a profit drain on bank owners, resulting in an urgency for sales. When a buyer makes an offer to purchase a REO home, it can seem less personal and less emotional than a transaction with a traditional homeowner-seller. In an REO home offer, the bank representative simply considers the bank's bottom line and generally makes a fast decision, which can result in a smooth and quick closing.

Warning

Banks typically sell REO properties "as-is." As a buyer, a professional property inspection allows you to make an educated offer for purchase considering the costs involved to repair any existing defects. A buyer may offer less or request the bank make a repair in the instance of major home systems such as electrical, plumbing and mechanics, and the bank may agree to facilitate a sale.

For-Sale-By-Owners Vanish, Sellers Turn to Real Estate Pros

WASHINGTON – Feb. 21, 2011 – For-sale-by-owners are rare nowadays. In fact, the number of FSBOs dropped to record lows over the past year.

Unrepresented sellers make up just 11 percent of the market, down from 13 percent in 2009, according to the 2010 National Association of Realtors® Profile of Home Buyers and Sellers.

With today’s more complex transactions – such as with short sales and foreclosures and frequent changes in mortgage lending – more sellers are finding comfort in the help of real estate professionals to guide them through the process.

In the seller’s market, FSBO sellers tried to sell the home themselves because they thought they could save on commission fees, but today’s sellers realize that if they don’t use an agent, it’ll likely cost them more in the long run, experts say.

“Selling by owner does not guarantee the seller will put 5 [percent] to 6 percent more in his or her pocket in trade for doing all the work and taking on potentially costly liabilities,” Margaret Woda, associate broker with Long & Foster in Crofton, Md., told The Washington Times. “On the contrary, prospective FSBO buyers have their eyes on that 5 percent to 6 percent as well. It’s more likely the buyer will win this negotiation in a buyer’s market with a huge price reduction – probably even larger than the saved commission.”

Some FSBO sellers also often make the mistake of listing their home at a higher price than the market warrants. But even if they do find a buyer for that price, unless it’s a cash purchase, the home has to be appraised and many deals can then fall apart.

Source: “Fewer Sellers Going Do-it-Yourself Route,” The Washington Times (Feb. 11, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688