THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, January 7, 1995 TAG: 9501060369
SECTION: REAL ESTATE WEEKLY PAGE: 14 EDITION: FINAL
COLUMN: WHAT IT'S WORTH?
SOURCE: Thomas Tye
LENGTH: Long : 121 lines
Q. On Dec. 10 you noted that changes in the 1994 tax laws can make real estate investments more attractive now. I would like to know what the changes are. My husband and I have three small individual rental houses and two other properties which we rent out.
Was the reference made only to apartment buildings since that was the discussion? Would you please provide more information for me?
A. Beginning last Jan. 1, it became possible for real estate professionals to deduct an unlimited amount of real estate losses from their income. Prior to this change, the maximum deduction, as long as income did not exceed $100,000 per year, was $25,000.
If income exceeded $150,000 there could be no rental losses. The change in this law will only affect those people who either have very large amounts of rental losses or who have incomes in excess of $100,000 per year. It is, however, for all types of real estate, not just apartments.
To qualify for being ``in the business,'' it is necessary to be able to prove or support that a certain number of hours has been spent in real estate. This could include sales, leasing, management or the like. You should check with your tax advisor for exact details.
A benefit with this law is that married couples filing jointly may have either party designated a real estate professional and qualify for an unlimited amount of rental losses, regardless of income.
This change was effectively a technical correction to the 1986 tax laws, which limited the amount of depreciation and rental losses that could be deducted. The 1986 law hurt many people whose business was real estate and not just those that were participating in tax shelter deals, the aim of many 1986 tax law changes. Is a basement required?
Q. I live in a southwest section of the state and have had my house on the market for six to seven years. I have not had one offer. The different agents have had varying reasons for the house not selling.
In the area where I live, houses typically have a full basement. Mine has none and only a single-car garage. I also have a lot that is fairly steep and the house is much newer than most others in the area.
I have repeatedly asked the agents why my house has not sold and have been told that since I have a steep lot, no basement and only a one-car garage that the potential buyers are not interested. I have priced the house aggressively at my acquisition cost of 10 years ago.
I have also added rather expensive new carpeting and performed a number of improvements to make it more marketable. The front door now needs painting and there are some pet stains on my new carpet. Yet, I am reluctant to spend more money on this place.
I have not had an appraisal done and am at a loss because I have had so many differing pieces of advice during the past six years on what I need to do to sell the house. It is now vacant and I am more anxious than ever to move it. What would you suggest that I do?
A. I have several recommendations for you. The first is to obtain an appraisal from a local professional who prepares relocation appraisals. Relocation reports are usually commissioned by corporations in the process of transferring employees to new locations.
The corporations need very accurate values since they purchase the employee's home and then resell it. These reports are generally much more detailed than one obtained for mortgage financing purposes.
The appraisal will also indicate to you what improvements you need to make the house it marketable, what the marketing time is for the area and what price you should be able to command for the property if you specify a marketing time of, say, 60 to 120 days.
Make sure that you engage someone who has a considerable amount of relocation appraisal experience. Once the unbiased and objective appraisal is obtained you can then commence interviewing realtors.
As you mentioned, you have had the property listed a number of times but have not had one offer. If you feel any of these agents is qualified to sell the house, then by all means ask them to take a fresh look at it, give their opinion and then discuss a marketing strategy.
One thing that bothers me about your letter is that you indicated the primary reason for the house not selling is the lack of a basement and having only a one-car garage. It is unclear to me why people who wanted a basement and more than a one-car garage would be looking at your property to begin with.
Many agents will follow up with everyone who has looked at the house not only to get their comments but to find out if they actually purchased and what they purchased. Knowing that everyone who looked at your house wound up purchasing a house with a full basement and a two-car garage would indicate an obvious problem with the advertising program.
The target market should be those who are not interested in having that much storage space. This could easily be turned to your favor but at the very least should be noted in the listing and in any advertisements.
Coupled with a determination as to what the purchasers did actually buy, you should be able to get feedback from the agents who showed the house and the potential purchasers who looked at it. If the majority of the people who looked at your house bought other homes in the same price range as yours, and the basement and garage was not an issue, then they likely did not select yours because of the price.
The appraisal will help you with this and while you may have the property priced at your acquisition cost, the cost and the value can be two very different things. I doubt that any buyer would pay a sum for a house simply because of your expenditures; rather it is because the property meets their needs and is viewed as a good value.
I would most definitely paint the front door and either repair the pet stained carpet or replace that room of carpet with a like kind, quality and color. Other areas which are not as obvious may well be overlooked. With all of these items done, you should be able to sell your house within a reasonable marketing time. I would be sure to keep in contact with your agent for any feedback or suggestions that they have about what can be done to sell the house and what comments they are getting.
Even houses that have what are known as functional problems - the lack of a basement in an area where most homes have basements - are marketable. The fact that your house does not have these items may make it worth considerably less than some other homes with these features. However, you should certainly be able to sell the property at its value. MEMO: Thomas Tye is a Member of the Appraisal Institute and is a Senior
Residential Appraiser. He has evaluated commercial and residential
property in Hampton Roads for more than 15 years. Send comments and
questions to him at Real Estate Weekly, 150 W. Brambleton Ave., Norfolk,
Va. 23510.
by CNB