You’ve found the house of your dreams and your contract has been accepted! Once the excitement starts to wear off, questions start running through your mind. What happens next? Are we missing anything? Chantel Ray Real Estate will help walk you through the steps from contract to closing!
Once you have a ratified contract, your agent will sit down with you and go over all of the deadlines that will be coming up. If you elected to have inspections done on the house, these will need to be done in accordance to the timelines on the contract. Make sure all of your inspections are schedule early enough so you will have time to review them and request any repairs you may need.
After your inspections have been completed, the appraisal will be order by the lender. This will insure that the home is worth what you are agreeing to pay for it and that is also conforms to that loans guidelines. Sometimes, depending on the type of loan, there will be lender required repairs. These will need to be scheduled to be completed and re-inspected before the property is cleared to close.
Throughout the closing process, your lender will ask you for documents needed to satisfy loan requirements. Make sure that you get them to them as soon as possible so you don’t hold up the closing process. Once you get close to the closing date, you will set your appointment with your settlement agent and get ready for closing. Right before the closing, you will do a Final Walk Thru with your agent to ensure the property is in the same condition as when you wrote the contract, any requested repairs were completed and all systems are working properly. Then the day has come…Closing Day!!! Make sure you take your certified funds and driver’s license to the closing. Get the movers ready – you now own a house!
Many buyers ask, why should I get a home inspection? The home was recently painted, has all new appliances, all new carpet and flooring…it even has fresh flowers on the foyer table. It looks like a beautiful place to live…what could be wrong? This is the age old question that our buyer’s agents get asked every day. Why should you spend the extra money to have someone come and inspect the house? Virginia is a buyer beware state and the burden is placed upon the buyer to make sure that the house is in good condition. Those freshly painted walls may be covering an old leak or that new carpet may have been put over rotten floor boards.
We at Chantel Ray Real Estate, always recommend our buyers get a home inspection on a home they are purchasing. The home inspector will spend hours pouring over every detail of the house. Were fire rated doors put up? Are smoke detectors in the proper places? Is there any settling in the house that we should be aware of? At the end of the home inspection, each buyer is given a written report that shows everything that was tested and examined and any suggestions for further repairs or evaluations. The buyer can then decide how they would like to proceed with the home purchase.
In today’s modern and busy world it is safe to say that most of the correspondence between Client and Realtor is through email. For example, your client has placed an offer on a house, negotiated the financing options and emailed you as the agent for a status update. You reply back “We’re almost there.” However in the meantime the seller receives another offer and decides to accept the second offer instead which of course upsets your client.
Be careful. Email correspondence could be considered enough evidence to enforce the deal. This was the case in a ruling in Massachusetts last year.
Feldberg, et al v Coxall attorneys representing the buyer and seller exchanged multiple emails about the deal including the above referenced email with an unsigned offer to purchase. When the seller backed out of the deal, the buyer sued claiming the deal had been sealed in the last email.
The seller argued that the nothing had been signed as required under the Statute of Frauds. This law varies form state to state but generally requires certain agreements to be signed. Using this argument the seller sought dismissal of the claim.
The judge ruled against this dismissal. Under a state law called the Massachusetts Uniform Electronic Transactions Act (and similar laws exist in other states) and email signature block or even the from portion of the email may constitute a valid electronic signature in cases where the parties are conducting the transaction electronically.
The judge denied the seller’s motion to dismiss the case opening the door for the court to look at whether the emails can constitute as a binding agreement.
The buyer and seller settled out of court so the question was never brought before a judge. But this something to consider.
Agents, here are steps you can take to protect yourself against inadvertently binding your client to a deal.
Here are two suggestions:
- Watch what you say in e-mails. If you’re representing the seller, always say that the terms of the deal must be approved by the seller and that negotiations are preliminary until an offer or contract is signed. Conversely, if you are representing the buyer, it’s prudent to push for confirmation that a deal has been reached, to avoid a situation, like the Massachusetts case, in which the seller jumps at a higher offer at the last minute.
- Use a disclaimer. You can insert a disclaimer in your e-mail signature that looks something like this: “E-mails sent or received shall neither constitute acceptance of conducting transactions via electronic means nor create a binding contract until and unless a written contract is signed by the parties.”
Watch what you say and remember that emails could become an exhibit in court!
What is a 1031?
A 1031 Exchange is a swap of one business or investment asset for another. Most swaps are taxable as sales, if you come within 1031, you’ll either have no tax or limited tax due to the time of the exchange.
Let’s break it down to simple terms: You can change the form of the investment without cashing out or recognizing a capital gain. This then allows your investment to continue to grow tax deferred. There is no limit to how many times you do a 1031 – you can roll over the gain from one piece of investment real estate to another to another to another and so forth.
You may have a profit on each swap but you’ll avoid a tax until you actually sell for cash many years later.
Here comes the tricky part.
Special rules apply when depreciable property is exchanged in a 1031. It can trigger a gain known as “depreciation recapture” that is taxed as ordinary income. This is avoided if you swap one property for another. But if you exchange improved land with a building for unimproved land without a building, the depreciation you’ve previously claimed on the building will be recaptured as ordinary income.
Make sense? If you’re still not sure – always contact professional help when you’re doing a 1031 Exchange since things can get a little complicated.
10 Things to Know About A 1031 Exchange
1. A 1031 Isn’t for Personal Use – it is only for investment and business property. You can not swap your primary residence for another home.
2. BUT Some Personal Property Does Qualify – Most 1031 Exchanges are of real estate. Some exchanges of personal property can qualify – here is where it is best to contact a professional.
3. ”Like Kind” is Broad – Like really broad. Most exchanges must be of “like-kind”. You can exchange an apartment building for raw land, or a ranch for a strip mall.
4. You Can Do A “Delayed” Exchange – Ideally, an exchange is a simple swap of one property for another between two people. What are the odds of that??! Small. Very Small. And for this reason the majority of exchanges are delayed, three party exchanges. In these delayed exchanged you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you.
5. You Must Designate Replacement Property – There are two key timing components for a delayed exchange. The first relates to the designation of replacement property. Once the sale of your property occurs, the intermediary will receive the cash. You can’t receive the cash or it will spoil the 1031. Within 45 days you MUST designate the replacement property in writing to the intermediary specifying which property you want to acquire.
6. You Can Designate Multiple Replacement Properties – The IRS says you can designate three properties as the designated replacement property so long as you eventually close on one of them. You can designate an unlimited number of potential replacement properties as long as the fair market value of the replacement properties does not exceed 200% of the aggregate fair market value of all the exchanged properties.
7. You Must Close Within Six Months – The second timing rule in a delayed exchange relates to closing. You MUST close on the new property within 180 days of the sale of the old. It is important to note that the two time periods run concurrently. Meaning you start counting when the sale of your property closes. If you designate the replacement property 45 days later – you have 135 days left to close.
8. If you Receive Cash – It’s Taxed – Pretty simple. You may have cash left over after the intermediary acquires the replacement property. If this is the case, the intermediary will pay it to you at the end of 180 days. This cash will be taxed as partial sales proceeds from the sale of your property.
9. You Must Consider Mortgages and Other Debt – Here is where most people get into trouble. You MUST consider mortgage loans or other debt on the property you relinquish and any debt on the replacement property. If you didn’t receive cash back but your liability goes down, that too will be considered as income and therefore taxed.
10. Using 1031 Exchange for A Vacation House is Tricky – Yes, taxpayers can still turn vacation homes into rental properties and do 1031 exchanges. Example: You stop using your beach house, rent it out for six months or a year and then exchange it for other real estate. If you actually get a tenant and conduct yourself in a businesslike way, you’ve probably converted the house to investment property, which should make your 1031 exchange OK. But if you merely hold it out for rent but never actually have tenants, it’s probably not. The facts will be key, as will the timing. The more time that elapses after you convert the property’s use the better. Although there is no absolute standard, anything less than six months of bona fide rental use is probably not enough. A year would be better.
As with any tax related questions – if you’re considering a 1031 Exchange its best to contact your tax professional.
Trying to decide whether to buy a Condo or Single family dwelling?
Here are some helpful tips to ensure a knowledgeable decision is made.
~ Exterior Maintenance is handled by the condominium association
~ Parking space is deeded to you in a secure location
~ No upkeep to worry about, vacation at your leisure
~ Often condos are conveniently located around office buildings, entertainment and shopping districts.
~ Home owner dues are hard to keep low as maintenance cost are rising.
~ Dues are counted as part of your debt to income ratio.
~ All decisions are made in association with your neighbors.
~ Elevators are noisy, there may be poor soundproofing with in the condominium association.
~ Condos provide less privacy than single family homes