Financial Issues

Financial fluctuations, mortgage rates, laws and tax changes can have major implications on home buying and selling. As the changes and shifts take place, we will keep you posted on the issue here and direct you to more information and late breaking updates.

FYI – There is a separate section of our website devoted just to market research. There are a host of reports for your review. The most comprehensive data that we offer is in our Quarterly Market Watch Report. This report has a multi-page summary about the market in general and includes detailed data on each county, city and town and property type. Others are also available on-line for your review as well. Check it out!

 

Financial Summaries by Topic

Free Credit Reports Homestead Act Insurance Crisis Links to Financing Sites
 Mortgage 101  Predatory Lending  Prequalifing Buyers  Property Tax Rates
 Refinancing  Reverse Mortgages  Short Sale and Foreclosure  Specialty Mortgages

 


Big Win for Realtors in IRS 20% Income Deduction

On Wednesday, August 8, the IRS released its proposed guidance on the new 20 percent business income deduction.  A wide range of real estate professionals, including those who are self-employed and those operating through partnerships, LLCs and S corporations, can take 20 percent off the top of any income received through pass-through businesses, provided annual income doesn’t exceed $157,000 for those filing individually, or $315,000 for married couples.

The calculation will depend on how your business is structured. Other limits could also come into play, but the basic structure is very favorable to you as a small business or independent contractor.

The key development from Wednesday’s announcement is the IRS’ new recognition of eligibility for a wide range of real estate professionals, including, as previously stated, those who are self-employed and who are operating through partnerships, LLCs or S corporations.

Realtors were integral to the favorable interpretation in the proposed guidance. Your association made a forceful case—both in a detailed letter sent to the agency on June 19 and in a face-to-face meeting with IRS officials in early August—that certain limitations on the deduction, based on income, were not intended by Congress to apply to real estate professionals. And that’s the interpretation the IRS has taken in its proposed guidance.

As Bloomberg News reported on August 7, “the National Association of Realtors … met with OMB (Office of Management and Budget) and Treasury Department officials to discuss proposed rules outlining computation of the new write-off for pass-throughs.”

NAR President Elizabeth Mendenhall had this to say about Wednesday’s annoucement:

Over the past several months, the National Association of Realtors® has worked with the IRS and Treasury Department to ensure real estate professionals can benefit from the Section 199A 20% deduction for pass-through businesses.

We were pleased with yesterday’s announcement, and believe this new 20% deduction will have a significant, beneficial impact on real estate professionals and America’s small businesses. Specifically, we anticipate the deduction to become available to a wide range of real estate professionals, including those who are self-employed as well as those operating through partnerships, LLCs, and S corporations.

This ruling is a victory for many of our 1.3 million members, those who represent all aspects of residential and commercial real estate. NAR continues to review all relevant information in the recently released proposed regulations on Section 199A, and will communicate with our members as new details emerge.

The new deduction is available for tax years beginning after Dec. 31, 2017. That means you’ll be able to claim it for the first time on your 2018 federal income tax return, beginning next year.

Look for detailed NAR guidance by mid September. It’s a complicated provision, and how it works for you is going to depend on many factors unique to your business structure and your income. As always, consult with your accountant or tax attorney on how this deduction should be applied in your situation.

Chief Economist’s Take on Rate Hike

The Federal Reserve announced this afternoon it will raise interest rates by a quarter of a percentage point and will likely raise rates two more times this year. The following statement is from NAR Chief Economist Lawrence Yun, made after the announcement: “We are still in the middle innings of rising interest rates; consumers should expect

What is Tax Season Going to Look Like for You?

In case you missed it, NAR did a great video (Facebook live event they taped), that showed how the tax changes will affect Realtors, Brokerages, commercial property investors and homeowners.  You can view the video here.  (47 minutes, fast forward to minute 4)  Learn about the new 20-percent deduction for pass-through entities, how new expensing

Innovative Solutions for Homeownership

In a stroke of good news, Fannie Mae  announced new policies that will help more borrowers with student debt qualify for a home loan. The new solutions give homeowners the opportunity to pay down student debt with a mortgage refinance, allow borrowers to exclude non-mortgage debt paid by others as part of the loan application

TRID Riders

“Where’s the TRID Rider?”  We’ve been asked that question many times this week and our answer is… the Berkshire County Board of REALTORS doesn’t have one.  Why?  We were one of the few organizations that elected to UPDATE our P&S agreement to cover the potential for TRID delays. If your client has been presented with a Rider to sign, please make sure you tell them to seek legal counsel to make sure that it is in their best interests.  There is NO obligation for a buyer or seller to execute a rider.  Here is a detailed explanation of why this decision was made locally – you should understand this in order to best serve your clients: (taken directly from our TRID FAQ )

Do we need an addendum like the Mass Form, to handle TRID delay issues?

No, not at this time.  Board Legal Counsel, the CEO and the President met and debated and discussed four different addendums created at the very last minute for TRID changes.  We don’t believe they are needed.  Why?

Our Berkshire P&S was changed to address how to handle adjustments without having to delay the closing, a key component to the proposed addendums we’ve seen floating around out there. In our practice, the closing attorney can calculate the closing figures if not provided for by the seller’s attorney, and they are binding. If you’re using the MAR P&S you might want to consider using the MAR Rider… but Berkshire forms were not designed for use with this rider… and only legal counsel should advise if your client executes one.

There were concerns about creating automatic extensions that don’t require buyer and seller consent.  Currently, there is no extension to the closing date without consent, and there is no compelling reason now to create one… we will continue to monitor this and may make a modification if it is discovered that the lenders or attorneys are unable to perform in the timelines we’ve established.

All addendums that were produced cited the need for an automatic extension due to compliance with TRID.  That isn’t possible.  The regulation creates no delay; an individual or institution’s failure to perform as expected creates delay.  Further, an automatic extension of the closing is not a requirement in any TRID regulation.  They buyer and seller can always agree to an extension if issues arise though, just as they could before TRID.

The addendums we reviewed did not address when notice of delay has to be given.  It is conceivable that the buyer could have the moving truck packed and on their way to closing when they learn of a delay.

There was strong consensus that our standards for performance and mutual consent should be preserved, unless we learn otherwise after roll-out and actual implementation.

Some attorneys are requiring asking us to strike “time is of the essence”.  Is that going to be removed from our Purchase and Sale agreement?

No, not at this time.  There have been a handful of law firms that routinely requested that be stricken long before the TRID disclosure issue.  Our current agreements and way of doing business hold the dates to be hard performance dates unless otherwise mutually agreed.  If the buyer’s attorney recommends that be stricken, that is a negotiable item between the seller and the buyer.

 

New TRID rules now in effect

The new TILA-RESPA Integrated Disclosure (TRID) rules for mortgage closings took effect for new loan applications on Oct. 3. The Consumer Financial Protection Bureau (CFPB) has an online toolkit to help REALTORS work within TRID parameters, and all of our Berkshire best practices and lender FAQs are available online 24/7 as well.   We are

Flood Insurance Update

We received good news about flood insurance changes from Affiliate Sharon MacEachern at Greylock Insurance.  Sharon wrote:

Great news this morning on the flood front!  As you may know (or maybe not!)…the private market flood we have been offering through Lloyd’s of London required that the dwelling coverage be written at 100% of the estimated rebuilding cost.  While their rates are much lower than National Flood Insurance Program (NFIP), if someone had a large home with a small mortgage, the flood insurance with them was often still cost prohibitive.  Lloyd’s just announced that they will now follow the model of NFIP and allow people to insure their homes just to the mortgage balance.  This could really impact Berkshire County…where a home with lots of square footage, but selling low and having a mortgage balance much less than rebuilding cost can now buy the lower amount of insurance at the Lloyd’s flood rate!

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