Real Estate

Ken Major Realty

113 West Main Street

New Roads, LA 70760

225-638-3310

www.kenmajorrealty.com

Joe Major

Owner/Broker/Realtor/ASR, ABR, B.S.

Q: I’ve heard about making lots of money in the foreclosure market. How can I find a great deal?

Q: My agent has asked me to sign an Exclusive Listing with his firm. He said this would help me because he could give me a 1% discount for doing so. Is this correct?

A: First, let's make sure the terminology is correct. An Exclusive Listing allows only one agency to show the property. It should not be confused with an Exclusive Right to Sell agreement which is the standard contract used when listing a home. If indeed the agreement you have been presented is an Exclusive Listing the 1 % discount is the only benefit you will receive. The agency gets a much greater benefit as they do not have to split with any other agency.

   An Exclusive Listing must be in writing as it generally conflicts with the Realtor ethical standard of cooperation. This is the guideline requiring Realtors to cooperate with other agents / agencies when in the best interest of the client. When firms allow other firms to show and sell property it benefits the client with tremendously more exposure for their property. The whole idea behind a Multiple Listing Service (MLS) is make the home accessible to all other Realtors and their clientele. Exclusive Listings are not allowed in the MLS during marketing. The MLS is not only a Realtor database but has public applications through broker exchange and the internet. For example, if Acme Realty lists a home in Shenandoah the information is accessible from my website and hundreds of others.

   More problems can arise for the seller because of vicarious liability from the single agent / firm representation. The potential buyer's interest in the property may force a dual agency relationship, an implied, undisclosed dual agency relationship or an unrepresented buyer. All of these bring potential liability to the seller which can be limited by cooperation.

   It should also be noted that the 1 % discount you receive may actually cost you more than that. A possible scenario could be listing your home with a cooperating agency. Upon placing your home in MLS a qualified buyer from out of the area has his agent show your home and presents a full price offer asking for a 3 % seller contribution towards closing costs. Let's say that the agency listed your at home 6%, you are netting approximately 91 % of the transaction. If the home was listed exclusively this buyer would have not been aware of its availability. After 3 months of marketing your exclusive agent presents you with an offer for 5% less than the listing price and advises you that since you have not been presented any other offers that you should take it. With his 5 % listing your net is now only 90 % of the listing price. The discount cost you 1 % and the agency made an extra 2 %.

Q: What is a like-kind exchange?

A: A like-kind exchange allows tax deferment of capital gains for certain real property. The property disposed of and the property disposed of and the property acquired must qualify as investment or business use. There is a 45 day period from the closing of the property disposed to identify potential acquisitions under the section. Within 180 days of closing you must acquire the new property. The section also states that an independent Qualified Intermediary must prepare the documents and escrow funds. The property purchased must also be titled to the same individual or entity which disposed of the original. Finally, the gain must be reinvested (including all cash from the transaction) into the like-kind property. You can purchase a property that which is less than the gain realized but will be taxed on the difference. For more information contact your tax advisor or the IRS.

Q: What are closing costs and how much do they run?

A: Closing costs consists of a variety of fees associated with the transfer of real property. In a simple cash sale they consist of attorney fees, recording fees and title insurance (if applicable). In a financed transaction bank fees usually account for a considerable part of closing costs. Generally, banks charge 1 to 2 % of the loan amount as an origination fee. Appraisal, processing, credit reporting, underwriting, wiring, and overnighting fees also come into play. There are also items a lender will require to be prepaid such as prorated interest and required insurance premiums and reserves. Sellers pay cancellation of mortgage if they have the property collateralized and real estate commissions if applicable. Some loans allow a seller to pay a portion of buyers fees if negotiated in the sales price provided the appraisal is sufficient. The dollar amount of closing costs vary tremendously based on the transaction.

Q: How much has property appreciated per year in the last five years?

A: It is difficult to show true appreciation without intensive research. Locally (Pointe Coupee Parish) we have some statistical figures which must be taken in context. The samples were small and limited to homes, waterfront and commercial properties which had sold more than once in the five year timeframe. Based on the limited data groups we found appreciation rates of 10%, 8%, and 13% annually, for homes, waterfront and commercial, respectively.

Q: I am thinking about buying real estate for investment. What should I look for?

A: There are several different avenues for investment property depending on your goals risk level. Rentals are a hot ticket right now due to high demand and low supply. The rental market on the West Bank has had a lot of run-off from the Baton Rouge shortage. Also, the Audubon Bridge is bringing several hundred people as residents for the next three to five years. Cajun's new unit has turn-around employees coming into the area in groves. Lack of apartments, small homes and hotels are yielding premium rental.

   For longer term holding vacant land has a certain appeal. Although generally not income producing, vacant property held for investment may appreciate more than some traditional opportunities. If interest continues to rise it can adversely affect prices, but the economic growth on the west side and south Louisiana in general creates a shelter against this by decreasing the elasticity of demand for land.

Q: I have seen an infomercial about real estate investment with no money down. Is this a scam or does it work?

A: Carlton Sheets and the like make a fortune, but not in real estate. Their programs are premised on owner held notes, seller kickbacks and under valuation. The is fine and dandy in a theoretic world, but not likely in an open market. Real Estate Investment can be quite lucrative but also carries risk. Save money, build credit and become knowledgeable about the particular market you are interested in. Keep your $250 and let the self proclaimed gurus try to work for a living.

Q: I own property on False River which has appreciated substantially in the past hew years. Do you think it will continue to appreciate or has it topped out?

A: There are no certainties in any investment. However, False River has some unique characteristics which make the demand for lakefront somewhat more inelastic than other properties There can be a significant disparity between the selling price of similar camps and homes. Vacant lake front properties are a little more consistant because value is derived based on location and topography, but there are still outlyers. High interest rates typically put downward pressure on prices but population increases normally counter the effect. As with any investment the term of the time held is a factor. In the short run real estate fluctuates but is generally thought a low risk for long term holding. False River is a 13 mile lake with a growing community infrastructure, although some lake conditions could decrease desirability if not corrected. In short, real estate property held long term typically appreciated with less risk than other investments. Short term and property specific variables can yield negative price adjustments. With its unique nature, False River  is somewhat sheltered as long as it continues to be a desirable lake front community. Another potential adjustment may surface when older camps yield added value are deemed undesirable and become a negative variable.

Q: I am thinking of selling my home. What are the pros and cons of using a Realtor?

A: The only con is, of course commission. If you have bought and sold before and have a very flexible schedule you may consider the for sale by owner avenue. There are many benefits of using a Realtor. The first is simply availability to show the property at times convenient to the potential buyer. Realtors are also familiar with legalities of contract law as it pertains to Purchase Agreements, state required disclosures, and other documents associated with the sale of real estate. An agent is a liasion between the seller and the buyer's mortgage  company, lender and closing attorney. Realtors provide liability protection to the seller as they are duly licensed by the State of Louisiana to explain details of the transaction, negotiate the sale and point out possible legal recourse as defined in the associated contracts. Marketing a home (local papers, internet, Multiple Listing Service, home publications, etc) is usually more cost effective for a real estate firm because of the other homes in it's inventory. An agent can also help the seller to arrive at an asking price based on statistical area date which prevents the home from being sold under fair market value.

Q: I am thinking about a career in real estate. What are the educational requirements?

A: To be licensed in Louisiana you must complete a 90 hour licensing course first. The course if available in a live classroom and now online. At the completion of the course you will have to sit for two examinations, state and national. Most realty firms also require joining the local Board, which administers the Multiple Listing Service. The Board usually has additional training requirements. The state also requires 30 hours of post-licensing continuing education the first calendar year after the license is obtained. Throughout the remainder of an active license there is an 8 hour continuing education requirement annually.

Q: I am thinking of selling my house but am worried about taxes. What are the criteria for excluding capital gain on my home?

A: To claim an exclusion on the sale of a primary residence you must meet two test, ownership and use. Within 5 years prior to sale you must have owned the home fro at least two years and lived in the home as your primary home for at least two years. The two year occupancy does not have to be concurrent as long as the home was occupied as a primary residence for 730 days within the five year period. The exclusion has a maximum $250,000 gain or $500,000 married filing jointly. If occupancy was less that 730 days the IRS also provides an exemption to the two year rules when the primary reason for he sale is due to "unforeseen circumstances, " including health and place of employment changes, at a reduced maximum exclusion. Your tax professional can provide further information and the IRS has an informative website at www.irs.gov

Q: How does Katrina affect my property value?

A: In the short term environment, you should see some appreciation of property values due to increased demand in our area. Many families from New Orleans who have relocated will stay. However, with the rebuilding process you will also have inventory being placed back on the market from those going back to the city. Baton Rouge and the surrounding communities have experienced moderate growth over the past few years,  even in a somewhat stagnant economy. This growth should continue coupled with an increase in the local economy running off Federal and private rebuilding efforts. Keep in mind that the predicted rise in interest rates will limit appreciation, but Louisiana should be sheltered from the real estate "bubble burst" predicted, at least for the next few years.

Q: I've heard that I should make extra payments to my mortgage. How much does this really help?

A: Tremendously. The following are examples of the savings of prepayment. In general you should prepay unless you would be making the same prepayment to a higher interest debt. If you have a credit card at 12% interest, you would, of course want to pay it off first. The table is based on a $100,000 principal, financed at 6% for 30 years.

Q: I am selling my house by owner. What do I have to disclose to a potential buyer?

A: Everything! A potential buyer need to be aware of any and all defects known by the seller. Under redhibition, a buyer can rescind a sale for a detrimental defect even if it was unknown to the seller. If the seller acted in good faith (was unaware of defect) a buyer can file suit for redhibition within one year of the delivery date. If the seller acted in bad faith the action must be filed within one year of discovery of the defect. In a Purchase Agreement the redhibition right can be waived with proper verbage and recorded in the Act of Sale. If you are selling your home you must by law provide your buyer with a Property Disclosure Document (LSA-R.S. 9:3195-3199.) The supporting statues can be found at www.legis.state.la.us and the disclosure form, as well as other documents, can be found at the Louisiana Real Estate Commissions website www.lrec.state.la.us

Q: How much of a house can I afford?

A: A generally good estimate is taking 1/3 of your gross monthly income and subtracting out monthly debts. Debts do not include regular bills such as phone and utilities, but rather items financed (i.e., car note, credit cards, etc.) The figure you arrive at will be the total monthly house note including escrows (insurance, property tax?) For example a $100,000 home financed at 6% interest for 30 years is $600 monthly to principle and interest plus escrows.