Posts
When I speak with people about listing their homes for sale today the first question from them usually goes like this, "what's my home (or condo, or lot, etc) worth?" This is a situation in which words make a difference. Here's why.
When someone asks "what's it worth" they are really asking how much they can get for it if they sold it. In other words, the market value of the property. Why does it matter how the question is asked? Because words like "worth" have deep emotional connotations. By making the sale of the property deeply attached to individual identity and other emotional triggers property sellers (and buyers) are making a big mistake. How big? Well, if all of the overpriced (and I'll explain below what that means) properties on the real estate market today were removed tomorrow everyone would be better off. Including the seller's who want too much for their property. Please note. I'm not talking about people who really need to sell their property now. When foreclosure, illness or relocation prompt the sale of property motivations and needs are entirely different.
Let's use an example like gold to illustrate the difference. The market price of an ounce of gold today is somewhere north of $900. Several years ago that same ounce of gold only brought $400 or so. In the future the price will again drop. Now, in all of these periods the gold is exactly the same. Same weight, same number of atoms and molecules in an ounce, same color. The only difference is demand. You can argue the demand fluctuated according to any number of emotions or economic conditions, I won't disagree. The fact is that the market price of gold changes but it's still the same gold. There's no fundamental difference in the gold itself.
The same rules apply to real estate. When an owner asks me "what's it worth" I try to help them understand the real question is "what's the current market value"? Once we have an agreement on terminology the fireworks begin. A common reply is "that's crazy, I'm not giving my house away!". So lets take the gold example and apply it to the home.
Assuming no remodeling or changes to the home or neighborhood we know the house is the same today as it was last year and (allowing for normal wear and tear) the same it will be next year. So, if the house is the same but prices are different it must be attributable to demand. As we all know from Econ 101 demand drives price and lack of demand lowers price. The problem in the real estate market is when individuals want the economic model to work one way, as in "the market price of my house goes up when demand is great, but the market value of my house does not go down when market demand decreases". Unfortunately you can't have it both ways.
This is where the emotional triggers come in to play. To accept that the home you paid $500,000 for in 2005 only brings $350,000 today takes a bit of maturity. It requires one to accept the reality of the situation as a function of an impartial market at work and then decide to price the home at today's market or to realize that it would be better to wait.
Why would removing all overpriced properties from the market benefit everyone, including those who are overpricing their properties? Supply and demand. Let's say a neighborhood has 10 homes for sale. If those which are overpriced (not foreclosures and short sales, only those where the owner's attitude is "let's put it on the market and if someone pays my price I'll sell") were removed then the inventory of homes drops. As the available inventory drops, demand rises and prices increase.
We can repair the real estate market very quickly if those seller's who aren't really motivated to sell withdraw their property from the market tomorrow.
Friday, June 12, 2009
Wednesday, February 25, 2009
Foreclosures aren't being given away
I've been working with several buyers lately interested in foreclosures. The buyer's assumption going in to the process is that because the properties are foreclosures, they can be bought for pennies on the dollar. Unfortunately this isn't the case. At least not in Myrtle Beach.
I think the main reason for this idea is the old saying that 'banks don't want to be in the property owning business'. And that's true. But to take that idea and stretch it to assuming that banks will sell property for pennies on the dollar is a big mistake. I should also point out that maybe banks in Toledo Ohio or Scranton Pennsylvania, just for example, might be willing to do this, but not in Myrtle Beach SC.
To demonstrate this fact I looked up all foreclosure sales on our local MLS. I simply determined the difference between the asking price of the property and the final selling price. I then totaled up the percentage differences and divided that sum by the number of entries. I'll be the first to admit I'm not a statistician, but I think the formula gives a pretty accurate answer. The results were not surprising to me, but they might be to buyers.
For the month of January 2009 (Jan 1-Jan 31) the average difference between asking and closed price was...... 4%. That's right, banks on average sold property for only 4% less than they began the process with. For the last quarter of 2008 (Oct 1- Dec 31 2008) the average difference was 5%.
Now we all know about the people who said they got a great deal on a foreclosure. Some folks claim up to 50% off. A couple of points to consider. People have a natural tendency to exaggerate. And while it is possible that some limited cases were extreme discounts, the average is clearly not that high.
Another point to reflect on. Most properties that sold at big discounts were probably severely distressed. By that I mean the property was in a condition that most people wouldn't want to buy into. Investors and people with a lot of experience in rehabbing properties would find this attractive but the average buyer would be in way over his or her head.
Gives you pause for thought, doesn't it? By the way, I also found several instances where the final sale price was actually HIGHER than the asking price!! Why? Probably buyers became involved in bidding situations while the bank sat back and watched the offers rise. That's a good sign for the housing market. Every property has a natural point at which it is priced correctly. That is priced for the market. Sometimes multiple buyers become aware of the property at this price and multiple offers appear.
So, what's a buyer looking for a bargain to do? Your first step should be to get pre-approved by a bank for a mortgage. Next, contact a Realtor and explain to them what you want to do. When a Realtor learns you're pre-approved for financing he'll know you're serious about buying. Once you've consulted with the Realtor about what you're looking for he'll go to work for you and find you the great deals you want. But don't blame the Realtor if the banks aren't willing to give the property away for the discount you think is appropriate.
If you're interested in buying property in the Myrtle Beach SC area please contact me and I'll be happy to discuss your ideas with you.
I think the main reason for this idea is the old saying that 'banks don't want to be in the property owning business'. And that's true. But to take that idea and stretch it to assuming that banks will sell property for pennies on the dollar is a big mistake. I should also point out that maybe banks in Toledo Ohio or Scranton Pennsylvania, just for example, might be willing to do this, but not in Myrtle Beach SC.
To demonstrate this fact I looked up all foreclosure sales on our local MLS. I simply determined the difference between the asking price of the property and the final selling price. I then totaled up the percentage differences and divided that sum by the number of entries. I'll be the first to admit I'm not a statistician, but I think the formula gives a pretty accurate answer. The results were not surprising to me, but they might be to buyers.
For the month of January 2009 (Jan 1-Jan 31) the average difference between asking and closed price was...... 4%. That's right, banks on average sold property for only 4% less than they began the process with. For the last quarter of 2008 (Oct 1- Dec 31 2008) the average difference was 5%.
Now we all know about the people who said they got a great deal on a foreclosure. Some folks claim up to 50% off. A couple of points to consider. People have a natural tendency to exaggerate. And while it is possible that some limited cases were extreme discounts, the average is clearly not that high.
Another point to reflect on. Most properties that sold at big discounts were probably severely distressed. By that I mean the property was in a condition that most people wouldn't want to buy into. Investors and people with a lot of experience in rehabbing properties would find this attractive but the average buyer would be in way over his or her head.
Gives you pause for thought, doesn't it? By the way, I also found several instances where the final sale price was actually HIGHER than the asking price!! Why? Probably buyers became involved in bidding situations while the bank sat back and watched the offers rise. That's a good sign for the housing market. Every property has a natural point at which it is priced correctly. That is priced for the market. Sometimes multiple buyers become aware of the property at this price and multiple offers appear.
So, what's a buyer looking for a bargain to do? Your first step should be to get pre-approved by a bank for a mortgage. Next, contact a Realtor and explain to them what you want to do. When a Realtor learns you're pre-approved for financing he'll know you're serious about buying. Once you've consulted with the Realtor about what you're looking for he'll go to work for you and find you the great deals you want. But don't blame the Realtor if the banks aren't willing to give the property away for the discount you think is appropriate.
If you're interested in buying property in the Myrtle Beach SC area please contact me and I'll be happy to discuss your ideas with you.
Sunday, February 15, 2009
Why is earnest money important in a real estate purchase?
An earnest money deposit submitted with an offer to purchase real estate might seem like a simple matter. In fact it's a very important statement. For many buyers the only real concern is to make the deposit for as little as possible and to make sure they can get it back. But to sellers of real estate an earnest money check represents an intangible. It represents commitment. When the time comes to give the Realtor the earnest money deposit check people often begin to squirm. When asked "how much should I make the check out for" they seldom agree with the answer. Why? Because they only see the check as a way to lose money. In fact, it's a way to guarantee a purchase.
Think about the average buyer making an offer on a condo. Of course they want to buy the condo for as little as possible. No problem there. The Realtor representing the buyer should be trying to achieve that very goal. So the buyer assumes something like $100 or $500 should be OK. Not OK. Here we have a lack of commitment. There's no real 'skin in the game'. My rule is 2% of the offer price.
Back to the condo buyer . For a condo on which we're offering $300,000 against an asking price of $425,000 a check for $500 is not realistic. We should be submitting a check for $3000.
Buyers should realize that a seller who accepts your offer to purchase is taking their property off of the active market. The seller is taking the risk that a better buyer might come along while the property is tied up in a contract. A better buyer who is willing to pay more, pay in cash and eliminate the possibility of the deal falling apart due to financing or both.
The seller wants to make sure you aren't going to back out of the purchase. The best way to do that is to have your commitment. Nothing says 'commitment' in a real estate transaction like money. You've got to have something to lose that makes the idea of walking away from the transaction out of the question. The only thing with that kind of power is money. Your money. At risk.
Now, we're not talking about transactions which don't close because of something beyond your control. If the financing has been addressed properly in the contract and you can't obtain financing to close the transaction your earnest money will be returned to you happily. If the home burns to the ground before closing or the termite inspection discovers a termite problem you won't have any trouble getting all of your money back. In fact, if the contract was constructed correctly there's virtually no chance you'll lose your earnest money deposit. If you don't feel confident that your Realtor will protect your money you should find another Realtor.
By the way, earnest money is one of the most common problems that occur when people buy property from a seller directly without a Realtor to protect the buyer's interest. The buyer or the seller (usually both) are not educated as to how to make a contract that protects both of their interests. In the event the transaction doesn't close the seller often keeps the earnest money and the buyer doesn't have any protection.
But, if you decide a week before closing that you can't afford the home or would rather buy something else, you're going to lose your escrow deposit. As you should. In a case like this you're making a decision not to abide by the contract you signed and you have no recourse to your earnest money. There's a very simple way to avoid this problem. Don't ever make an offer to buy a property if you're not 100% serious about buying it.
When I act as a seller's agent and receive an offer to purchase with an inappropriate earnest money deposit I recommend to the seller that the contract be returned requiring more money. The seller will usually accept this recommendation. If the buyer refuses to put more of his money into the deposit my sellers will usually reject the offer. Why? Experience has shown people who don't make a 'good faith' earnest money deposit don't close deals. 'Good faith' here means an escrow deposit of 2% of the offer price or more.
If you are dealing with an ethical Realtor who is acting as your agent in the purchase of real estate your money will be protected. Consider his or her advice. If you're unsure about the agent contact the state real estate oversight commission and the local Realtor association. Both will be happy to tell you if the Realtor is reputable. A special note here about those real estate agents who work 'on-site' in the models of home builders. You should know that they represent the seller. No matter how nice they are they are employed by the seller/builder and are obligated to look after his interests, not yours. Some of them will be willing to accept designated agency in your transaction. If they will not you should get a Realtor from a general brokerage to represent you in the purchase.
Think about the average buyer making an offer on a condo. Of course they want to buy the condo for as little as possible. No problem there. The Realtor representing the buyer should be trying to achieve that very goal. So the buyer assumes something like $100 or $500 should be OK. Not OK. Here we have a lack of commitment. There's no real 'skin in the game'. My rule is 2% of the offer price.
Back to the condo buyer . For a condo on which we're offering $300,000 against an asking price of $425,000 a check for $500 is not realistic. We should be submitting a check for $3000.
Buyers should realize that a seller who accepts your offer to purchase is taking their property off of the active market. The seller is taking the risk that a better buyer might come along while the property is tied up in a contract. A better buyer who is willing to pay more, pay in cash and eliminate the possibility of the deal falling apart due to financing or both.
The seller wants to make sure you aren't going to back out of the purchase. The best way to do that is to have your commitment. Nothing says 'commitment' in a real estate transaction like money. You've got to have something to lose that makes the idea of walking away from the transaction out of the question. The only thing with that kind of power is money. Your money. At risk.
Now, we're not talking about transactions which don't close because of something beyond your control. If the financing has been addressed properly in the contract and you can't obtain financing to close the transaction your earnest money will be returned to you happily. If the home burns to the ground before closing or the termite inspection discovers a termite problem you won't have any trouble getting all of your money back. In fact, if the contract was constructed correctly there's virtually no chance you'll lose your earnest money deposit. If you don't feel confident that your Realtor will protect your money you should find another Realtor.
By the way, earnest money is one of the most common problems that occur when people buy property from a seller directly without a Realtor to protect the buyer's interest. The buyer or the seller (usually both) are not educated as to how to make a contract that protects both of their interests. In the event the transaction doesn't close the seller often keeps the earnest money and the buyer doesn't have any protection.
But, if you decide a week before closing that you can't afford the home or would rather buy something else, you're going to lose your escrow deposit. As you should. In a case like this you're making a decision not to abide by the contract you signed and you have no recourse to your earnest money. There's a very simple way to avoid this problem. Don't ever make an offer to buy a property if you're not 100% serious about buying it.
When I act as a seller's agent and receive an offer to purchase with an inappropriate earnest money deposit I recommend to the seller that the contract be returned requiring more money. The seller will usually accept this recommendation. If the buyer refuses to put more of his money into the deposit my sellers will usually reject the offer. Why? Experience has shown people who don't make a 'good faith' earnest money deposit don't close deals. 'Good faith' here means an escrow deposit of 2% of the offer price or more.
If you are dealing with an ethical Realtor who is acting as your agent in the purchase of real estate your money will be protected. Consider his or her advice. If you're unsure about the agent contact the state real estate oversight commission and the local Realtor association. Both will be happy to tell you if the Realtor is reputable. A special note here about those real estate agents who work 'on-site' in the models of home builders. You should know that they represent the seller. No matter how nice they are they are employed by the seller/builder and are obligated to look after his interests, not yours. Some of them will be willing to accept designated agency in your transaction. If they will not you should get a Realtor from a general brokerage to represent you in the purchase.
Thursday, February 12, 2009
New DUI laws in SC
South Carolina is getting tougher on drunk drivers. New laws went into effect this week. These new laws require larger fines, longer jail sentences and even the use of breathalyzers connected to the ignition of cars.
The law also created a 'tiered' system of punishments for people convicted of driving under the influence. The state's legal limit for intoxication is .08. The tiers take affect at levels .10 and .16. People above these limits will receive harsher penalties than others.
The new laws work like this:
First time offenders who are convicted can receive jail time up to 90 days at the court's discretion.
Drivers convicted of a second offense will lose their license for 1 year. Jail time is left to the discretion of the judge. The court can impose jail for a second offense from 5 days to one year. To get the license back after suspension the second time offender must pay for a breathalyzer and pay to have it installed in their car. The system also requires a $90 per month fee.
The breathalyzer will prevent the car from starting if the person blowing into it has a blood alcohol content of .02 or higher.
Third time offenders will be fined from $38,000 to $63,000. They can also receive jail time of 60 days to 3 years.
Those convicted of a fourth offense don't have many options. No fines but jail time from 1 to 4 years.
A lot of people don't think the breathalyzer works. Here's a statistic for you. Arizona began requiring the use of breathalyzers on ignitions of cars driven by first time offenders in 2005. DUI related deaths there have dropped 50%!! I'll take that kind of performance any day.
Let's face it. Myrtle Beach is widely regarded as a party town. But for those who don't know when to stop life is going to become very uncomfortable.
The law also created a 'tiered' system of punishments for people convicted of driving under the influence. The state's legal limit for intoxication is .08. The tiers take affect at levels .10 and .16. People above these limits will receive harsher penalties than others.
The new laws work like this:
First time offenders who are convicted can receive jail time up to 90 days at the court's discretion.
Drivers convicted of a second offense will lose their license for 1 year. Jail time is left to the discretion of the judge. The court can impose jail for a second offense from 5 days to one year. To get the license back after suspension the second time offender must pay for a breathalyzer and pay to have it installed in their car. The system also requires a $90 per month fee.
The breathalyzer will prevent the car from starting if the person blowing into it has a blood alcohol content of .02 or higher.
Third time offenders will be fined from $38,000 to $63,000. They can also receive jail time of 60 days to 3 years.
Those convicted of a fourth offense don't have many options. No fines but jail time from 1 to 4 years.
A lot of people don't think the breathalyzer works. Here's a statistic for you. Arizona began requiring the use of breathalyzers on ignitions of cars driven by first time offenders in 2005. DUI related deaths there have dropped 50%!! I'll take that kind of performance any day.
Let's face it. Myrtle Beach is widely regarded as a party town. But for those who don't know when to stop life is going to become very uncomfortable.
Friday, January 30, 2009
When is a condo not condo? When it's a condo-tel!!
Did you know that 90% or more of the oceanfront rooms in the Myrtle Beach area are not hotel rooms? In fact they're privately owned condominiums. From the older buildings dating from 70s to newly constructed high-rises.
To the average person renting one for a vacation this doesn't really matter very much. As far as they're concerned a room is a room. It does matter to people who want to purchase one for their use or as an investment. Why? Because banks who lend the money to buy them have a special term for these places: Condo-tels.
A condo-tel is a condominium building (usually oceanfront in the Myrtle Beach area) in which the condos are individually owned and the building has certain characteristics not found in other oceanfront resort buildings. Some golf course condo communities also fit this description. These characteristics include:
Hotels offer these as well. If these features are on-premise the building will almost always be labeled by banks and mortgage lenders as a condo-tel. Why should this matter to buyers?
Because mortgage lenders don't like to lend on these properties these days. Back during the big real estate boom the lenders were more than happy to lend huge amounts for these units.. The incentive for the buyer was to buy the unit, take out multiple mortgages on the property(often up to 120% of the value of the unit) and then flip it to someone else. The new buyer paid up to cover the mortgages, pay the seller a tidy profit and then hoped to do the same thing themselves. And so it went for several years. This speculation in real estate is one of the main reasons for the big run-up in prices here. When the good times came to an end and the owners left holding the bag (or mortgage) couldn't flip them they began to walk away from their mortgages. Immediately the lending market for condo-tels collapsed.
So now very few lenders will take a mortgage on oceanfront condo-tels. If you're in the market to buy an oceanfront unit (whether you intend to rent it or actually use it yourself as a vacation home) you will be hard-pressed to find a lender to act on it.
A few lenders are still doing business on condo-tels though. Lenders that lend on condo-tels will usually require the following:
Each lender has specific requirements but these are a good rule of thumb. Also, don't be surprised if the loan is denied even if you meet all of the guidelines at the beginning. Quite often banks kill deals in underwriting because they have a general uneasy feeling, even if you and the property meet all of their guidelines. Banks will delay until your purchase contract expires, ask for review appraisals, demand more money down, etc. I've seen more than one deal fall apart just before closing because the lender didn't want to make the loan and found a way out.
Your best bet for buying a condo-tel is to pay cash. If you're paying cash and can close quickly you'll get a better deal from the seller. If you can't pay cash have everything the bank wants up front and get a letter of pre-approval before making any offer on the property. Don't accept a letter of pre-qualification. Only accept a letter of pre-approval that demonstrates your loan request has been fully underwritten and is subject only to a review by the bank of the specific property you want to buy.
Finally, and most important, work with an experienced Realtor. A Realtor representing you will have your best interests in mind and can help keep the deal together and get you the property of your dreams. If you would like to know more about condo-tels or owning property in the Myrtle Beach area feel free to contact me. Now, where is the sunblock and that Pina Colada?
To the average person renting one for a vacation this doesn't really matter very much. As far as they're concerned a room is a room. It does matter to people who want to purchase one for their use or as an investment. Why? Because banks who lend the money to buy them have a special term for these places: Condo-tels.
A condo-tel is a condominium building (usually oceanfront in the Myrtle Beach area) in which the condos are individually owned and the building has certain characteristics not found in other oceanfront resort buildings. Some golf course condo communities also fit this description. These characteristics include:
- A front desk for rental guests to check-in.
- Housekeeping service for the room/condos.
- Restaurants and bars.
Hotels offer these as well. If these features are on-premise the building will almost always be labeled by banks and mortgage lenders as a condo-tel. Why should this matter to buyers?
Because mortgage lenders don't like to lend on these properties these days. Back during the big real estate boom the lenders were more than happy to lend huge amounts for these units.. The incentive for the buyer was to buy the unit, take out multiple mortgages on the property(often up to 120% of the value of the unit) and then flip it to someone else. The new buyer paid up to cover the mortgages, pay the seller a tidy profit and then hoped to do the same thing themselves. And so it went for several years. This speculation in real estate is one of the main reasons for the big run-up in prices here. When the good times came to an end and the owners left holding the bag (or mortgage) couldn't flip them they began to walk away from their mortgages. Immediately the lending market for condo-tels collapsed.
So now very few lenders will take a mortgage on oceanfront condo-tels. If you're in the market to buy an oceanfront unit (whether you intend to rent it or actually use it yourself as a vacation home) you will be hard-pressed to find a lender to act on it.
A few lenders are still doing business on condo-tels though. Lenders that lend on condo-tels will usually require the following:
- A minimum of 20% cash down payment from the buyer. This is a minimum; don't be surprised if you're asked to put up to 50% down. Banks want to make sure you don't walk away from the mortgage commitment in the future.
- Excellent credit. No getting around it.
- Provable income. The days of 'stated income' loans are over for most people. Some lenders still offer these loans but usually only for a borrower with substantial assets that can be seen and is an existing client of the bank.
Each lender has specific requirements but these are a good rule of thumb. Also, don't be surprised if the loan is denied even if you meet all of the guidelines at the beginning. Quite often banks kill deals in underwriting because they have a general uneasy feeling, even if you and the property meet all of their guidelines. Banks will delay until your purchase contract expires, ask for review appraisals, demand more money down, etc. I've seen more than one deal fall apart just before closing because the lender didn't want to make the loan and found a way out.
Your best bet for buying a condo-tel is to pay cash. If you're paying cash and can close quickly you'll get a better deal from the seller. If you can't pay cash have everything the bank wants up front and get a letter of pre-approval before making any offer on the property. Don't accept a letter of pre-qualification. Only accept a letter of pre-approval that demonstrates your loan request has been fully underwritten and is subject only to a review by the bank of the specific property you want to buy.
Finally, and most important, work with an experienced Realtor. A Realtor representing you will have your best interests in mind and can help keep the deal together and get you the property of your dreams. If you would like to know more about condo-tels or owning property in the Myrtle Beach area feel free to contact me. Now, where is the sunblock and that Pina Colada?
Thursday, January 22, 2009
Real estate property taxes in Myrtle Beach
Curious about how property taxes are determined in Myrtle Beach? It's a pretty simple formula now, but many people find it unfair. I'll show you the formula below.
In 2006 the South Carolina legislature changed the procedure for property tax calculation. Why? Because the run-up in the real estate market caused many people's property tax bills to increase dramatically. Of course, these folks were very happy that the value of their property had risen so much. But, as people are wont to do, they complained about paying more taxes on the increases. Everyone wants to go to heaven, but no one wants to die.
So, the legislature, doing what politicians do best, heeded the call and changed the property tax formula to accommodate the property owners. The property tax system was changed to 'point-of-sale' assessment in lieu of periodic reassessements. Now instead of paying the same tax as the previous owner until the next reassessment property buyers pay a totally different property tax than their neighbors who own similar or even identical property. Another aspect of the tax revision is that more weight has been given to getting money for the state to operate from sales taxes.
South Carolina has such a strong tourist industry, why not let visitors pay for the state's expenses? The Legislature decided to tax the folks who have no representation here in addition to the residents who buy the bread. By the way, here's a little pearl of political favoritism most people don't think about. Many years ago, at the request of the automobile dealers in the state, the Legislature capped the sales tax on vehicles at $300. So if you buy a Kia for $17,000 the max you pay is $300. Of course, if you buy a $80,000 Mercedes the max you pay is..... that's right. $300!! I think this is what's called a 'regressive tax'. The wealthy, presumably the ones buying the Mercedes, pay proportionally less in this tax than others. The wisdom of the idea of depending on the whims of consumers is debatable but one thing isn't. When sales volume decreases so does the tax revenue. Voila- budget shortfalls like the ones we're experiencing now. State budget cuts of up to 20%. Don't forget the schools. With so many people moving here with school aged children the need for schools and teachers and all the services they require is not declining. But, the legislature stripped the local school boards of the authority to levy tax millage to meet their needs. So, where do we go from here?
The Legislature made an attempt to amend or modify the property tax policy recently but was unable to. Hopes are high that 2009 will produce a fair and sound property tax policy for the state's residents. We'll see.
Here's the formula to estimate property tax bills when buying real property in SC. Multiply the sales price of the property by your assessment ratio (ie resident @ .04% or second/vacation/investment property @ .06%). Then multiply that number by the specific millage of the district in which the property lies. Here's an example:
A condo on the ocean in North Myrtle Beach selling for $100,000. This condo is being purchased by an out-of-state resident for use as a 2d home.
Purchase price $100,000
Assessment ratio .06
=$6,000
District millage .2228
Tax bill $1336.80
I think it's safe to say no one will ever come up with a tax scheme which everyone accepts as fair. Someone will always feel they pay too much. Until the Legislature modifies the property tax rules, it will be unfair for buyers of property in South Carolina.
In 2006 the South Carolina legislature changed the procedure for property tax calculation. Why? Because the run-up in the real estate market caused many people's property tax bills to increase dramatically. Of course, these folks were very happy that the value of their property had risen so much. But, as people are wont to do, they complained about paying more taxes on the increases. Everyone wants to go to heaven, but no one wants to die.
So, the legislature, doing what politicians do best, heeded the call and changed the property tax formula to accommodate the property owners. The property tax system was changed to 'point-of-sale' assessment in lieu of periodic reassessements. Now instead of paying the same tax as the previous owner until the next reassessment property buyers pay a totally different property tax than their neighbors who own similar or even identical property. Another aspect of the tax revision is that more weight has been given to getting money for the state to operate from sales taxes.
South Carolina has such a strong tourist industry, why not let visitors pay for the state's expenses? The Legislature decided to tax the folks who have no representation here in addition to the residents who buy the bread. By the way, here's a little pearl of political favoritism most people don't think about. Many years ago, at the request of the automobile dealers in the state, the Legislature capped the sales tax on vehicles at $300. So if you buy a Kia for $17,000 the max you pay is $300. Of course, if you buy a $80,000 Mercedes the max you pay is..... that's right. $300!! I think this is what's called a 'regressive tax'. The wealthy, presumably the ones buying the Mercedes, pay proportionally less in this tax than others. The wisdom of the idea of depending on the whims of consumers is debatable but one thing isn't. When sales volume decreases so does the tax revenue. Voila- budget shortfalls like the ones we're experiencing now. State budget cuts of up to 20%. Don't forget the schools. With so many people moving here with school aged children the need for schools and teachers and all the services they require is not declining. But, the legislature stripped the local school boards of the authority to levy tax millage to meet their needs. So, where do we go from here?
The Legislature made an attempt to amend or modify the property tax policy recently but was unable to. Hopes are high that 2009 will produce a fair and sound property tax policy for the state's residents. We'll see.
Here's the formula to estimate property tax bills when buying real property in SC. Multiply the sales price of the property by your assessment ratio (ie resident @ .04% or second/vacation/investment property @ .06%). Then multiply that number by the specific millage of the district in which the property lies. Here's an example:
A condo on the ocean in North Myrtle Beach selling for $100,000. This condo is being purchased by an out-of-state resident for use as a 2d home.
Purchase price $100,000
Assessment ratio .06
=$6,000
District millage .2228
Tax bill $1336.80
I think it's safe to say no one will ever come up with a tax scheme which everyone accepts as fair. Someone will always feel they pay too much. Until the Legislature modifies the property tax rules, it will be unfair for buyers of property in South Carolina.
Tuesday, January 13, 2009
Congress may take action to strengthen the housing market
Here's an interesting bit of news. Congress may actually take the reins in hand and actually do something to help the housing market, not just the few lenders at the top. According to a report I heard on NPR's Marketplace changes to the bankruptcy law and more oversight of the bailout (TARP) of the banking industry are just around the corner. Of course details are few now but here's what it looks like.
The bankruptcy laws will be amended so that bankdruptcy judges can change the terms of home mortgage loans. They'll be able to extend terms and change rates so that homeowners can make payments within their means. If this works and is implemented soon maybe the 2.4 million foreclosures predicted for 2009 can be reduced drastically. But, someone doesn't like the idea. Guess who? The Financial Services Roundtable, an industry trade group. They claim such actions would drive up costs for all borrowers. Maybe, maybe not. I think it's time we stopped listening only to people and organizations who stand to lose and start thinking about the homeowners too.
By the way, did you ever wonder why banks are willing to let homes go into foreclosure rather than really work out a deal with the homeowners? Me too. Seems that the servicers of the loans get a percentage of all of the fees generated in the process. So, it's in their interest to prolong things.
Common sense (which isn't all that common these days) tells us that a bank would be better off taking less money each month for 2 years than foreclosing on the property with all the costs that entails.
Another Congressional attitude change is demanding more accountability for the money TARP is making available. This same Marketplace report included a conversation with a small bank in the Northwest. They applied for and received TARP money. Guess what? They didn't need it. They even admitted they were well capitalized and were not at all worried about failing. They simply asked for government money while the asking was good.
They did point out that the government received shares of the bank in return. Great. But that's not what the bailout was supposed to do. And it's not an isolated incident. Thousands of banks which are not in any danger have received TARP funds. If you think this situation is ridiculous like I do call your representaives in Washington DC and demand that only banks that need the money (and commit to showing that they'll use it as intended ie lending it) get it.
The bankruptcy laws will be amended so that bankdruptcy judges can change the terms of home mortgage loans. They'll be able to extend terms and change rates so that homeowners can make payments within their means. If this works and is implemented soon maybe the 2.4 million foreclosures predicted for 2009 can be reduced drastically. But, someone doesn't like the idea. Guess who? The Financial Services Roundtable, an industry trade group. They claim such actions would drive up costs for all borrowers. Maybe, maybe not. I think it's time we stopped listening only to people and organizations who stand to lose and start thinking about the homeowners too.
By the way, did you ever wonder why banks are willing to let homes go into foreclosure rather than really work out a deal with the homeowners? Me too. Seems that the servicers of the loans get a percentage of all of the fees generated in the process. So, it's in their interest to prolong things.
Common sense (which isn't all that common these days) tells us that a bank would be better off taking less money each month for 2 years than foreclosing on the property with all the costs that entails.
Another Congressional attitude change is demanding more accountability for the money TARP is making available. This same Marketplace report included a conversation with a small bank in the Northwest. They applied for and received TARP money. Guess what? They didn't need it. They even admitted they were well capitalized and were not at all worried about failing. They simply asked for government money while the asking was good.
They did point out that the government received shares of the bank in return. Great. But that's not what the bailout was supposed to do. And it's not an isolated incident. Thousands of banks which are not in any danger have received TARP funds. If you think this situation is ridiculous like I do call your representaives in Washington DC and demand that only banks that need the money (and commit to showing that they'll use it as intended ie lending it) get it.
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