Income Tax – Are you paying a “fair” share?
Tax Time Observations
Late one night, just blocks from the Capitol, a mugger jumped into the path of a well-dressed fellow and stuck a gun in his ribs. “Give me your money,” the thief demanded. “Are you kidding?” the man said. “I’m a U.S. Congressman!” “In that case,” the mugger growled, cocking his weapon, “give me my money.” – Playboy Magazine
I could not help myself from venturing into this territory. I acknowledge that other than having paid taxes for the past 40-plus years this is out of my area of expertise. However the internet is a wonderful place, particularly if you limit it to verifiable facts rather than opinion or hyperbole. This information is from www.taxfoundation.org which labels itself “non-partisan”. My observation is that their data seem to be accurate and factual. The editorial content will probably appeal more to people who are fiscally conservative.
Who Pays What?
This information reflects 2007 data; the most recent year for which the IRS has finalized the results. Also, these figures are for INCOME tax. Social Security, Medicare and other state and local taxes are not included.
- The top 5% of taxpayers, with “Adjusted Gross Income” (AGI) above $160,000 had 37% of the AGI and paid 61% of the income tax collected.
- The top 25%, with AGI above $67,000 had 69% of AGI and paid 87% of taxes.
- The bottom 50% with AGI below $33,000 had 12% of AGI and paid 3% of taxes.
Preliminary figures for 2008 indicate the following
Taxpayers with AGI at $250,000 and above had 26% of AGI and paid 46% of taxes.
Estimate for 2010
47% of taxpayers will pay NO income tax.
How painful is it to pay your taxes?
Those of us who are self-employed have a really good idea of the “system”. I reserve 40% of each check received to pay my quarterly deposits which do include, along with income tax, social security, medicare and Colorado income tax. Yours are probably not that different, just more hidden due to “withholding” and the employer paying half of the social security deposit.
Think about the above
Taxes are a price we pay for our society. 47% of filers not paying any income tax is a pretty high percentage of citizens without a stake in our government.
Denver Market Is Improving – Just Not By 15%
Did you read my March 21st Post?
That was when a Denver Post reporter used information provided by a local real estate broker to announce “Metro-area home prices rise 15% over a year ago”. The broker (who presumably provided the data) was quoted and named in the article and did not refute the conclusion. I guess “any press is fine. Just spell my name right”. In my evaluation, I concluded that it was an irresponsible use of “median” data and an irresponsible conclusion.
S & P Case-Schiller Wins Again
You will continue to see me refer to Case-Schiller because they use “same house sales” to make their evaluation. And guess what? Denver prices are up an overall 2.6% for January 2009 to January 2010. And what else? The same broker who seemed to support the “15%” increase is right there supporting and being quoted regarding the 2.8% increase. (Disclaimer – The 15% increase was generated as a “median” for February of 2010 and 2009. The 2.9% is a year-to-year for January. Case-Schiller is a little (lot?) more conservative and waits for final data.)
Is your home value up by 2.6%?
It may well be. But as you are reading my blog you know that I continue to maintain that values are very local and what may be true for a home in Parker, may be different for a home in Green Valley Ranch. Talk to a professional if you need to know.
Is this 2.6% a “sign”?
I am not so sure. The tax credit “stimulus” has had some effect. That ends from an “under contract” perspective on April 30th and a closing perspective on June 30th. After that we will see how the unencumbered market responds. There is still a lot of unemployment and not much job growth and we will need to see both of those before we have vibrant housing market.
Agree, disagree, have questions?
Leave a comment and I will respond. Or, contact me directly. I am an Exclusive Buyer Agent (EBA). I choose to always and only represent the interests of my buyer clients.
Russ Murray 303-721-1100, ext. 1 russ@buyerbroker-denver.com
Watch Out For New Lead Based Paint Regulations
What is this about?
Several years ago the EPA announced new requirements. These requirement are in full effect beginning April 2010.
What is the problem?
Lead has been found to cause significant health problems to both children and to adults. Lead based paint in a home is not a problem as long as it is encapsulated and undisturbed. The problems occur when it is found to be chipped or flaking or if scraped, sanded or otherwise disturbed during painting or remodeling.
What homes are affected?
The homes that fall under the guidelines are homes for which a building permit was issued prior to January 1, 1978. For the Denver area, that is about 80% of the housing stock. You can usually find the construction date for you home in the county records for your county. You may want to call the county or the building department if that is a 1978 or 1979 date to learn for certain when the permit was issued. My own observation is that the use of paints containing lead was very limited after the mid-1960’s when water based paints began to be used extensively by production builders. I will still be found on some of those home in exterior paint and some woodwork. By the mid-1970’s it would have been typical only in more custom homes and then primarily on interior woodwork. Testing in several locations with very minor “destruction” will tell you whether or not your home is affected.
What do I need to know or do?
If you engage a contractor for any remodeling, including painting, window replacement or cabinet replacement, ask to see their EPA certifications. From reading the EPA web site, there appear to be two. One is more of a “registration”, with the second being the actual “training”. The contractors are obligated to follow EPA protocols during their work. All seem to agree that this is going to increase costs. There does not seem to be agreement as to how much. The fines for contractors not following protocols and/or not being “approved” are in the $30,000 range so this is considered by EPA to be a big deal.
What if I do the work myself?
Good question. Homeowners are not subject to the same restrictions. But, lead is a real hazard and you should check EPA protocols and follow them. You do not want lead dust air born in your home or flakes on the floor. Test first and know your homes conditions.
Comments or Questions?
Please add yours or contact me directly if you would like assistance. I am an experienced Exclusive Buyer Broker and always and only represent the interests of my buyer clients.
Russ Murray russ@buyerbroker-denver.com 303-721-1100, ext. 1
Metro-are home prices rise 15% over a year ago”
The above according to Margaret Jackson in The Denver Post, March 10, 2010.
Why can’t you believe newspaper headlines?
Because they are written to attract readers, NOT to inform. This may be one of the more egregious misrepresentations. If consumers read the headline and then the article, they would likely come away believing that their house has indeed risen in value and/or that they should buy now because prices are rapidly increasing. Neither is really true.
Why not?
Because for the purposes of most consumers, medians are not useful and gross market statistics are even less so. Medians simply indicate are that half the homes sold above this figure and half sold below. Consumers want to know how the market affects them. While I could not check every neighborhood and Zip Code, I did check two areas. One, a popular area in the City of Denver and one, a desirable area in the suburbs.
The results tell a different story from the article
Using the same methodology as the article, the Denver neighborhood showed a 16% decrease in the median and the suburban neighborhood a 6% decrease. Even within these individual neighborhood there are varying results for individual types and prices of home. Medians can change a lot based on the distribution of sales prices above and below.
What information can I trust?
The best will be from a market analysis prepared by someone you know and trust who is in the real estate business. That analysis will compare your home to recent activity in your neighborhood. Another option is to watch for articles that reflect information from the “Case-Schiller” index. Those of you following my blog know that I place more credibility with this index because it traces “same home sales”. Even with Case-Schiller you will want to look at the “micro”, not the “macro” figures. Just as with politics, all real estate is local.
Need some help?
You can contact me. I am an Exclusive Buyer’s Agent and have been representing only buyers for 20 years.
Russ Murray russ@buyerbroker-denver.com 303-721-1100, ext 1
Surprising Parker, Colorado Statistic
Just doing my job!
In the process of looking for possible homes for a client in the Parker area, I conducted a search for recent sales with the idea that those statistics would be an indication of what to expect in the “for sale” category over the next few months.
What were the criteria?
Pretty general. $400,000 to $600,000 on a minimum half acre site.
And the results were?
Drum roll. Eight homes. SEVEN of the eight were “lender owned” homes and most were new construction in the same community. The sales prices were 30% to 40% under the original asking prices.
Is there a message?
Perhaps two. One is that homes more distant from employment centers are always hit the hardest in a real estate recession. Second is that there are some really good deals out there as long as you can see yourself in the home for 5-7 years.
Want some expert assistance?
I am a 20-year exclusive buyer’s agent (EBA) who always and only represents the interests of my buyer clients.
Russ Murray 303-721-1100, ext. 1 russ@buyerbroker-denver.com
Your Home – Shelter or Investment?
I have a conversation frequently with my clients regarding the projected appreciation of their home value. I always say that I help people to purchase homes and shelter, not investments. Many have friends and person experiences where house values have increased 10%, 15% and even 20% in one year. I have observed those years. Funny thing is that owners are much less likely to mention the last three years when much of those gains disappeared.
What is the reality of home appreciation?
I have tracked several representative homes in a number of markets over 20-year periods. That is longer than many people own homes but is representative of a longer term look at the market. Looking at an example of a home in a south suburban Denver area neighborhood, I find a purchase at just under $200,000 in 1990 and a value today, in 2010 of just under $400,000. At first glance, that looks pretty good. Value up by 100%.
However, what it really represents is appreciation of about 4.0% per year. And that is without considering the repairs, replacements and updates that would be typical over a 20-year hold. There are many other factors to consider but those are outside the purpose of this discussion. What I am trying to establish here is a realistic look at changes in house values. There are some neighborhoods that have done a little better over a similar period and some that have done worse.
How should this affect my decision about purchasing?
Well, you can probably see that over an extended period that you will have enjoyed shelter and had the enjoyment of being a home owner. The value of that shelter has kept up with inflation. Certainly better than a car that immediately begins to depreciate and has little value after being used for 20 years.
You may get lucky and turn over your home during one of those 3 to 5 year periods of major appreciation. You must also be prepared for the flat and depreciation times as well.
With a realistic look to the future you can make an informed decision. Contact me if you have questions regarding your home purchase.
Russ Murray, Exclusive Buyer’s Agent 303-721-1100, ext.1 russ@buyerbroker-denver.com
Ask for references? What a concept!
Background
When I began my business of representing buyers as an Exclusive Buyer’s Agent (EBA) twenty years ago I made a commitment that every consumer for whom I would work would be on my “reference” list unless they specifically requested otherwise. None have made that request. I think that they too feel an obligation to pass on their experience. I felt that consumers deserved the opportunity to talk to prior clients in order to make an informed decision regarding their representation.
How many references is enough?
I suggest asking for the contact information for all clients for at least the prior 24 months. That will address several questions. First, how active is the licensee? If that list is much below 20 clients, you may be working with someone who is either not very active in the market or is new to the business. Everyone has to start somewhere so if it is the latter and the person is new, suggest that you also get to meet their “mentor”. You need to know what kind of support will be available to a less experienced licensee. If the person is “experienced” and just not active with representing buyers, you may want to consider continuing your search and find someone who is.
Okay, I have the references. What is next?
You can ask the prospective agent to indicate which buyers purchased in a similar area and/or price range and, if it is your situation, which were first-time buyers. You will probably benefit more from talking to buyers whose situation is most similar to yours. Questions to ask include: Was the broker readily available? How long did it take for calls to be returned? Did you ever feel pressured to make a decision before you were ready? When going through houses did the broker identify potential problem areas while also identifying stand-out features? Did the broker complete and explain a market analysis for the property on which you were offering? Did the broker have a list of inspectors for you to consider? Did the broker attend the inspection? How did you feel about the advice regarding the Inspection Notice and the broker’s follow-up regarding inspection corrections? Did the broker attend the closing and provide answers and guidance? And finally, would you engage the broker for your next purchase and recomment him/her to your sister and/or to your best friend?
How many should I call?
Enough to be satisfied with the results. Probably four to six. If someone was not satisfied try to find out why and ask others about the same issue. It is possible that it was a one-time occurrence so factor that into the overall responses.
The result.
You should now have evaluated the prospective agent’s resume’, interviewed references and had an in-person interview. You are the “employer”. You can now make and informed decision and hire the person who will best meet your needs and expectations.
If you want to consider a person for the important position of representing your real estate interests, please consider me as your EBA.
Russ Murray 303-721-1100 russ@buyerbroker-denver.com
Why Evaluate HOA Financial Documents?
The “Situation”
If you are purchasing a home in a community where the HOA is doing more than just maintaining some common areas and scheduling trash pick-up then you want to carefully review the financial condition of your association as a part of your contractual due-diligence. In Colorado this is included in the State mandated contract although you may want to get more questions answered than the minimum information that is required therein.
It has been my observation for many years that builder/developers grossly underestimate the dues and do so almost intentionally in order to attract buyers. With new construction I always ask to see the basis for the budget and it is usually “unavailable”. If you buy into a new community and move in less than ten years you will probably not have a problem. It is at this ten-year plus point when major components begin to wear out that the residents begin to find that the “reserve for replacement” line item in the financial is really important.
What To Look For and Ask
You can learn a lot by walking through your prospective community and looking at the condition of the buildings and landscaping. Is there peeling paint, curling roof shingles, deteriorating paving and/or dead or poorly maintained grass and shrubs? If the answer is yes to any of those questions, you may be looking at a community that has insufficient cash flow to keep up. The result will be dues increases and/or “special assessments”.
So if you are buying into an existing community it is that, or a similarly named category, that you need to review carefully. You should be able to learn from the property management company how much they are forecasting to need and how that relates to what is currently in the account. Ask if there have been recent “special assessments” and if any are anticipated. Have there been recent dues increases and/or recommended increases? The reality is that most documents are written so that the increases are limited unless approved by a super-majority of the residents so it is responsible for the board to apply the maximum every year to try to stay ahead.
Avoid Surprises
Do not allow the seller or the management company to evade your questions. If you become uncomfortable with the answers and information then exercise your right to terminate the contract. I have a questionnaire available for my clients that we have the seller submit to the management company that addresses many of the above questions plus other important issues. If you would like the assistance of an experienced broker who always and only represents the interests of his buyer/clients, please contact me.
Russ Murray 303-721-1100, ext. 1 russ@buyerbroker-denver.com
Denver Home Prices Up Again
This Information From Case-Shiller
If you are reading this on a regular basis you may recall two facts regarding my opinion of “trend reporting”. The first is that what you really need to know about is your neighborhood, not the metro area as a whole. The second is that the index that I trust the most is the one from Standard & Poor’s/Case Shiller because it tracks “same house sales” and thus is not skewed by more expensive or less expensive homes being sold in a given period.
Denver Shows 1.2% Increase in December 2010
This “increase” is a comparison to December of 2009. While this may not tranlate into results for your specific neighborhood, it begins to become significant for two reasons. First is the obvious. For those of us in the market, up is certainly better than down. Second, and perhaps more important, it is the second consecutive month to show an increase. I am not enough of a statistician to know whether or not that is an official “trend”, but with the 0.5% increase in November, we are looking at two up months with the December increase more than double November’s. With the first-time buyer incentive having been scheduled to end on November 3oth, (It was subsequently extended, but not in enough time to have a major effect on December closings.) the December increase is more “market” driven than “incentive” driven.
Watching The Market Through A Rear-View Mirror
This information has value to you if you are considering purchasing your first home or making a move up. This the third real estate recession that I have lived through in my professional career. With each of the first two, the price increases were the most significant during the early part of the recovery which kind of happened while I was not looking. My best observation right now is that we will begin to see that increase sometime in the second half of 2010. Watch for the local employment figures to improve and see if the same index shows year-to-year increases again for January. If that occurs then the time to buy will be in 2010. If you are hoping to benefit from the ”first-time buyer” or “existing owner” purchase tax credits you have until April 30, 2010 to be “under contract” to receive full benefits. You will want to read the specific statutes that are applicable to your purchase.
What help should I have for my purchase?
You will want a broker who is committed to your interests. That is typically an Exclusive Buyer’s Agent (EBA). EBA’s always and only represent the interests of buyer-client and never list and sell homes. I am an experienced EBA and would be happy to discuss your real estate needs in the Denver area.
Russ Murray 303-721-1100, ext.1 russ@buyerbroker-denver.com
Considering New Construction In The Denver Area?
New Can Be Nice!
What have the builders done?
Well, if we take a look back to the beginning of the decade, single family new construction starts were at 15,000 units per year. For calendar year 2009 the new start figure was 2,400 (not a misprint). That is a huge reduction. It does indicate that this time around the builders are not getting so far ahead of demand that they have huge amounts of excess inventory. It is also significant to observe that several large regional and national builders have left the denver market. Many smaller builders are simply out of business.
How does that affect you as a potential new home buyer?
If you have your heart set on a new home where you get to select a site and all of the options and and finishes, then you should expect that you will be paying more than if you purchased a very similar home constructed in the last 3-5 years. How much more will depend on your negotiations with the builder. They builders will not build below cost, but they do want to keep their activity, employees and subcontrators busy so will build a lot closer to “cost” than in the past. If you find a new home that is esentially complete, there may be some room to negotiate price, additional upgrades or perhaps landscape.
Is there a better/best decision?
Over a 3-5 year ownership, you will probably be ahead by negotiating a purchase of an existing newer home. It will probably have basic landscape and window coverings in place and components should not be “wearing out” over that period.
How can I make that determination?
With an experienced agent on your side you can evaluate both options and then know what the financial difference is between the new vs. the existing. For some buyers, the incremental cost of “new” is simply worth it.
You can contact me for assistance. I am familiar with the builders and how to negotiate with them.
Russ Murray 303-721-1100, ext. 1 russ@buyerbroker-denver.com