What Kind of Taxes Impact a Real Estate Transaction?

The capital gains tax and property taxes both have a large impact on real estate transactions. Here’s what you need to know about them.

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When it comes to a real estate transaction, there are two major types of taxes you need to know about: the capital gains tax and property taxes. A capital gains tax is levied on the profit you receive from selling a property, while property taxes are based on the value of the property itself. 

People often assume if they’re selling their house and that house is their primary residence that they’ll have to buy a new house to avoid getting taxed, so here’s how each tax applies to a real estate transaction and how you can take advantage of them.

Regarding the capital gains tax, if you have lived in a house you’re selling for two out of the last five years, the IRS considers that house your primary residence. If you’re a single person and have a gain of up to $250,000 on your sale, that $250,000 sum is tax-free. Anything above that and you will have to pay whatever your capital gains tax rate is. If you’re married, you can keep up to $500,000 of your capital gain on the sale.

If you’re afraid of moving because of how taxes will impact you, don’t be.

When it comes to property taxes, we have many people living in our area who’ve lived in their house for a long time who don’t want to move because they don’t want to lose their low tax base.

For example, let’s say you paid $200,000 for your house and the property tax was 1% per year, which means you paid roughly $2,000 a year. If you want to sell the house now for $1.5 million and buy your next house for $1.6 million, your new property tax will be based on that $1.6 million price tag. That means you’d go from paying $2,000 a year to paying $16,000 a year.

There is a solution for this dilemma, and it’s called Proposition 60. This proposition allows you to move your tax base to another property. If you sell for $1.5 million and you buy another house of equal or less value, you can simply transfer that tax base and continue paying $2,000 a year.

The primary purpose of this proposition is to allow couples who’ve lived in their house for a long time and don’t have kids around anymore to sell that house and buy a smaller one without getting burdened with a higher property tax.

If you have any questions about these two types of taxes or are looking to buy or sell a house, don’t hesitate to reach out to me. I’d be happy to help you!

How to Determine Your Home’s Value

Today I’ll go over how you can determine the value of your home in today’s market.

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How do you determine value in real estate?

The first thing we do to determine the value of your home is compare the features and benefits of your property with the features and benefits of similar homes that are currently on the market or have recently sold.

For example, does your home feature a popular floor plan? Does it have easy access to a backyard? Does it have a view? Is it a one-story or a two-story home? All of those things affect the value of your home.

The value of your home will also depend on who you are competing with in the market. If there are 20 buyers that are looking and there is only one property available, that home’s price will increase. If there are more homes on the market than there are buyers, you might not get top dollar for your home.

There are a lot of factors that determine the value of a home.

Before I meet with homeowners, I pull a list of homes that are in escrow to find out if they got a good price, multiple offers, or if they had any challenges. This helps me prepare to sell your home.

If you have any other questions about determining value, or if you have any other real estate questions, please feel free to give me a call or send me an email. I look forward to hearing from you!

The Top 3 Reasons Why a Transaction Fails

Why do some real estate transactions fall apart? There are many factors in the real estate process, but there are three main ones that cause transactions to fail.

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Sometimes, real estate transactions can fall apart. It’s unfortunate, but it happens.

One of the biggest things you have to understand is that your agent’s job is to make the process as seamless as possible. When nothing goes wrong, that is when the agent has done their job for you. After all, the best way to prevent any obstacle is to get in front of it.

That said, there are three common reasons why real estate deals fail:

1. The home inspection. Sometimes, buyers look at the inspection and ask the seller to make thousands of repairs, which is not a good strategy. Instead, make sure that major items like the roof or HVAC system get taken care of. Smaller, cosmetic issues don’t need to be fixed by the seller.

Don’t get emotionally involved in the negotiation process.

2. Real estate agents. Too often, I see real estate agents become emotionally involved and get in the way of their clients' best interest. It’s important to hire the right agent to take care of your needs.

3. Negotiations. I have seen buyers send in lowball offers many times. If you are selling a home for $1 million and the buyer sends in an offer that’s $60,000 below market value, it’s easy to get upset. As your fiduciary, I recommend that you make a counteroffer. It’s easy to get offended and dismiss an offer, but you never know what will happen. I want to get you the highest profit so that you can get the greatest return from the value of your house. Let me be your third-party negotiator; whether you are buying or selling, don’t get emotionally involved during negotiations.

If you want to have a successful real estate transaction, it’s important to be aware of these mistakes so that you can avoid them. If you have any other questions about buying or selling a home, just give me a call or send me an email. I would be happy to help you!

4 Home Selling Tips

You can sell faster and for more money than your neighbor. Here’s how.

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How can you sell your home faster and for more money than any other homes in your neighborhood? I’ve got four tips to share with you today that will help you do just that:

1. Landscaping and curb appeal. It’s important to update your landscaping, and curb appeal is huge. If buyers don’t like the outside of the home, they may never come in and see the inside. Trim your shrubs, get rid of weeds, and put a fresh layer of mulch down to make the landscaping look new again.

2. Consider new paint. Nothing will make a home feel brand new like new paint on the walls. In the grand scheme of things, it’s relatively inexpensive but can pay huge dividends when it’s time for buyers to make an offer. We have some great painters that our team works with and we can set you up with one that is fair and reasonably priced.

New paint makes a home feel brand new.

3. “Move out” and clear the home of clutter. If you are able to move out of your home to get it ready, you should. If you can’t, you should do all you can to make it look like you are moved out. This means getting rid of all the clutter in every single one of your rooms. The more things you have, the more clutter buyers feel. The more clutter there is, the smaller the home feels. If you can declutter well, the home will show well. Those type of homes get higher offers than most.

4. Price it right. To help price homes, we use a software that I don’t know any other company in the Bay Area is using. We are able to look at a ton of information, including data about whether homes that had a price change or multiple price changes sold for a higher amount than homes that sold at their list price. We found that a home that's priced correctly from the beginning sells quicker and for more money than the homes that reduce their price. A home that is priced correctly will net you more money on that bottom line.

If you have any questions or want any more tips, don’t hesitate to reach out and give me a call or send me an email. I would love to hear from you.