Cash real estate purchases

washing machine
Laundromat

Every year I work with a few buyers who pay cash for real estate. So far I have not run into anything weird. As a Realtor® I am not required to report it  I am suspicious that a buyer is laundering money, but am encouraged to do so. That is hard to do because I also owe my clients ‘confidentiality”.

Buying real estate is a great way to launder money. Suspicious activity includes people who buy property for cash without looking at it and people who pay way too much cash for a property that doesn’t seem to be desirable or worth what is being paid for it.

The cash buyers I typically work with are pulling money out of investment accounts or retirement accounts and they usually supply me with some kind of a letter from a financial institution stating that they have the money.

Money laundering usually involves “shell corporations”, rather than individuals.

Actual cash in paper currency is not accepted by title closing companies.

People who are selling real estate especially investment property rarely take an interest in the buyer and many investment property buyers do so through a corporation. Which makes sense. I guess I am writing this just to put the idea on everyone’s radar.

November home sales by neighborhood

table - home sales by neighborhood
November home sales

In November the number of homes that got offers in St. Paul was higher than the number of new listings. It is normal for the number of homes on the market to fall in November and reach the lo for the year in December.

Right now about 25% of the homes included in the chart as being for sale have offers on them. On average November home sellers got close to their asking price. In some neighborhoods, they got more than the asking price.

The overall median sales price went up by about as much as it went down in October.

The housing market strongly favors sellers. Overpriced homes sell once they are priced fairly. Average market time is less than 40 days and less than 30 days after the last price reduction.

Home sellers often take their homes off the market in November and put them back on again after the new year. Houses that are on the market sell faster than those that are off the market.

The numbers used to make the chart, were extracted from the NorthstarMLS and are deemed reliable but not guaranteed.

If you would like to know how much your house might sell for, contact me for a free no obligation consultation.

For more local real estate numbers please see Local market conditions and home prices

When is the house yours?

Moving Day

When will you get possession of the house you bought?

It isn’t unusual for someone to buy a house and sell on the same day. Sometimes the movers are moving everything out of one house during a closing and moving into another home after a closing.

Possession immediately after the closing is a popular option. That means if the closing is at 11:00 AM and lasts until 11:45 AM the buyers can move in at 11:45. It also means that the sellers have until 11:45 AM to get the house ready.

The important thing to remember is that possession immediately after the closing is not automatic it is spelled out in the purchase agreement.

Buyers and sellers have other options. Occasionally buyers negotiate for an early move-in and pay rent to the seller up until the closing. There is usually a damage deposit. A contract is drawn up to protect both parties.

Sometimes homeowners need an extra day or two of possession to move out. In that case, the sellers rent their former home after the closing. We call that a “rent back”.  The rent back is also put on a special separate contract.

Sellers sometimes just need an extra hour or two after the closing.

There are a few other options. Movers have all sorts of services they can offer to store items in pods or trucks with the movers or at the new home.

It is important to remember that whatever your moving situation is chances are your real estate agent and movers have seen it all before and will help you make it work and may even have an idea that you have not thought of.

Also see Final walkthrough

How clean is clean?

Absorption rates current and past

I am not sure why but I thought it would be fun to compare current absorption rates of housing with absorption rates from 10 years ago. In case anyone has forgotten ten years ago the housing market crashed and caused the great recession. These numbers are from before the Obama administration and before local housing prices hit rock bottom.

Absorption rates calculate how long it would take to sell all of the houses on the market at the current rate of consumption. The number is important because it has to do with the supply of houses and the demand for them.

Back in 2007, it was hard to sell a house:

Papert_2 Anoka County –  12.5 Months

Carver County –  11.7 Months

Dakota  County  – 9.8 Months

Hennepin  County  – 9.3 Months

Ramsey County – 10.2 Months

Scott County – 13.2  Months

Washington – 10.9

 

Here is a look at absorption rates today for the 7 county metro area which is like the 13 county metro area except smaller:

Anoka County –   1.7  Months

Carver County –  2.6 Months

Dakota  County  – 1.7 Months

Hennepin  County  – 1.8 Months

Ramsey County – 1.5 Months

Scott County – 2.2 Months

Washington – 2.2 Months

An appropriate graphic for the current absorption rate might be a q-tip. The reason I posted this is because when it comes to the housing market and the economy nothing is forever and there are no guarantees. There are no guarantees in life or in real estate.

I wonder what 2018 will bring? I have heard at least one prediction that the shortage of houses on the market will start to ease up a bit. We shall see.

How tax bill may affect the housing market

tower
Turret

It is really too soon to tell how the tax bill will affect the housing market. On the one hand, it shouldn’t have much of an impact on housing that is costs less than 650K because the mortgage interest on a mortgage up tp 500K will still be tax deductible, for those who itemize.

If the tax bill passes as is  95% of taxpayers will claim the standard deduction rather than itemize, according to experts because the standard deduction will almost double.

That means that mortgage interest will not be deducted for most. Currently according to the IRS about 31% of taxpayers itemize, and can deduct mortgage interest.

If higher priced homes decrease in value that doesn’t mean that lower-priced homes will follow. The demand for homes at the lower end of the price spectrum is very high and I can’t see that changing.

There is some speculation that if interest on loans used to pay for second homes is not longer tax deductible that prices of the summer cabins in Northern Minnesota will go down. I will believe it when I see it.

The five of eight rule may have an impact.  Under current law, you can exclude up to $250,000 ($500,000 for married taxpayers) in capital gains from the sale of your home so long as you have owned and resided in the house for at least two of the last five years.

That rule is going to change to five of the last eight years. The rule will make homeownership more of a long term proposition and home sellers may want to consult a tax advisor if they wish to sell before they have owned the home for eight years.

People used to move about every 7 years but in the last decade, that has changed to about every 10 years so it is hard to say what kind of an impact the new five of eight rule will have on the real estate market.

I remember the big tax cuts during when Reagan was president. At the time we were in a recession. I don’t really understand why a tax cut and jobs bill is being passed during a time of high employment. In fact, we may not have enough workers to fill more jobs.

It isn’t clear to me right now as a business owner if my taxes will go up or down. The tax cuts are aimed at large corporations not at small businesses like mine that make up 99.7% of all U.S. businesses.

The Republican party used to be against running huge deficits but now they are in favor. Here is a link to a list of how they voted.

The bill will not be made into law until it is reconciled with the House bill and signed by the president who will sign anything he is asked to sign . . . or at least he has so far.

There are still numerous advantages to home ownership as opposed to renting. Interest rates are likely to continue to rise so buying a house now might make more sense than buying it later.

Real estate has been a tax favored investment for decades yet homeownership is currently at a 50 year low last July and has started to go up again. Will new tax laws cause home ownership to fall again?

Is it December already?

It is Friday and Fridays are for fun. The year is flying by. There are oh so many holiday events and activities going on this weekend. I thought I would post a picture to get everyone in the mood for December in St. Paul. I take this picture at about the same time every year. No snow in it this time but that is alright.

I will list my top picks for the first weekend in December:

  1. The lighting of the tree at union depot. Starts at 5:30 PM today
  2. European market at the Union depo:t Friday, Dec. 1: 4-9 p.m.
    Saturday, Dec. 2: 11 a.m.-9 p.m.
    Sunday, Dec. 3: 12-6 p.m.
  3. Indoor Saint Paul Farmer’s market – Market house (across 5th the street from the outdoor market) Dec. 2 9:00 AM to 1:00 PM
  4. 39th Annual Old Fashioned Holiday Bazaar Landmark Center. (admission charged) Friday, Saturday and Sunday at the Landmark Center.
  5. Skating at the Wells Fargo Rink at the Landmark Center Daily 11:00 AM to 8:00 PM.

Happy December 1st!

Holiday decorations Rice park
Rice park holiday lights