P h i l li p H. L a n de
4S A LE
AB R , AS P , C D P E , C R S
BY
March 2017 Issue
The Marital Home
This Month in History 1st: Formal ratification of the Articles of Confederation. (1791) 1st: Lindbergh kidnapping. (1932) 4th: King Charles II of England granted land in the New World to William Penn. The area later became Pennsylvania. (1681) 4th: The first meeting of the new Congress of the U.S. Constitution took place in New York City. (1789) 10th: The first issue of U.S. government paper money occurred as $5, $10 and $20 bills began circulation. (1862) 22nd: The Equal Rights Amendment to the U.S. Constitution was passed by the U.S. Senate but failed to be ratified. (1972) 30th: President Ronald Reagan was shot. (1981)
D IVO RCE
“To Sell or Not To Sell” - That is the Question When there is a marital home (or even other real estate) involved in a divorce situation, the same question almost always arises: “What should we do with the marital home?” Typically, many reasons to keep the home and many reasons to sell the home are present and as the advisor, a neutral approach is needed to separate the emotion from the economics.
•
Do we keep the home until the children are out of school?
•
Do we sell the home, divide the proceeds and go our separate ways?
•
Do we have any equity in the home or are we underwater?
•
Do we refinance the home in one of the spouse’s name only?
•
Do we sell the home and each rent until ready to purchase gain?
Each question is a valid question; yet each question may also have its own set of consequences that need to be addressed. While the housing market continues to recover making it somewhat easier to answer questions where equity is a concern, many divorcing clients may still need guidance for their post-divorce housing.
Selling or Retaining the Marital Home When the decision has been made to sell or to retain the marital home, a new set of questions is derived and the question of current value is always at the top of the list. When selling the home, working with a professional real estate agent can help determine the value or best selling price. When the decision is made to retain the marital home and refinancing the mortgage into one spouse’s name, an appraisal from the lender’s appraiser is required. Obtaining an independent appraisal PRIOR to refinancing will only incur additional costs for the divorcing clients as the lender will always require their own appraisal.
Phillip H. Lande RE/MAX Legends Group/ Atlas Group Direct: 317.863.2356 plande@atlasrealty.com www.remax-atlasgroup.com
With 10% of all homes with a mortgage still underwater (CoreLogic), having an understanding of where values are headed can be helpful as well. The chart on the following page shows the average appreciation rate per state for the most recent quarter as compared to the previous quarter.
Pag Pag ee 22
Ch Ch D i ri an riD sseti A on t yn na Wa gel Roma EMa llCa aaerma nro Daw rgo, A ta, nBe lsh o, n, yD nn lcCe eakFyCh ve Syert rti eb Pss Tif eM ra re fi h na le iie A an ed tomp eer, tdm ul ,ovi D Di yCe Div tM ,siv Te ort ll on, Ce vcCra orc o ,iCy rre lrc Srtif ga JeiSn eaglni ge en tl, ciLhSed ob or ieen ia S tPl or ren nd en ,M di an D M P Ling iin ort tn ra or hi oan ni ,ogrt u CRM llgn B LP gga ip agru oa h rof rofe Con ro gS on geH. cnfe p S, eees P Ad ,eOf sss B W la ci La si CM CMP ul ro iio vi fi nn aal ona on ta nd ll kscnis Pn or eal aSertl
U.S. HOUSNG PRICE APPRECIATION
Experts: 2017 National Real Estate Market is Predicted to Slow in 2017 The real estate market is predicted to slow compared to the last two years, across the majority of economic indicators. Home prices are expected to increase 3.9% and existing home sales are forecasted to increase 1.9%. Realtor.com is forecasting the homeownership rate will stabilize at 63.5% after bottoming at 62.9% in 2016. New home sales are expected to grow 10%, while new home starts are expected to increase 3%. The forecast is based on GDP growth of 2.1%, a 2.5% increase in the consumer price index and unemployment declining to 4.7% by the end of the year. Joe Kirchner, Sr. Economist The majority of economists surveyed say they expect median home values to exceed their pre-recession peaks by the first quarter of 2018. They cited the following as the most common concerns for declining housing affordability: income growth (28%;) abnormally high rates of home-price and rent appreciation (27%), and an abnormally low supply of homes for sale or rent (21%). “Time will tell whether Washington’s plan to expand mortgage credit will have a durable, positive impact on home values, housing confidence, and market expectations,” says Terry Loebs, founder of Pulsenomics.
www.remax-atlasgroup.com
Ch Ch D i ri an riD sseti A on t yn na Wa gel Roma EMa llCa aaerma nro Daw rgo, A ta, nBe lsh o, n, yTD nn on lcCe eakFyCh ve Syert rti eb Pss T Pif eM ra re fi oe, h na le iie A an ed tomp eer, tdm ul ,ovi Bra D Di yCe Div tM ,siv Te ort ll on, Ce vcCra nc orc o ,iCy rre lrc Srtif ga hJeiSn eagMa lni ge en tl, ciLhSed ob or ieen ia S tna Pl or ren nd en ,M di an D ge M P Ling iin ort tn ra or hi oan ni ,o r/L grt u CRM llgn B LP gga ip agru oa h rof rofe Con ro gS on geH. cnfe p S, eees P Ad ,eOf sss B W la ci La si CM CMP ul ro iio vi fi nn aal ona on ta nd ll kscnis Pn or eal aSertl
Pag e 3
Is the Marital Home still Underwater? When the marital home has negative equity there are still options available. Obviously, selling the home with a short sale may be an option if approved by the lender; however, there may be future consequences when purchasing a new home. When one spouse wants to retain the home and refinance into their name alone, as long as the property qualifies for the HARP Program and the spouse qualifies for the new mortgage; this may be an option. However, when the home doesn’t qualify for a refinance and one spouse wishes to stay in the home and take over the current mortgage payments and the departing spouse is adamant their name is removed from the mortgage—a judge may order the home sold. Again, forcing a short sale will have detrimental effects to credit and future financing. Please don’t hesitate to contact me directly to review all options available for both divorcing clients.
The Cost of Renting vs. the Cost of Owning Many divorcing clients will make the decision to rent following a divorce for many reasons; however, there’s more to the cost of renting vs. buying than just comparing the dollar cost of the payments. Many will argue against the value of purchasing a home vs. the comparatively risk free alternative of renting. The image below can be used for determining whether to rent or purchase a new home as well as the economical decision to sell the marital home and rent or retain the marital home.
To be conservative, we used a rate of appreciation here of only 3%; yet the national average over the last 50 years exceeds 5%. Some will also argue that the tax deductibility of mortgage interest and real estate taxes is never really worth it. What they really mean is that everyone has a base line standard deduction and not everyone’s total expenses will be more valuable than that. Even if you exclude the tax benefit, the bottom line difference vs. renting will still be better.
Factors used above: $200,000 purchase price, 20% down, $160,000 30 yr fixed at 4%. Principal & Interest payment = $763.86, taxes = $250/mo., insurance = $50/mo. & Maintenance = $166.67/mo. Tax deductibility at 28%. Tax savings principal paid and appreciation averaged over a 5 year period. Always consult with a tax advisor for tax advice specific to your situation.
Don’t hesitate to reach out to me at any time and I will be happy to run specific scenarios for you and your divorcing clients.
www.remax-atlasgroup.com
Phillip H. Lande ABR, ASP, CDPE, CRS RE/MAX Legends Group/ Atlas Group 5645 Castle Creek Pkwy N Indianapolis, IN 46250 www.remax-atlasgroup.com plande@atlasrealty.com Direct: 317.863.2356
As professional real estate agents specializing in helping divorcing couples, we are here to help both parties involved through a smooth yet emotionally difficult process when they need to sell the marital home and purchase new homes moving forward. As a member of your professional divorce team, our goal is to: 1. Help clients understand the legal and tax aspects of divorce in regards to the sale of the marital home and other real estate. 2. Offer alternatives to the usual mistrust and the emotional responses as a result of dividing real estate assets. 3. Work with both parties together to help them save and make money now and down the road with regards to real estate. 4. Work with both parties, not just one, in selling the marital home for the best price. Please don’t hesitate to call us if we can be of service to you and your divorcing clients!
R E A L E S TAT E
S T R AT E G I E S FOR DIVORCING COUPLES
With the divorce rate stable at fifty percent and home ownership at sixty-two percent, there are a lot of families who need professional guidance as they navigate what to do with their home. For most people their home is the largest asset they own, so the decision must be carefully thought out and analyzed. Now more than ever a full time local Realtor must provide professional guidance. This is not the time to take the real estate advice of family, friends or other
professionals. While your legal adviser or family member who lives in another state means well, real estate still remains local, particularly with our mercurial national market. The sale of the marital home is not an isolated decision. There are short and long term financial, emotional and tax consequences. A Realtor, preferably one who specializes in divorce, can offer the best guidance regarding the marital home. They must understand that they will work in tandem with other professionals for the best customized outcome. The goal should be a client that has their individual needs met and is making informed decisions from a knowledgeable place. This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Not a commitment to lend.
Copyright 2017 All Rights Divorce Lending & Real Estate Association, LLC The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.