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  • San Diego Castles Realty
  • 10636 Scripps Summit Court, Suite 153
  • San Diego, CA 92131
  • P: 858.530.2374
  • F: 858.876.1701
  • E: info (at) sandiegocastles.com
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Fixtures, Personal Property, and Those Little Contractual Gray Areas

“Can I keep it?” This benign little question is raised at some point during nearly every transaction. Usually, a discussion of “personal property” versus “fixtures” ensues, but many items fall into a gray area. Fortunately, our California Residential Purchase Agreement (RPA) has attempted to address these.

The purchase agreement includes a paragraph that addresses items “included in and excluded from” the sale. It is a zinger, and at both the listing stage, where we are representing the seller, and at the contract stage, we have the talk. If you want to take the whimsical cherub wall sconces when you leave, because they are cherished heirlooms that have been passed down for generations, most recently at your son’s Bar Mitzvah, then they need to be written into the contract as exclusions. If you are a buyer looking forward to lazing in the seller’s hammock after you have finished unpacking the FiestaWare, then you need to write the hammock in as personal property to convey. Memories tend to fade, however, and where our stuff is concerned, a food fight can easily break out.

First, there is the issue of fixtures and fittings, and everyone seems to be pretty clear on the idea that those come with the home. It generally boils down to method of attachment; if an item is bolted in and can reasonably be considered an integral part of the home, then a fixture it is. If you can pick it up and haul it to the moving van, it’s personal property. Even here, though, disputes tend to arise.

Then, there are all those little nits, those gray areas that over the years have been most often the subject of wars being waged. Garage door openers, pool equipment, and gas log inserts, for instance, are all listed in the contract as staying with the property. The potted plants go away, but plants residing in our “fertile” native Scripps Ranch soil remain. This list is dynamic, however, and as our standard purchase contract has evolved, certain things have needed clarification. Wall-mounted televisions are now specifically excluded from the fixtures list, although the mounting brackets remain a point of debate and, often, contention.

The single biggest whose-stuff-is-it-anyway dispute in the transaction is, in my experience, always related to the window coverings. Note here that I said “coverings,” because that is how our contract reads. According to our contract, window coverings convey unless they are excluded from the sale. Once, we had a seller argue that she got the whole part about the drapes being goners, but the contract didn’t apply to her decorative valances, because they didn’t really “cover” anything. Attorneys have repeatedly said otherwise. Decorative or not, fabric or wood or a sheet of butcher paper cut to size, window coverings – window treatments – are included in the sale.

Bottom line: When in doubt, write it in.

Easily Distracted

Back in the Mesozoic Era when I was a teenager, I took a little thing called a driving test. Well, that's not entirely true. I took my driving test three times before hitting paydirt, but that is SO not the point. The point is that the second time I flunked, the nice DMV man told me that it was because I was "easily attracted and distracted" (although I suspect it had more to do with my brief time spent piloting my '67 Belvedere down the sidewalk).

Easily attracted and distracted. Little did I know then that this would make me both a very bad homebuyer. 

We tend to toss the word "custom" around in real estate advertising like custom means better, but “custom” is limiting. It limits the buyer’s choices and it limits the seller’s opportunities. “Custom cabinets,” “custom window coverings,” “custom fresco depicting interpretative dance moves performed by small woodland creatures and mystical garden gnomes” – these are all beautiful things. They are beautiful, that is, to the person who ordered them.

Custom just means that is was made to order – for one person’s own liking. And that’s why we stage homes.

The idea behind staging is to neutralize. Everyone likes a family room. Not everyone digs a family room with an Elvis motif (and I’m talking about the old Elvis in the jumpsuit, not the young one – he’s OK).

Everyone loves his or her children (well, most everyone, and only when they aren’t dropping their cell phones in the toilet, but I digress). The point is that not everyone loves your children – at least not enough to appreciate their likenesses displayed on every square inch of drywall. While you are thinking “Aw!” your buyer is thinking Spackle. And they get distracted, now having been reminded that they need to order a new computer to replace the one into which their own daughter poured a Venti peppermint mocha. Sorry. I digress again.

Some things can’t be staged away, of course. You loved the builder-option maple cabinets but your buyer fancies the Euro white. Your buyer dreams of a walk-in pantry, and your garage looks like a Costco distribution center because you don’t have one of those guys. In these cases, you have two choices. You can be patient or you can set your price accordingly.

As for the other stuff, the “fixable” stuff, just remember that every personalization, whether it is a religious artifact, personal photos, a bold paint scheme, or a bookcase filled with all back issues of Kitten Taxidermy Weekly, speaks to your buyer. It says, “Not my house.” Neutrality, on the other hand, will appeal to the greatest number of buyers – buyers who will be able to imagine themselves making your home theirs.  And that, after all, it the whole idea.

Obamacare and That Scary Real Estate Tax (revisited)

Here we go again.

A client who is interested in selling her property recently told me about a conversation she had with her neighbor. Her neighbor warned that she had better sell by the end of December. “Or what?” I asked? “The hostages die?”

No. Apparently, according to her neighbor, she would owe approximately $5 million in taxes if she closed escrow after the first of the year – because of ObamaCare.

This seems like a good time to dust off an old post on the topic.

Much has admittedly been written about the Affordable Health Care Act or, more specifically, about the part of the Affordable Health Care Act involving a Medicare Tax on certain real estate transactions. And if you are planning to sell your home in 2014, you can probably ignore the warnings to head for the nearest underground bunker.

For those fuzzy on the details, here is a little primer. (Keep in mind that we are talking about primary residences only. For investment properties, it’s a bit more complicated.)

Effective January 1, 2013, there will be a new 3.8% tax assessed when a property is sold.

  1. The 3.8% tax will only apply to “high income” taxpayers, defined as single filers with an Adjusted Gross Income of more than $200,000 or married couples filing jointly with an Adjusted Gross Income (AGI) of more than $250,000.
  2. The existing primary home exclusions will remain ($250,000/$500,000 for single and married filing jointly respectively). The new 3.8% tax will apply only to gains that exceed these numbers.
  3. For the squeakers, those close to the AGI limits, there is this. The tax is NOT imposed on the total AGI, nor is it imposed solely on the investment income. The tax will be determined based on the LESSER of (1) net gain (over the current exclusions) OR (2) the excess of AGI over the $200,000/$250,000 AGI thresholds.

Clear as mud? Let’s try some examples. For ease, let’s assume the taxpayer in our examples is married and filing jointly.

  • Your AGI is $5. The gain on the sale of your home is $500,000.  No 3.8% tax.
  • Your AGI is $5,000,000,000. The gain on the sale of your home is $500,000. No 3.8% tax for you.
  • Your AGI is $251,000. The gain on the sale of your home is $600,000, which is $100,000 above the $500,000 exclusion. (Note that I took lots of math in college.) You will be taxed 3.8% of $100,000 (the net gain over the $500,000 exclusion), or $3,800.
  • Your AGI is $Warren Buffett. The gain on the sale of your home is $600,000, which is $100,000 above the $500,000 exclusion. You will be taxed 3.8% of $100,000 (the net gain over the $500,000 exclusion), or $3,800. (And, may I suggest, this is the kind of problem you like to have.)

Now, here is where it gets tricky, and this applies to the folks hovering near the AGI limits.

  • Your AGI is $5. The gain on the sale of your home is $600,000, which is $100,000 above the $500,000 exclusion. The 3.8% tax will be calculated base on the lesser of the $100,000 gain OR the excess over the AGI limit. In this case, the new AGI is $5 plus $100,000, or $100,005, which is less than the $250,000 limit. Oh, happy day!  No 3.8% tax for you.
  • Your AGI is $240,000. The gain on the sale of your home is $550,000, which is $50,000 above the $500,000 exclusion. In this case, the new AGI is $240,000 plus $50,000, or $290,000, which makes the excess equal to $40,000. You will be taxed 3.8% of $40,000 (because $40,000 is less than $50,000, duh), or $1,520.
  • Your AGI is $0. The gain on the sale of your home is $1,000,000, which is $500,000 above the $500,000 exclusion. In this case, the new AGI is $500,000, which makes the excess equal to $250,000. You will be taxed 3.8% of $250,000, or $9,500.

To summarize, the Medicare tax will apply only to high income earners and only after the current primary home exemptions. And, keep in mind that the gain on your home is calculated by subtracting your cost basis from your sale price. The cost basis is not what you paid for it but the adjusted cost after taking into account the escrow, title, and other real estate fees you paid when you bought and sold, not to mention the cost of the new water heater you had installed in 1993.

There will be a test later.

(As always, remember that, as of this writing, I do not hold a Juris Doctorate degree. Consult your attorney or CPA. Use only as directed. Patent pending. Keep away from children. And so on.)

 

 

Negotiating Like a Pawn Star

Pawn Stars

I recently spent a fun-filled weekend in Las Vegas with Daughter #2 (pictured, although she is much "brighter" in person). It was a belated finally-old-enough-to-buy-her-mom-wine-day present and we, of course, had to visit the site of the show "Pawn Stars." So popular has this show become that the actual pawn shop has ropes snaked out front ala Disneyland. The cab driver told us that the wait to get inside can last over an hour on weekends. Since our visit was at 9:00 am on a Saturday (and remembering 9:00 am in Vegas is as bustling as 3:00 am in an assisted living center), we waltzed right in. 

For anyone who is unfamiliar with this epic History Channel show, you are likely from another planet. Like Mars. Or Arizona. Suffice it to say that Pawn Stars is Reality TV at its finest. And by that I mean, it is by all appearances utterly contrived, unless you accept the premise that the first place everyone goes to sell (not pawn) their most valuable collectibles is a dingy pawn shop located ten blocks off the downtown Vegas strip. 

It's entertaining, though. And we can draw some parallels to the negotiating process in a real estate transaction. Here is how a typical episode might go.

Normal Looking Man walks into pawn shop carrying a collectible. Cut away to pre-recorded parking lot interview with Normal Looking Man.

NLM: I came here to the pawn shop today to sell my gently used 1943 WWII Oneida PAL-MOD bayonet. I am hoping to get $4.7 million, and I am going to use the money to send my son to a four-year state college. For one year. Oh, and the least I will take is $200.

Cut away to "real" time. NLM approaches counter where one of the shows stars is eagerly awaiting his arrival.

STAR: What do we have here?

NLM: I have a 1943 WWII Oneida PAL-MOD bayonet left to me by my maternal grandfather, a decorated hero who served under Patton in the Eurpeon Theater and later went on to become one of his closet friends. Here is a picture of my grandfather standing next to General Patton at a barbecue, cutting a flank steak with this very bayonet. 

At this point, the STAR proceeds to give a little history lesson about the item to justify the fact that this show is airing, for some unknown reason, on the History Channel. Plus, buyers are reallly smart. 

STAR: This is a bayonet manufactured in 1943 by a company called Oneida. Bayonets manufactured by Oneida are among the rarest today. Originally, this bayonet blade was 16 inches long. At some point after WWI, the army figured out that a shorter, seven-inch blade was more effective. So the bayonets were modified. In this case, a company called "Pal Blade Company" modified the blade. Oh, and George Patton was a highly decorated General.

(EDITOR'S NOTE: The author knows a little about this particular bayonet (but nothing about General Patton), because she has one in her office desk drawer that she found while cleaning out the garage. Coincidentally, it is for sale, as she has found she has little need for it. Brandishing a bayonet at a listing appointment, it turns out, is not a good business development strategy. Make an offer.)

STAR: So what did you want to do with it?

NLM: I wanted to sell it. (Remember: They always want to sell it rather than pawn it. This is a pawn shop, afterall.)

STAR: What did you want to get for it?

NLM: Well, I have researched it online. I've seen the same bayonets go for between $200 and $300. So, I was thinking… (pregnant pause)… $4.7 million.

(Now, this is part you have been waiting for. In Reality TV negotiations, the buyer immediately commences trash-talking the seller's special item. Kind of like in real estate negotiations.)

STAR: Not gonna happen. You see, I need to make a profit. And your bayonet has been sharpened, and the handle is worn. It's basically a piece of crap — the ugliest, most undesirable bayonet I have ever seen. Plus, they made about 893 million of these. Hell, everyone I know has a 1943 Oneida PAL-MOD bayonet in their office desk drawer! (Pregnant pause) I'll give you $5.25. In CASH. 

NLM: But it has the original scabard! (Note: So does the Author's, which, you might have heard, is for sale.) Will you do $10?

STAR: I can go $6. Take it or leave it.

The segment wraps back in the parking lot, where the Normal Looking Man looks to the camera, not defeated, but all smug-like. "I was hoping for $4.7 million, but I am happy with $6. I understand that he will have to resell it some day, and I think $6 is a fair price."

Phew. Now, let's venture a little segue to real estate negotiations. The negotiations you see in Pawn Stars are bunk. If real people negotiated like this, they would have a pawn shop devoid of any real merchandise save the rows of commemorative T-shirts and Chumlee bobbleheads. Wait – this is exactly what the pawn shop we saw this day looked like. I rest my case.

You see, in real estate, the whole "your house is steaming pile of doggie doo-doo" approach to negotiating is generally a flawed one. Just like most people are emotionally invested in their 1943 WWII Oneida PAL-Mod bayonets with the original scabard (not me; mine's for sale), most people are very emotional about their homes. They take it personally. And the whole idea of the process is to bring the parties together. Sellers want to get the most money they can, but they also want to sell their home, all things being equal, to someone they like. Trust me on this one.

Beating the seller over the head with your own "comps" is just another form of negotiating by insult, but this time you are insulting the seller personally. This is the approach that makes me craziest. Too often I get a call on one of my listings from an agent who is more interested in giving me a clinic on comps and pricing than on actually getting the home under contract. In a Realty TV show, it might work.

Buyer's Agent: Does the seller really expect to get $500,000 for his place? I sent you the comps, and you will see that the same house down the street sold in 1982 for $140,000. And it had a 1943 WWII Oneida PAL-Mod bayonet that conveyed. The buyer won't pay more than $6, but it's all cash.

Me: Thank you! I am a pricing idiot, and I have no idea what I am doing here. My client is just as stupid. We talked it over, and while he really wanted to get $500,000, he now sees that $6 is a fair price. Let's write it up!

But you aren't a Pawn Star, and this isn't Realty TV. Better to go the Sappy Cover Letter approach, even if your client has no intention of paying anything within 20 furlongs of what the seller is asking. I wrote about this last year when tackling the whole multiple-offer situation. From that most excellent post:

The difficulty with multiples is that they tug at the old heartstrings. With a typical one-offer negotiation, the conversation typically goes something like this.

Buyer’s Agent: I am pleased to present this offer on behalf of my clients to purchase your listing. For $5.

Seller’s Agent: But the asking price is $800,000!

Buyer’s Agent: Yes, but we have reviewed recent sales, and this home sucks. The appliances are not Viking, the fixtures do not have the requisite gold plating, and your hair looks like it was styled by angry hedgehogs. We don’t like you. Or your client. Or this home. Accept the offer or we walk.

This confrontational approach is understandable. Despite the low inventory, this market continues to defy the laws of supply and demand. It is still a buyer’s market. Ask Case and Shiller.

But now we are seeing multiple offers, which, by the way, I hate. In multiple offer situations, the interpersonal dynamics change — like magic. The same adversaries who could only speak in complete dollar signs yesterday, the ones who would gladly have thrown the seller and his Schnauzer under a school bus for a $3,000 carpet allowance, suddenly become humanitarians of the highest order. They are deeply caring, compassionate individuals who each have a unique personal story to tell.

Enter the sappy cover letter.

There is nothing wrong with the sappy cover letter; I’ve written hundreds of them. And they all read something like this.

Dear Mr. and Mrs. Seller,

Thank you for allowing my clients to tour your home. We are sorry for the inconvenience, and we will be forever in your debt. We left you a bundt cake on the counter.

Mr. and Mrs. Buyer have been looking for a home just like yours for 39 months, and now they have found it!

My clients are well qualified. Mr. Buyer runs a local non-profit food bank, and Mrs. Buyer has devoted her life’s work to searching for a cure for kidney disease, ever since she donated her own kidney to a young inner-city homeless boy. When she is not causing stem cells to differentiate, she enjoys raising her five young disabled children who spend their summers doing missionary work in orphanages in various third-world countries – like Texas.

My clients have outgrown their current studio apartment. Their lease is month-to-month. Therefore, their timing can be flexible to meet your needs. By the way, they really enjoyed meeting your puppy! Their own Schnauzer was run over by a school bus last month while trying to save a toddler who had wandered into the street, and they look forward to putting your dog run to good use as they foster rescue animals in Scooter’s memory.

Please accept our offer for $5.

The sappy cover letter, by the way, works equally well in the single-offer situation. 

And since I can't quite come up with a "big finish" here, I'll leave you with this. I would like to get $200, but I won't take any less than $50.

photo (1)

The Royal Baby is coming! OMG!

I’m back. And just in case you don’t believe it is really me (or as spellcheck likes to say, “really I”), I will try to throw in a few typos as proof.

Ignore the title of this post. This isn’t really about the royal baby. That was just, as they say in journalism, a “lede” to suck you back into the vortex of my neglected little blog.  If you are one of those wacky royal watchers, however, rest assured you don’t have to go rushing out of here lest you miss the news of the big birth. Kate, being royal and all, was whisked off to the hospital at her first signs of slight discomfort. She could be there for days. On the other hand, when I, a commoner, was in labor, my doctor told me to stay home and practice my breathing for about 22 hours. He didn’t want to hear from me again, he scolded, until the baby crowned.

Since my last two posts – in April and February (insert sad face) – touched on our little local pricing run up and dearth of inventory, I thought it would be fitting to celebrate my coming home party by picking up where we left off.

Back on February 25th, I noted that Scripps Ranch (Zip code 92131) had a dismal active inventory of 33 detached homes and 8 attached homes. Fast-forward to today, and Scripps has 74 detached and 25 attached homes offered for sale. Doing some quick mental math, that’s, like, way more houses for sale. What gives?

Well, summer gives, for sure. But the sudden spike in offerings is arguably more a result of those rising prices. As a case in point, we are seeing an unusually higher percentage of tenant-occupied listings. Sellers who, unable to get what they considered to be a palatable price a year or two ago, made good on their threats to “just rent it.” Suddenly, selling makes a little more sense.

Hat tip to the Movoto Blog for giving me permission to reprint their June year-over-year housing performance statistics for West Coast cities. Note that San Diego had a slight inventory increase of 3.6% but a whopping 20.8% increase in list price per square foot. And since the sale price to list price ratio for San Diego County sales in the past 60 days is 99% (Sandicor MLS), sale prices are following suit.

west-inventory

west-price

Tada! I finished a blog post. That didn’t hurt at all. I might make this a weekly habit.

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Office Location

  • San Diego Castles Realty
  • 10636 Scripps Summit Court, Suite 153
  • San Diego, CA 92131
  • P: 858.530.2374
  • F: 858.876.1701
  • E: info (at) sandiegocastles.com
  • CA BRE# 01853496

Broker Information

  • Kris Berg, Broker
  • CA BRE #01241572