Tired of the hassle of selling your home? Try this all-cash alternative

Tired of the hassle of selling your home? Try this all-cash alternative

Kenneth R. Harney on Apr 27, 2018

WASHINGTON – It’s the oldest fix-and-flip pitch in American real estate- “We’ll buy your home, guaranteed, no matter what its condition, and we’ll pay you quick cash with no commissions, and close in seven days or less.”

You’ve probably encountered versions of this on TV or elsewhere. The only way such offers make sense is if the buyers are low-ballers, paying sellers much less than their house is really worth. Some bottom-feeders buy at 25 percent to 40 percent discounts, slap on some paint, tidy up and flip for a fat profit.

It’s a business model that’s been around for decades because it serves genuine needs- Some people simply want to get out of their houses fast with minimal hassles. Maybe it’s because of a divorce, death, sickness or an inability to handle the costs of ownership. They’re willing to sacrifice price for speed and certainty. It works.

Some deep-pocket, high-tech players in real estate have taken a close look at this model and concluded- Wow! The direct-buy concept has a much broader potential market. Extensive consumer research has shown that large numbers of owners consider the traditional home-selling process too long and too fraught with inconvenience and mumbo-jumbo.

If those sellers were presented with a relatively fair price and quick offer for their homes – even if they net less money – they’d be interested. Unlike the fix-and-flip target market, these owners’ homes are in good shape and sellers could easily take the traditional route – hiring a realty agent.

Enter the “iBuyer.” A handful of Internet companies, armed with proprietary valuation data and algorithms, have jumped into the cash-offer arena. At least two tell me they plan to expand to most major real estate markets nationwide. With no obligation, owners can enter basic information online about their homes and receive a tentative offer within 24 to 48 hours. Following an inspection, they may get a binding, all-cash offer. The iBuyer later resells the house.

The pioneer in the space, San Francisco-based Opendoor, has purchased around 15,000 houses and is buying about 1,000 a month, co-founder JD Ross told me last week. Sellers run the gamut- Downsizing seniors, move-up families and folks who don’t enjoy keeping their homes “show ready” for extended periods. The company currently operates in Phoenix, Las Vegas, Orlando, Dallas-Fort Worth, Atlanta, San Antonio, Raleigh-Durham and Charlotte, North Carolina, but plans nationwide expansion. Its basic deal for sellers- a “fair” price for the home, plus a “service fee” around 7 percent that can go higher depending on needed property repairs and market conditions. Sellers are under no obligation to accept the offer and can use it to comparison-shop deals from traditional realty agents.

Opendoor’s chief rival so far is OfferPad, which is active in most of the same markets plus Tampa, Salt Lake City and Los Angeles. According to the company, it’s currently doing around $125 million in buy-sell transactions per month. Its basic fee to sellers is 6 percent. Additional charges vary with the condition of the home, location and market trends. The average fee is 7 percent, according to Brian Bair, co-CEO.

Relative newcomers include Zillow – best known for its Zestimate valuation tool and advertising services it sells to realty agents-which is testing its “Instant Offers” program in three markets (Orlando, Las Vegas and Phoenix). Its model brings in institutional investors to bid on houses or allows Zillow to purchase directly for subsequent resale. Home sellers receive a comparative market analysis prepared by participating local Zillow “premier” agents. Sellers can accept the all-cash offer, list with an agent or shop for a better deal. Jeremy Wacksman, chief marketing officer for Zillow, told me total fees to sellers range from 8 percent to 15 percent, depending on expected repairs and updates and local market dynamics. Offers may be at a “slight discount” to market value, he added.

Redfin, a national realty brokerage, has begun offering its “Redfin Now” direct-buyer program in San Diego and California’s Inland Empire. Fees average 7 to 9 percent, according to Quinn Hawkins, Redfin new ventures director.

What to make of the iBuyer concept? Wherever you are, some version is probably coming your way. The concept offers you a tradeoff- You’re likely to net less on your sale but save significant time and hassle. You may not like the offer prices, fees or the repairs you’re asked to pay for, but you’re under no obligation until you commit to the deal. Meanwhile, you’ve got an innovative all-cash alternative to the traditional way of selling your home.

Are lower tax rates linked to higher home appreciation?

Are lower tax rates linked to higher home appreciation?

Kenneth R. Harney on Apr 20, 2018

WASHINGTON – Nobody likes getting tax bills, especially homeowners who are burdened with ever-escalating local property taxes. Last year, property taxes collected by local and state governments rose by an average 6 percent – $293.4 billion in total – almost three times the annual rate of inflation.

But the tax rates you pay are probably very different from what owners pay elsewhere. In Essex County, New Jersey, the average property tax on a single-family home last year was just under $12,000, according to a new study by ATTOM Data Solutions, a firm that tracks information on 155 million U.S. properties. In West Virginia, by contrast, the average was just $807.

Sure, average home values in New Jersey and West Virginia differ dramatically, as do the effective tax rates imposed by local governments to pay for the services they provide. But here’s a question- Is there a link between property-tax rates and the rate at which your home appreciates in value? Are areas with high housing costs and tax rates less likely to see high appreciation rates? Do markets with more affordable prices and low tax rates do better on appreciation?

It’s a complex subject. But ATTOM Data’s voluminous property-tax files, plus its trove of current and historical home value and price information, open the door to take at least a peek. For this column, I asked ATTOM to conduct a new statistical analysis, comparing recent appreciation rates and home-value data with effective local property rates around the U.S.

The findings are intriguing-

- Homes in areas with the highest effective property-tax rates – that is, the average tax rate expressed as a percentage of estimated home values – appear to have appreciated more slowly during the past year and the past five years on average than homes in markets with high tax rates. Homes in those areas increased in value by an average of 28 percent during the past five years and 3 percent in 2017.

- Homes in the middle third of markets, where effective tax rates are more modest, experienced higher rates of home-value appreciation – 35 percent on average over five years, 7 percent during the past year.

- Homes in the bottom third in terms of effective tax rates saw values increase faster – an average 42 percent over five years, 5 percent in the past year.

Daren Blomquist, senior vice president of ATTOM, cautions that there are exceptions to the overall trend here, “notably markets in Texas with high property-tax rates but also very strong home-price appreciation over the past year and five years.” Illinois has high tax rates (2.2 percent) yet saw average values statewide increase by 10 percent last year.

As a general rule, the highest effective tax rates in the nation are in the Northeast and the Midwest, with a smattering in Florida and Oregon. New Jersey had the highest overall rate (2.28 percent and an average five-year price appreciation rate of just 6 percent.) Connecticut’s 1.99 percent effective tax rate ranked it seventh highest nationwide. But the state experienced a one-year average price gain of just 1 percent and a five-year average of just 5 percent.

Maryland and Virginia average home prices are relatively high, but their effective tax rates are surprisingly moderate compared with the nation overall. Maryland posted an average rate of 1.03 percent and experienced a five-year, 15 percent average home-price gain. Virginia’s average tax rate was 1.05 percent; its five-year average gain 20 percent. The District of Columbia is a mixed bag – a below-average 0.65 percent effective rate on an average home value of $789,391, a 1 percent average value gain last year and a 26 percent appreciation rate over the past five years. California had a below-average effective property tax rate of 0.76 percent in 2017 and a one-year average gain in value of 8 percent.

What to make of these results? The study’s three general conclusions above are noteworthy, but keep in mind that the study’s scope and methodology were limited. Taxes alone do not determine demand – or home-appreciation rates. Multiple combined factors can also be important- local economic conditions, employment and school quality, among others.

But on average, low to modest tax rates appear to be connected to higher recent appreciation. If you’re on a fixed income and looking at potential retirement areas, or you’re a first-time buyer and affordability is key, tax rates may be an essential consideration.

Equity-affluent Americans have options for tapping into funds

Equity-affluent Americans have options for tapping into funds

Kenneth R. Harney on Apr 13, 2018

WASHINGTON – Americans are awash in record amounts of equity in their homes, posing the question for millions- So what do we do with it?

Leave it for a rainy day or retirement? Tap into it to remodel the house? Make a down payment on a vacation condo?

These are crucial financial decisions, but the abundance of equity is giving large numbers of owners options they didn’t have before.


- According to the latest Federal Reserve estimates, homeowners control more than $14.4 trillion in equity, up by nearly $1 trillion during 2017. This explosive growth is being driven by increases in home values and selling prices, tight inventories of houses for sale, and pay-downs of principal on existing mortgages.

- As a practical matter, not all of this can be turned into spendable cash. Only roughly $5.4 trillion is “tappable,” according to data analytics and software firm Black Knight. That is, it could be extracted by owners using loan types that require borrowers to retain at least 20 percent equity after a transaction. To illustrate, say you own a $400,000 house with a $200,000 first mortgage balance. You’ve got $200,000 in equity, putting aside transaction costs.

You’d like to transform some of it into cash to invest in a new business venture. How much can you get? Most lenders require that the total mortgage indebtedness secured by your home not exceed 80 percent of the property’s value – $320,000 in this case. So assuming that you qualify on credit and other criteria, you might be able to pull out up to $120,000 from your equity.

There are three main ways you can consider to accomplish this– Home-equity line of credit (HELOC). This is a credit line secured by your home equity that allows you to withdraw amounts you need whenever you choose. Typically, HELOCs come with floating interest rates tied to an index, often the bank prime rate. You pay interest-only for a pre-set period, at which point your outstanding balance comes due. Or the HELOC morphs into full amortization mode, requiring payments of principal plus interest.

Here’s an example of current HELOC terms from an active lender, TD Bank. Your house is valued at $400,000, you’ve got a $200,000 balance on a first mortgage at 3.25 percent that you snagged when rates were near historic lows. Assuming you’ve got solid credit, you might qualify for a $100,000 HELOC at an annual percentage rate (APR) of 3.99 percent, with monthly interest-only payments of $327.95.

Looks good. But there are complications- If you want to use that $100,000 for anything other than home improvement or purchase, your interest payments won’t be deductible under new tax rules. Plus, with the Federal Reserve planning to ratchet up interest rates, your interest costs likely will increase.

- Cash-out refinancing. This involves replacing your current first mortgage with a larger one, allowing you to pocket the additional funds. A downside here- The loan you exchange your precious 3.25 percent rate for is likely to cost at least one percentage point more than your current loan. And you should check with your tax adviser on what precisely may be deductible if your new total debt exceeds the amount of your original mortgage.

Here’s an example of a $100,000 cash-out refi using the same scenario above, provided by Paul Skeens, president of Colonial Mortgage Group in Waldorf, Maryland- Your new mortgage amount on your $400,000 home will be $300,000, with a new fixed-mortgage rate for 30 years at 4.375 percent, plus half a point (.5 percent of the loan amount). Your monthly payment comes to $1,497.86.

Skeens says in the present rising-rate environment, most of his clients are opting for the fixed-rate cash-out refi instead of a HELOC. But Freddie Mac deputy chief economist Len Kiefer says both cash-outs and HELOCs are likely to grow in popularity – the key difference being the rate owners have on their current mortgage.

- Home-equity loan. These are traditional second mortgages and come with fully amortizing fixed rates currently in the low and mid 5-percent range and higher, depending on your credit. TD Bank, for example, quotes a rate of 5.31 percent APR for 15 years with a payment of $805.98 for the same $100,000 deal discussed above. Some lenders offer more generous qualifying terms than HELOCs but have the same tax restrictions if you want to deduct the interest.

Bottom line- If you’re among the newly equity-affluent Americans, check out your options with lenders. Or just sit tight and enjoy the ride.