Spring 2016 Real Estate Update
Spring 2016 Market Perspective
News Release: Lack of Inventory a Game-Changer
KIRKLAND, Washington (February 4, 2016) – Depleted inventory is contributing to “overwhelming” traffic at open houses, shifts in strategies for both buyers and sellers, and escalating prices, according to officials with the Northwest Multiple Listing Service.
The latest figures show a drop of nearly 28 percent in the number of active listings in the MLS database compared to a year ago. At month end, the Northwest MLS reported 12,357 active listings, which compares to 17,082 at the end of January 2015.
The inventory shortage took a toll on last month’s sales. The number of pending sales (mutually accepted offers) fell about 5.3 percent area-wide during January, although half the counties in the report tallied increases compared to a year ago. The 5.3 percent drop marked the first negative change in year-over-year comparisons since April 2014.
Despite the drop in inventory, high-volume open houses and multiple-offer situations indicate that demand is still strong. The number of new listings selling within the first 30 days on the market is double what would normally be expected.
Rapidly rising prices and low inventory are worrisome, according to some brokers. It is a good time for sellers, but there’s a concern that there is no place to move once they sell.
Increase in FIRPTA Tax Rates
The Foreign Investment in Real Property Tax Act (FIRPTA) affects real estate transactions in which a foreign seller conveys, for value, real estate here in the United States. The concern of the Internal Revenue Service is that a foreign seller will sell property owned in the United States and then leave the country, leaving a tax payment burden unpaid.
In such a situation, the buyer becomes responsible for the seller’s tax obligation, unless
- Escrow knows to withhold a certain amount from the seller’s proceeds at closing, or
- The seller seeks permission or a waiver ahead of time from the IRS.
Unfortunately, not many buyers are aware of these requirements.
Here’s What Has Changed
The tax rate: as of February 17, 2016, FIRPTA withholding at closing will be imposed at a rate of 15% (an increase from 10%) of the sale price. There are two notable exceptions:
- If the amount realized does not exceed $300,000 and the buyer will use the property as the buyer’s personal residence – then there is no tax withheld.
- If the amount realized exceeds $300,000, but does not exceed $1,000,000 and the buyer will use the property as the buyer’s personal residence – then the tax withheld is 10%.
A new MLS form: Buyers should be aware that there is now FIRPTA Certification form that can be included in a Purchase and Sale Agreement here in WA state. On this form, the seller certifies his/her citizenship status, and the buyer certifies the sale price, thus determining the applicable tax rate.
Good News—If you are a seller, you can probably sell you home for more than you could have this time last year.
Bad News—If you are a buyer, you may find that listings are under contract before you can get an offer written.
Good News for Short Sale Sellers
Congress has extended the Mortgage Forgiveness Tax Relief Act.
This act was a special exemption that originally went into effect in 2006/2007 and expired at the end of 2014. It allowed sellers to avoid paying income tax on mortgage debt that is forgiven in a short sale situation.
- Let’s say you’ve lived in your primary home for two of the last five years, and then sell that property as a short sale for $15,000 less than the amount you owe on your mortgage. There is still a balance of $15,000 owing on your mortgage.
- If your mortgage lender then writes off that balance, that debt of $15,000 is considered forgiven.
- The $15,000 is then considered income to you and is subject to ordinary income tax, which could amount to many thousands of dollars.
- The Mortgage Forgiveness Tax Relief Act allows you to avoid paying income tax on that forgiven debt.
The good news for current sellers who owe more than their homes are worth is that the Mortgage Forgiveness Tax Relief Act has been extended until the end of 2016. The really good news is that the extension is retroactive to cover all of 2015, so if you were the seller of a short sale in 2015, you are now covered by this act.
What Should You do In this market?
Whether you are a Seller, a Buyer or an Investor, there are lots of good opportunities in today’s market. I’m always available to consult with you to help you assess and achieve your real estate goals.