Buyers are willing to pay extra for ‘smart homes’

Buyers are willing to pay extra for ‘smart homes’

Kenneth R. Harney, August 24,2016

Could “smart home” technology – features such as network-connected thermostats, security devices, appliances and lighting – help you sell your home faster and for more?

Probably so, according to recent consumer polling data plus anecdotal reports from appraisers and realty agents. The key, though, is that the smart products need to be installed before you list your house, because most buyers in 2016 don’t want to have to install them on their own. They want things pretty much turnkey.

The latest in an ongoing series of research projects by Coldwell Banker Real Estate found that 71 percent of buyers out of a sample of 1,250 American adults want a “move-in ready” house, and that 57 percent of those buyers looking at older houses would consider them updated – and more appealing as move-in ready – if they have smart home features already in place. Fifty-four percent say that if they had to choose between identical houses, one with smart home tech, the other without, they’d buy the smart home. Sixty-one percent of millennials would favor smart tech homes, as would 59 percent of parents with children living in the house.

A massive survey of nearly 22,000 home shoppers by John Burns Real Estate Consulting earlier this year found that not only do prospective buyers rank smart technology high when they evaluate housing options, but they’re prepared to pay thousands of dollars for it. Sixty-five percent said they’d be willing to spend more for smart home technology packages, and well over half would pay extra for interior and exterior security cameras, network connected appliances, smart doorbells that send owners text alerts enabling them to check front-door security cameras, smart air filtration vents and a variety of other high-tech items.

Appraisers also are acknowledging the value of smart home technology and making what they call “adjustments” when they compare tech-enabled homes with similar, but tech-deficient, houses in the area. “Absolutely,” said Richmond, Va., appraiser Pat Turner in an interview. “Smart home technology can definitely add to market value. If you have the data showing that houses with smart technology sell for more, then you’ve got to” acknowledge that fact in some way in the appraisal report, he said.

For example, if local homebuilders show him that a house without significant smart technology sells for $200,000 but an otherwise similar higher tech house sells for $206,000, he has market data that allows him to make dollar adjustments (up or down) on other, comparable houses he appraises.

Danny Hertzberg, a Coldwell Banker agent in Miami, says from his perspective “a majority” of active buyers in the market not only prefer smart home technology “but they’re expecting it and asking for it.”

A few years ago, interest in home technology was confined primarily to the upscale, more expensive segments of the market, said Hertzberg. “Now it’s at every price point, whether in the center city or in the suburbs,” new construction and renovations alike. Even in houses built in the 1920s and 1930s, sellers are incorporating smart home packages into their renovations to appeal to today’s buyers. “It helps you stand out,” Hertzberg said. It gives you an edge over competing properties and it usually cuts the time needed to sell, he said.

But here’s an issue that’s beginning to bubble up- Now that the term “smart home” has become a hot marketing buzzword, is it subject to the same sort of overuse and hyperbole as the term “green”? Precisely what constitutes a “smart home” anyway? If you’ve got a Nest thermostat and some security gizmos, is that enough to make you “smart?”

No way. This past spring, CNET, the online consumer technology news site, partnered with Coldwell Banker to develop an industry standard- A true smart home should be equipped with “network-connected products (via Wi-Fi, Bluetooth or similar protocols) for controlling, automating and optimizing functions such as temperature, lighting, security, safety or entertainment, either remotely by a phone, tablet, computer or a separate system within the home itself.”

The baseline requirements- It’s got to have a smart security feature that either controls access or monitors the property or a smart temperature feature. Plus it should have at least two additional features from this list- smart refrigerators/washers/dryers; smart TVs and streaming services; smart HVAC system, fans or vents; smart outdoor plant sensors and watering systems; smart fire/carbon monoxide detectors and night lights; smart security locks, alarm systems or cameras; smart thermostats.

Now you know.

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A new homeowner ‘marriage penalty’ in the tax code?

A new homeowner ‘marriage penalty’ in the tax code?

Kenneth R. Harney on Aug 19, 2016

WASHINGTON Does the federal tax code now favor unmarried partners when it comes to deducting mortgage interest on jointly owned houses with super-sized mortgages? Can certain co-owners save big money on taxes by staying single, rather than getting married?

In the wake of a little-publicized move by the IRS earlier this month, the answer appears to be yes for potentially significant numbers of co-owners of houses with jumbo loans.

Under Section 163 of the Internal Revenue Code, taxpayers can write off interest paid on up to $1 million of what the law calls acquisition indebtedness and on up to $100,000 of home equity indebtedness. You can deduct mortgage interest on both your primary home and a second home up to a combined limit of $1.1 million of debt. If youre married but filing your taxes separately from your spouse, the law limits the mortgage amounts you can deduct interest against to half of that -$500,000 in acquisition indebtedness and $50,000 in home equity indebtedness.

But what if youre single, living together with a partner and sharing the mortgage costs? Should you qualify to write off interest paid on up to $1.1 million of mortgage debt apiece, for a total of up to $2.2 million? Could you get a splashier tax benefit if youre unmarried but co-paying on a high-balance mortgage or mortgages?

In the past, the IRS has said no, when you jointly own one or more residences and youre not married, the maximum mortgage amount on which you can write off interest is the statutory limit of $1.1 million. When Congress set the $1.1 million ceiling back in the late 1980s, there was no mention of double-dip benefits for unmarried co-owners.

But in 2012, an unmarried couple in California who jointly owned two expensive houses with big mortgages (one in Beverly Hills, a second in Rancho Mirage) challenged the IRSs interpretation in U.S. Tax Court. They argued that each unmarried partner should be entitled to the full $1.1 million in debt allowed for interest deductions. The combined amount of debt on their two homes exceeded $2.2 million.

The Tax Court disagreed. The partners then appealed that decision to the U.S. Court of Appeals for the Ninth Circuit, which reversed the Tax Court, ruling that the limit should be on a per-taxpayer basis meaning up to $1.1 million per unmarried co-owner.

That raised the question- How will the IRS handle this issue? Will it restrict it in some way or allow it to take effect nationwide? Now the agency has come out with its answer- We are going to acquiesce in the appellate courts decision, the IRS said. Were going to allow qualified unmarried co-owners to go beyond the $1.1 million mortgage cap all the way up to a ceiling of $2.2 million.

How big a deal is this? Obviously its limited to a relatively elite economic group people who have mortgage debt in excess of $1.1 million. And its limited to co-owners or buyers of expensive homes who choose not to be married but to share the mortgage expenses.

No one knows how many taxpayers across the country fit these descriptions, but some tax experts say its a much larger number than you might guess. Susan Berson, a tax attorney in Kansas City, Missouri, says single professionals with super-jumbo mortgages – doctors, lawyers, business executives, investors, recently divorced individuals and others – should carefully review whether remaining unmarried brings financial benefits of potentially claiming the deductions subject to the increased limit.

Plus, Berson told me in an interview, she is advising clients

to look back at their recent annual tax filings. Some may be able to request refunds.

Anson H. Asbury, a tax attorney in Atlanta, says professionals in high-cost markets such as Washington D.C., New York, Los Angles, San Francisco, San Diego and pricey neighborhoods elsewhere around the country are likely to be the biggest beneficiaries of the revised IRS policy.

Ed Zollars, a CPA in Phoenix, says in some of these markets its almost trivial to be over the $1.1 million mortgage debt limit. In San Francisco and New York it will be easy for single professionals living together and sharing costs to double their mortgage interest deductions under the new policy, saving tens of thousands of dollars a year.

Where it works, he said in an interview, it works a lot.

That may be so, but isnt this still another marriage penalty in the federal tax code? Sure looks like it.

Pregnant women could face hurdle in getting home loans

Pregnant women could face hurdle in getting home loans

Kenneth R. Harney on Aug 12, 2016

WASHINGTON- When youre on maternity leave with full pay from your employer you probably dont expect a mortgage lender to reject your loan application because your income doesnt count since you havent yet returned to your job.

Yet thats what a woman in Philadelphia says she experienced when she and her husband sought financing to complete renovations on a house in the city. And shes hardly alone. According to the Department of Housing and Urban Development, the agency that handles federal fair housing complaints, there have been in excess of 200 cases alleging maternity-related discrimination against women seeking home mortgages in the past six years.

Some of the lenders in past cases that have gone to settlement involve companies prominent in banking and mortgages, including Wells Fargo Home Mortgage, Bank of America, PNC Mortgage and MGIC, the mortgage insurer. In all agreements, the accused companies denied wrongdoing.

Under the Fair Housing Act, enacted in 1968, it is unlawful to discriminate in real estate transactions, including mortgage lending, on the basis of race, color, national origin, religion, sex, disability or familial status. That means lenders cannot deny or delay a loan simply because an applicant is on maternity leave but is otherwise qualified.

In the Philadelphia womans case, which resulted in a conciliation agreement July 29 with Citizens Bank, N.A. and Citizens Bank of Pennsylvania, the problem was that her pay stubs contained the wording short term disability, she told me. That troubled an underwriter at the bank, who suspected that she might not be planning to return to her job full time, she said. This was despite the fact that she and her employer were both willing to provide a letter specifying her date of return to work to allay any concerns. Without her income being counted in the application, the bank concluded that she and her husband would not be able to qualify for the financing they requested. The woman, whose name was redacted from the agreement, requested that she not be identified when I interviewed her.

Im getting full pay on maternity leave, she said she explained to the loan officer. This is not 1950 and you shouldnt be penalizing me! Citizens, which is the 13th largest retail bank in the country, according to its website, denied discriminating against the woman but agreed to make payments totaling $115,000 – $40,000 to her and $75,000 to an unnamed fair housing advocacy group. The bank also agreed to conduct fair lending compliance sessions with its staff and to adopt a parental leave policy.

In a statement, Citizens said we follow fair lending practices and are committed to ensuring equal access and consideration for all customers plus providing ongoing training for colleagues. The bank ultimately came through with the financing requested by the woman and her husband, but only after she had returned to her job, she said. By then, she had filed a complaint with HUD.

Shanna L. Smith, president and CEO of the National Fair Housing Alliance, says there needs to be much better training for [lenders] about how to deal with interrupted income for loan closings when a woman is pregnant and [on] paid maternity leave. In one case brought by Smiths group and now pending at HUD, a loan originator in Arkansas told an applicant that even though she was on paid maternity leave, she would have to be back at work for the loan to close,” according to Smith.

Curiously, interrupted income situations dont seem to be a problem for lenders when it is a factory or seasonal male worker, Smith said. But for a pregnant woman, the treatment too often is different underwriters dont seem to be able to calculate qualifying incomes properly. This is especially so, said Smith, when loan originators or underwriters have been with the bank a long time, and are still operating on rules from past decades that required women to return to work before a mortgage could go to closing.

Though discrimination like this is relatively uncommon given the large numbers of applications by pregnant women or those on maternity leave that are funded without a hitch it still occurs. If you or someone you know encounters it, contact HUDs fair lending office at 800-669-9777.

As the mortgage applicant in Philadelphia put it so well, this is no longer the 1950s. Federal law requires fair treatment of anyone on maternity or parental leave. Banks need to get it.

New programs open options for borrowers

New programs open options for borrowers

Kenneth R. Harney on Aug 5, 2016

WASHINGTON – Are you or someone you know needlessly missing in action this summer, leaving near historically low mortgage money at 3 1/2 percent to 3 3/4 percent on the table? You might be if you fit this profile-

- You’re currently renting though your real goal is to buy a home. But you assume you can’t qualify for a mortgage because today’s underwriting rules are so strict and inflexible.

- You don’t have a lot of extra cash in the bank and you seriously doubt that you could scrape enough money together to afford a down payment.

- Your credit scores aren’t great – just under 700 FICO – but that’s mainly because you’re young and don’t have a deep credit history.

Sound just a little familiar? Well, here’s some good news. Giant mortgage investor Fannie Mae last week revised and improved its low down payment mortgage plan known as HomeReady. Fannie’s competitor, Freddie Mac, has a similar program known as Home Possible Advantage. Either one could be key to your getting out of your rental apartment and buying a house or condo by early fall.

Check out the basics of Fannie’s program. Start with the 3 percent down payment. There’s no minimum cash contribution requirement out of your wallet as long as you’re buying a single family house to live in. You can supplement your cash on hand with gifts from relatives or other sources. You can also increase your effective income for mortgage qualification purposes by including so-called “boarder” or in-house rental payments. Say the row house you want to buy downtown currently has a long-term tenant in a basement unit who’d like to remain in the house. That rent could count toward your income.

Another flexibility- Say you’re part of an extended family and you expect to have other household members living in the house with you who earn incomes but don’t want to be on the mortgage note as a co-borrower. You can use their documented earnings to increase the maximum debt-to-income ratio (DTI) you’re allowed on your mortgage.

Take this hypothetical example. Say you’re single and earning a solid $72,000 a year and want to buy a house. However, your current monthly debt load of $2,820 makes you ineligible for most conventional mortgages because your DTI is 47 percent. But if a relative earning $2,000 a month moves in with you, HomeReady may greenlight your 47 percent DTI, even if the relative contributes nothing in rent.

As you might suspect, underwriting flexibility like this comes with some requirements. Since HomeReady and Home Possible Advantage are targeted at moderate-income buyers – first timers, minority purchasers, extended family groups and other “underserved” borrowers – not everybody can participate. In most locations around the country, your income cannot exceed the area median income. Both companies’ websites have “look-up” features that list the median for your area. In designated low income census tracts, there is no income limitation.

Also both programs require some form of homeownership credit education – either an online course or, under Fannie’s latest version, counseling sessions with any of a network of housing counselors around the country.

Where do you get more information or start an application? Hundreds of lenders and brokers are already participating in these programs – Fannie says it has a roster of more than 700 lenders – and they can help. Some of them are actively promoting the program, some just are simply offering it as an alternative to Federal Housing Administration (FHA) insured loans. Mat Ishbia, president and CEO of United Wholesale Mortgage, told me “we’re doing a lot” of HomeReady mortgages nationwide, including many millennial first-timers.

Laura Reichel, senior vice president of Ditech Financial, says shoppers are running the numbers on costs – comparing their monthly payments using a 3 percent down payment HomeReady loan featuring cancelable private mortgage insurance against a standard FHA 3.5 percent non-cancelable insurance – and they’re often opting for HomeReady.

But not all lenders are sold on Fannie’s and Freddie’s programs. Paul Skeens, president of Colonial Mortgage Group, says HomeReady is tilted to favor applicants with higher FICO scores. “Once an applicant has a credit score below 680,” he says, mortgage insurance and other fees combine to make the program virtually unusable and forces borrowers to go with an FHA loan.

Bottom line- Don’t assume you’re frozen out of the mortgage market. Check out the new generation of flexible, low down payment loans that are aimed at consumers like you – if you fit the profile.

New bill brings good news for condo buyers

New bill brings good news for condo buyers

Kenneth R. Harney on Jul 29, 2016

WASHINGTON – Congressional Democrats and Republicans haven’t agreed on much lately, but they’re together on one issue that affects condominium buyers and sellers across the country- The Federal Housing Administration (FHA) has bungled its condo finance program.

In a rare moment of bipartisanship before heading home for the summer, the Senate unanimously passed legislation that will require the FHA to lighten up on its condo financing regulations and make low down payment FHA loans more available to the people they are supposed to serve – moderate-income buyers, many of them minorities and first-time purchasers, who turn to condominiums as their most affordable option. The vote in the Senate followed a 427-0 vote in the House earlier this session.

Passage of the legislation came after several years of complaints by housing, community association and other groups about FHA’s overly strict requirements. Critics pointed out that FHA once was the go-to source of condo financing for first-time buyers, but since 2010 its role has shrunk drastically. FHA helped finance 80,000 to 90,000 condo mortgages a year during the previous decade and a half, but more recently production has dwindled to barely a quarter of that volume. FHA condo lending in the first three months of this year plunged by 8.6 percent from the previous quarter, according to Inside Mortgage Finance, a trade publication. In the final quarter of last year, volume declined by 20.3 percent from the third quarter.

The agency’s restrictions on condo community eligibility for financing became so onerous – requiring complicated re-certifications of entire developments every two years – that thousands of condo associations abandoned the program. According to the Community Associations Institute, fewer than 14,000 of the 152,000 condo associations in the U.S. are now eligible for FHA loans. Individual units are not eligible for FHA financing unless the entire association’s finances, reserves, insurance, budget and other items have been approved by the government.

The bill (H.R. 3700) aims at correcting a number of key problems by-

- Ordering the FHA to streamline the entire re-certification process for condo associations and make compliance “substantially less burdensome.” Condo experts predict this alone could convince significant numbers of associations to return to the FHA fold, thereby opening up sales and purchases to thousands more condo units.

- Reducing the minimum owner-occupancy ratio from the current 50 percent to 35 percent, unless FHA can provide justification for a higher percentage. Seth Task, a realty agent with Berkshire Hathaway HomeServices Professional Realty in Solon, Ohio, says the 35 percent ratio will allow “substantial” numbers of developments that can’t quite meet the 50 percent test to get back into the FHA program. In an interview, he cited the case of an elderly condo owner who listed her unit for sale with him recently, but the owner occupancy ratio in her development was 49 percent. Ineligible for buyers using low down payment FHA loans, she tried unsuccessfully to sell and ultimately had to accept an offer $10,000 below what she could have obtained if her building qualified for FHA financing.

- Allowing transfer fees. The legislation directs the FHA to stop rejecting condo communities because they collect small transfer fees when units are sold. The funds collected are used to support association activities – they benefit all residents. FHA will now have to follow the lead of Fannie Mae and Freddie Mac, both of whom consider community-benefit transfer fees acceptable.

- Providing more flexibility on the amount of commercial space permitted in condo developments. Some urban condos are designed for mixed-use – residential and commercial combined – because that’s what makes economic sense in their locations. Under current rules, some of these developments are ineligible because FHA considers their commercial component excessive. The legislation directs the agency to be more flexible and to take the local market context into account.

Will these changes be sufficient to revive FHA’s sagging condo program? “We are cautiously optimistic,” said Dawn Bauman, senior vice president at the Community Associations Institute, which represents nearly 34,000 condo communities and management organizations. Rita Tayenaka, past president of the Orange County (Calif.) Association of Realtors, told me the bill “is a good thing but will not be the end-all” in resolving FHA’s condo woes.

Most analysts agree that the actual effects will depend on two things- how quickly FHA puts its revised procedures into the field, and whether thousands of condo associations who’ve fled the program conclude, “OK they’ve cut the red tape, maybe it’s time to jump back in.”