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Real Estate

With Fast-Growing Prices, Gains in Equity Are Exceeding Minimum Wage

Daily Real Estate News - April 10, 2018 - 4:16pm

For many Americans, homeownership is a vehicle for wealth—an appreciating asset that, more often than not, earns a profit at resale.

In the market today, homeowners are all but promised to reap the rewards. According to an analysis recently released by Zillow, appreciation is so healthy that homes in many markets are producing more than a job for minimum wage would. Although the average homeowner is earning $7.09 in equity for every hour spent at work—16 cents less than the federal minimum wage—homeowners in half of the 50 largest markets are earning more in equity than their local minimum wage. The analysis assumed eight-hour days, or 2,087 hours of work per year.

“As home values continue to rise at a rapid clip, many homeowners have earned more in home equity over the past year than they would have by working a minimum wage job—and in some areas, more than they’d have earned even if they had a job paying a six-figure annual salary,” says Aaron Terrazas, senior economist at Zillow.

The areas earning the most are on the West Coast: San Francisco, San Jose and Seattle. In San Francisco, appreciation has been $60.13 per hour worked; in San Jose, $99.81; and in Seattle, $54.24.

In the 25 largest markets:

“Equity ‘earnings’ are a lot different than the salary typically taken home on the first and fifteenth of each month; it is not money that accumulates directly into a checking account or that can be spent on daily needs,” Terrazas says. “Equity is only available once a homeowner chooses to sell a home, and even then is often subject to various taxes and other expenses. Still, particularly for homeowners that have already or are very close to paying off a mortgage, this supplemental ‘income’—especially if allowed to accumulate over several years—can essentially serve as a kind of second job that pays directly to a homeowner’s bottom line, without nearly as much actual work involved in collecting it.”

For more information, please visit www.zillow.com.

Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Real Estate

Consumer Confidence Retracts

Daily Real Estate News - April 7, 2018 - 12:00am

Consumer confidence retracted in March, posting a 127.7 reading in the latest Consumer Confidence Index® from The Conference Board. February’s reading was 130.

The Expectations reading of the Index, which gauges how consumers feel about their business, employment and income prospects six months out, fell to 106.2; in addition, the Present Situation reading, which gauges how consumers feel about conditions currently, fell to 159.9.

“Consumer confidence declined moderately in March after reaching an 18-year high in February,” said Lynn Franco, director of Economic Indicators at The Conference Board, in a statement. “Consumers’ assessment of current conditions declined slightly, with business conditions the primary reason for the moderation. Consumers’ short-term expectations also declined, including their outlook for the stock market, but overall expectations remain quite favorable. Despite the modest retreat in confidence, Index levels remain historically high and suggest further strong growth in the months ahead.”

Source: The Conference Board

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Categories: Real Estate

5 Things a Federal Reserve Interest Rate Hike Means for Your Wallet

Daily Real Estate News - April 5, 2018 - 3:37pm

(TNS)—Consumers tend to pay far more attention to the swings in their March Madness brackets than the latest moves by the Federal Reserve. The reality is the Fed’s action will have a more lasting impact on your wallet.

The Fed moved to raise rates by 25 basis points, as expected. The Fed’s benchmark interest rate increases to 1.5 percent to 1.75 percent.

“Job gains have been strong in recent months, and the unemployment rate has stayed low,” the Fed said in its statement. “Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.”

Going forward, consumers will continue to see an uptick in the cost of borrowing on everything from credit cards to car loans to mortgages.

This is the first rate hike of 2018 but it’s not the last, according to economists. Another two or three rate hikes are anticipated for this year, according to Robert Dye, chief economist for Comerica Bank.

“Higher interest rates are negatives for most households,” Dye says.

The U.S. economy has much going for it on the upside—strong job growth, rising home values, some wage growth and higher consumer confidence, and a federal tax cut that is putting more money in many wallets.

“I think the positives will outweigh the negatives this year and we will see a strong year for non-auto consumer spending,” Dye says.

Here are some things to pay attention to now in a rising-rate world:

  1. Budgets, unlike college basketball brackets, aren’t likely to be busted.
    The theory is that the Fed has room to raise rates because the job market is so strong. As wages rise, consumers may not be under so much pressure to borrow or they’d be able to afford slightly higher rates.

Rates are expected to climb gradually, so consumers still have time to refinance or borrow earlier in the year to avoid higher rates later on down the road.

Mark Zandi, chief economist for Moody’s Analytics, says his expectation is that mortgage rates and car loan rates will be up by at least a half a percentage point a year from now. For savers, new CD rates are expected to be about a quarter percentage point higher a year from now.

“The economy is set to boom,” Zandi wrote in a report this week. “Growth is already strong—well above the economy’s potential—and will soon accelerate. A massive dose of fiscal stimulus measures, including both deficit-financed tax cuts and federal government spending increases, has just begun to hit the economy.”

  1. Consumers aren’t stressing out.
    Policy wonks and bankers keep a close eye on all things Fed, but a recent NerdWallet survey indicated that 62 percent of respondents claimed that they didn’t know the Fed raised rates last year. The Harris Poll on behalf of NerdWallet surveyed 2,000 U.S. adults ages 18 and older.

As of the last hike, the Federal Reserve will have raised rates six times since December 2015. The Fed raised rates three times in 2017, once in 2016 and once in 2015.

  1. Borrowing costs aren’t sky-high.
    Mortgage rates rose for a good part of 2018 on strong jobs reports. The average 30-year fixed rate has gone up to 4.54 percent from 4.15 percent in early January, according to Bankrate.com.

“Borrowing costs are still relatively low, but moving higher and that’s why consumers need to get out of variable-rate debt and lock in fixed rates to insulate themselves from further increases,” says Greg McBride, chief financial analyst for Bankrate.com.

McBride says he’s expecting mortgage rates to remain around 4.54 percent by year-end, but he’s expecting plenty of volatility. At some point, mortgage rates could drop significantly if geopolitical issues arise or the U.S. economy slows down.

As for other rates, McBride says he’d expect the average five-year car loan rate to be 4.85 percent by year-end, up from 4.46 percent now.

Consumers aren’t seeing anything close to the average 8 percent for a car loan consumers faced in January 2006, according to Jessica Caldwell, executive director of industry analysis for Edmunds.com.

Savers are likely to see higher rates, too. McBride expects the average rate on a one-year CD to be 0.7 percent by year-end, up from 0.49 percent now. The average rate on a five-year CD is expected to be 1.5 percent by year-end, up from 1.10 percent now.

  1. Ignoring the trend toward higher rates won’t help.
    As rates edge higher, savvy consumers will want to take extra care to shop around for loans and CDs.

Making sure to pay bills on time—and not get overburdened with debt—will help keep credit scores higher and borrowing rates lower for individuals.

The average rate for credit cards is the highest ever, at 16.84 percent—and those rates would edge even higher once the prime rate goes up, according to McBride.

“But consumers with good credit can still get 0 percent offers for purchases and balance transfers that last as long as 15 months,” McBride says.

The key, of course, involves maintaining a strong credit score.

Charlie Chesbrough, senior economist for Cox Automotive, notes that rates on car loans are near five-year highs, but rates remain relatively affordable, particularly for those with good credit.

“Higher lending costs impact car buyers in different ways,” Chesbrough says. “For customers with good credit, the monthly payment on a $35,000 five-year car loan will rise about $15 a month from a 1 percent interest rate increase.”

Consumers with lower credit scores are seeing much bigger rate hikes on the car loans they’re taking out.

“Assuming a continuation of credit tightening, subprime borrowers will see much larger cost differences,” Chesbrough says.

  1. Consumers can control some borrowing costs.
    Most credit cards have variable rates and the interest rate goes up every time the Fed raises rates. Most home equity lines of credit have a variable interest rate that’s tied to the prime rate. The prime rate goes up when the Fed raises short-term rates.

“Variable-rate debt, such as credit cards and home equity lines of credit, will only cost more as interest rates rise,” McBride says. “Transfer balances to low-rate cards, refinance into a fixed-rate home equity loan, or just pay down the debt aggressively—but do it now.”

©2018 Detroit Free Press
Visit the Detroit Free Press at
www.freep.com
Distributed by Tribune Content Agency, LLC

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Categories: Real Estate

Home-Selling Can Come With $18,000-Plus Price Tag

Daily Real Estate News - March 28, 2018 - 3:37pm

Are you a homeowner listing your property for sale? Consider the expenses that are often overlooked by sellers: cleaning costs, moving costs, painting, staging…

“Even in the hottest housing markets in the country, selling a home takes time and costs money,” says Jeremy Wacksman, CMO at Zillow, which assessed the costs that come with listing in the recently released “2018 Hidden Costs of Selling” report.

“From decluttering and staging to pre-inspections, agents and homeowners often spend months behind the scenes prepping a home—well before it’s listed on the market,” Wacksman says. “If you’re planning to sell this year, try to take some time to research what costs you may be responsible for and how they could affect your profit, or even budget for your next house.”

According to the analysis by Zillow, the average homeowner is on the hook for $18,342 when selling, with $4,985 allocated to prep projects and $13,357 going to the agent’s commission and sales taxes. The data was drawn from Thumbtack, which offers quotes for professional services.

Costs differ by market, the analysis found. In San Jose, Calif., where the median price is one million-plus, the average cost to sell is $81,507; in Cleveland, Ohio, where the median price is $137,600, the average cost to sell is $12,986. (Get the complete data for the largest markets.)

Carrying out improvements, though pricey, is worth it, says Lucas Puente, economist at Thumbtack.

“While there could be some initial sticker shock associated with the costs of selling a home, investing in home improvement projects like painting and home staging often proves to be very valuable in the long run,” Puente says. “Homeowners starting to think about selling should take time to research and budget for the projects that can ultimately help sell their home faster and at a higher value.”

Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Real Estate

Buyers Have High Hopes for Spring

Daily Real Estate News - March 25, 2018 - 1:04pm

Getting Equipped to Win

Buyers are flocking to the market this spring, with high hopes even as they face a frenzy of multiple-offer situations, according to new realtor.com® research.

Currently, inventory is down 8.5 percent year-over-year. In addition to the buyers out in droves for the first time, many have been on the hunt for a while. In fact, 40 percent of buyers have been looking for more than seven months; another 34 percent have been searching for four to six months. Moreover, 35 percent are anticipating “a lot” of competition this season.

“We’re only a few weeks into March and already seeing the market heat up,” says Danielle Hale, chief economist for realtor.com. “Holdover buyers hoping for greener pastures this spring are likely to find sparse options that require them to pay top-dollar or make other concessions.”

To combat competition, buyers are employing strategic tactics, like checking in daily on listing portals and getting notifications about prices, as well as above-asking offers and having a down payment higher than 20 percent.

“The majority of buyers are aware of the tough competition they’re up against this spring,” Hale says. “Having been in the market awhile, they’ve likely lost a few homes to better offers, which has given them more time to save and up their bidding strategies.”

Even against hurdles, buyers are optimistic—an impressive 60 percent believe they will close in the next six months, and 34 percent believe they will close in four to six months.

The data comes from more than 1,000 responses to a survey by Toluna.

For more information, please visit www.realtor.com.

Suzanne De Vita is RISMedia’s online news editor. Email her your real estate news ideas at sdevita@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Real Estate

5 Great Cities for Millennial Homebuyers

Daily Real Estate News - March 11, 2018 - 1:02pm

(TNS)—For millennials who are ready to become homeowners, finding an affordable house in a great community can be challenging. With housing inventory historically low, real estate in major metro areas is at a premium. It’s no surprise, then, that young buyers are moving to the suburbs, according to the 2017 Home Buyer and Seller Generational Trends Report by the National Association of REALTORS®.

Among millennials surveyed, 57 percent bought a house in the suburbs, spending an average of $205,000. Meanwhile, only 12 percent bought in an urban or central city. Affordability, convenience to work and neighborhood quality were among the top requirements for these buyers.

Using this information, we identified five cities that offer some combination of affordable housing, economic growth, job opportunities, proximity to major metro areas and recreational activities.

Great cities for millennial homebuyers:

  • Lancaster, Pa.
  • Columbus, Ohio
  • Garner, N.C.
  • St. Petersburg, Fla.
  • West Des Moines, Iowa.

Lancaster, Pa.
Population: 59,218
Median value of housing: $109,300

One of the oldest inland cities in the country, Lancaster boasts unique features, such as the country’s oldest continuously running farmers market. It’s also home to an established arts community and a network of independently owned businesses.

There are a number of homes available in Lancaster, including new construction. There were 200 new housing units built in Lancaster in 2017. This year, the city is on track to add 125 more, according to Marshall Snively, president of Lancaster City Alliance.

“In the last 10 years, we’ve had more than $1.5 billion in public and private investment, including residential development, and more is on the table,” Snively says.

Nestled between Harrisburg and Philadelphia, Lancaster is a good option for people who want to work in one of these larger cities but own in a more affordable location. Residents can take a train to Harrisburg in less than 35 minutes, and trains into New York City take about two-and-a-half hours.

Local businesses abound, so many residents don’t have to look beyond the city for jobs. Medical center Lancaster General Health has a network of 300 physicians and more than 3,600 employees. Fulton Bank, one of the region’s most prominent financial institutions, is headquartered in Lancaster.

The city has a strong arts culture, which supports a variety of vintage and antique stores, as well as outdoor markets and performing arts. Gallery Row downtown consists of three blocks of galleries, restaurants and retail.

Columbus, Ohio
Population: 860,090
Median value of housing: $131,800

You can own a home in Columbus without breaking the bank. Even in some of the more expensive neighborhoods, like Harrison West, you can find three-bedroom, two-bath homes for under $250,000.

Columbus supports many industries, including healthcare, education, finance, manufacturing, retail and technology. Columbus’ largest employer, the Ohio State University, has more than 30,000 full-time workers. Nationwide Insurance is also headquartered here, with about 13,000 full-time employees.

Columbus offers amenities for just about everyone. Kayakers can enjoy Columbus’ waterways, like Big Darby Creek, Griggs Reservoir and the Scioto River. There are also miles of bike trails and thousands of acres of parkland to hike.

Nightlife includes comedy clubs and live music venues, as well as hundreds of restaurants. Additionally, there are many large-scale attractions, like the Center of Science and Industry as well as the Columbus Zoo and Aquarium.

Garner, N.C.
Population: 28,776
Median value of housing: $164,800

This small town is about six miles south of Raleigh and is also near the Research Triangle, which includes Duke University, North Carolina State University and the University of North Carolina at Chapel Hill.

For people who work in any of these areas, Garner offers more affordable housing than some of the other nearby communities.

Garner’s business landscape is a mixture of information, utilities, retail and public administration. Companies like Butterball and Direct Distributors are headquartered in Garner. The median household income in Garner is $59,812, above the national median of $57,617, according to Census data.

Outdoor enthusiasts will appreciate Garner’s 1,200 acres of parkland and open space. White Deer Park offers bikers, runners and walkers two miles of paved trails, playgrounds, an arboretum and a 2,500-square-foot nature center.

Garner also has a mix of chain stores, shopping plazas and locally owned businesses. Local watering holes, like The Beerded Lady, offer a place for residents to see live music.

St. Petersburg, Fla.
Population: 260,999
Median value of housing: $154,800

St. Petersburg has rejuvenated its downtown, which is home to a mixture of business offices, residential property, restaurants and entertainment.

The Gulf Coast city boasts more than a dozen companies that employ over 1,000 people, including HSN, Raymond James Financial and Jabil Circuit, in addition to many other mid- and small-sized companies.

Mayor Rick Kriseman, who was just recently awarded the 2018 Small Business Advocate award by the U.S. Conference of Mayors for his commitment to small businesses, said that creating opportunities for young people is a top priority for St. Petersburg. The city’s Grow Smarter initiative developed by the city and the Chamber of Commerce to assess, develop and create programs to grow the local economy is an example of that focus.

“We are working hard to ensure we are an inclusive and welcoming city where people of all ages can grow and thrive,” Kriseman says. “We are specifically aiming to bolster and support our population of young professionals, as their skills and interest align well with our Grow Smarter economic development strategy.”

St. Petersburg is home to world-class museums, such as the Salvador Dali Museum and the Fine Arts Museum, as well as chefs honored with James Beard awards, including Lauren Macellaro of The Reading Room.

The city hosts events like the Firestone Grand Prix and is home to the Tampa Bay Rays baseball team.

West Des Moines, Iowa
Population: 64,560
Median value of housing: $195,500

West Des Moines borders Des Moines to the west, about eight miles from Des Moines International Airport. This small city reaps the benefits of the booming financial and publishing industries in Des Moines while retaining a grass-roots community.

“What we’re seeing is that a lot of young people are buying in our older neighborhoods,” says Clyde Evans, director of Economic Development for West Des Moines. “They’re fixing up houses from the ’60s, ’70s and ’80s. It’s affordable for them to do that here.”

Finance and insurance companies, including Wells Fargo, Farm Bureau and Athene, are located in West Des Moines. Small businesses also make up a large part of West Des Moines’ economy, adding to the 2,800 businesses in the city, according to the West Des Moines Chamber of Commerce. West Des Moines is only 11 miles east of Waukee, the future home of Apple’s $1.375 billion data center announced last year.

West Des Moines has a variety of restaurants and shopping destinations, including Jordan Creek Town Center and Valley West Mall. There are also microbreweries for beer connoisseurs, like locally owned Twisted Vine.

The 632-acre Raccoon River State Park offers an array of activities like fishing, boating and even swimming along the 500-foot beach, which is part of Blue Heron Lake. There’s also an extensive network of almost 50 miles of greenway trails, park trails and side paths.

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

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Categories: Real Estate

Consumer Confidence Leaps

Daily Real Estate News - March 5, 2018 - 5:04pm

Consumer confidence leapt in February, posting a 130.8 reading in the latest Consumer Confidence Index® from The Conference Board. The Expectations reading of the Index rose to 109.7, while the Present Situation reading rose to 162.4. January’s reading was 124.3.

“Consumer confidence improved to its highest level since 2000 (Nov. 2000, 132.6) after a modest increase in January,” said Lynn Franco, director of Economic Indicators at The Conference Board, in a statement. “Consumers’ assessment of current conditions was more favorable this month, with the labor force the main driver. Despite the recent stock market volatility, consumers expressed greater optimism about short-term prospects for business and labor market conditions, as well as their financial prospects. Overall, consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”

The percentage of consumers who believe business conditions are “good,” as defined by the Index, increased from 35.0 percent in January to 35.8 percent in February; the percentage of those who believe business conditions are “bad” decreased from 13.0 percent in January to 10.8 percent in February. The percentage of those who expect business conditions to improve increased from 21.5 percent in January to 25.8 percent in February; the percentage of those who expect business conditions to worsen decreased from 9.8 percent in January to 9.4 percent in February.

The percentage of consumers who believe jobs are “plentiful” increased from 37.2 percent in January to 39.4 percent in February, according to the Index; the percentage of those who believe jobs are “hard to get” decreased from 16.3 percent in January to 14.7 percent in February. The percentage of those who expect more jobs in the coming months increased from 18.7 percent in January to 21.6 percent in February; the percentage of those who expect less jobs in the coming months decreased from 12.5 percent in January to 11.9 percent in February.

The percentage of consumers who expect higher incomes increased from 20.6 percent in January to 23.8 percent in February; the percentage of those who expect a decrease also increased, from 7.9 percent in January to 8.6 percent in February.

Source: The Conference Board

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Categories: Real Estate

Tax Scammers Use Refund Ruse

Daily Real Estate News - March 5, 2018 - 5:03pm

(TNS)—Wait, what? You didn’t file your income tax return yet, but, suddenly, somehow, you spotted a bunch of money in your bank account from a refund?

Seriously?

Believe it or not, criminals are using real bank accounts in a fast-spreading scam that could gain more traction as we move into prime refund season, according to the Internal Revenue Service.

“It’s super sophisticated,” says Luis Garcia, a spokesperson for the IRS in Detroit. “If you haven’t filed your taxes—especially if you’re not expecting a refund—and money shows up in your account, don’t touch it.”

Last summer, the IRS reported that cybercriminals had been targeting tax professionals. According to the IRS, 177 tax professionals or firms reported data thefts involving client information relating to thousands of tax filers from January through May 2017. Much of that theft started with a phishing email sent to the tax professional posing as a potential client to gain access to the professional’s computer systems and collect the personal information of existing clients.

After stealing the data from tax professionals, criminals could have your bank account number if you requested direct deposit of a refund earlier.

Now, the crooks who file fake tax returns to steal refund cash could be giving the IRS your bank account information for direct deposit of fraudulent refunds.

How do the crooks then get the cash?

One scheme includes an automated call that claims that you’re a willing participant in tax fraud and demands that you return the money. Of course, if you follow their directions, you’re handing the money over to the crooks.

Garcia says some people could be caught off guard by such calls, especially when they suddenly spot a deposit from the U.S. Treasury in their account.

“It’s jarring when somebody calls you and they know your bank account,” Garcia says.

The IRS began issuing tax refunds as of Feb. 27 for many early filers who receive the Earned Income Tax Credit and the Additional Child Tax Credit, so the ID thieves who filed fake returns claiming those credits will be looking to collect soon, if they used your bank account for direct deposit.

As part of the crackdown on tax-related ID fraud, the IRS has been taking extra steps to avoid depositing refunds onto suspicious prepaid cards. That’s why the scam could involve a new twist.

After the money hits your account, a con artist might pose as a debt collection official working on behalf of the IRS. The crook might say the refund was deposited in error and they ask the taxpayer to forward the money to their collection agency.

Don’t do it.

Or a robocall claims to be from the IRS and threatens the person with an arrest warrant unless refund money is turned over. Some calls talk about “blacklisting” the Social Security number of the real taxpayer, if the taxpayer doesn’t follow the appropriate steps to return the refund cash.

Don’t do it.

“This isn’t your refund,” Garcia says. “You’re the victim of tax fraud. But don’t complicate things by not returning that money to the IRS—not the scammers.”

What should you do? Contact your bank. Don’t plan to spend the money. Follow the proper steps to return the fraudulent refund to the IRS.

Some consumers have reported that their bank accounts ended up being frozen as banks try to deal with this odd criminal twist. Your account could have to be closed to prevent fraudsters from gaining access.

The IRS said taxpayers who receive an erroneous refund should contact the Automated Clearing House department of their bank. The bank would return the erroneous refund directly to the IRS.

The taxpayer should contact the IRS at 800-829-1040 for an individual filer or 800-829-4933 for a business.

You’re going to want to file a Form 14039, Identity Theft Affidavit when you file your own tax return to state that you were a victim of a tax preparer data breach. Once a victimized taxpayer tries to file his or her own return electronically, they may fear that their tax return will be rejected because a 2017 return bearing their Social Security number has already been filed.

Tax fraud remains a threat, even though the IRS said the number of tax returns with confirmed identity theft declined by 32 percent to 597,000 returns in 2017, compared with 883,000 returns in 2016.

A spokesperson from Intuit, the maker of TurboTax, said its fraud detection program includes providing suspicious activity reports to the IRS and validating internet protocol addresses to block high-risk transactions from suspect geographies.

But experts say cybercriminals are always developing new lines of attack, like the direct deposit scam. So if you’re hit, it’s important to take action.

The IRS outlines the steps to take to return an erroneous refund in its “Tax Topic Number 161 – Returning an Erroneous Refund.” See www.irs.gov.

Many times, scammers likely could try to use direct deposit. But some could have a fraudulent refund check sent to your home. They’re hoping you cash it—and don’t spend it—and then hand over the money. Or maybe they’re planning to steal that check out of your mailbox.

The steps for returning an uncashed check include writing “Void” on the back of the check where you’d sign it. The IRS wants you to submit the check immediately but no later than 21 days to the appropriate IRS location listed online. The IRS lists 10 possible locations for where you’d mail that erroneous check.

You will want to include a note saying that you’re returning an erroneous refund check and give a short reason.

And what if you’ve cashed an erroneous refund check?

You will need to send a personal check or money order to the IRS. Make sure to write on the check or money order: “Payment of Erroneous Refund” and the tax period for which the refund was issued.

If you don’t act promptly to repay an erroneous refund, the IRS could charge interest on the money.

©2018 Detroit Free Press

Distributed by Tribune Content Agency, LLC

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Categories: Real Estate

Sinkholes: Avoiding Collapsed Transactions

Daily Real Estate News - March 4, 2018 - 2:06pm

In 2017, multiple regions were severely impacted by natural disasters—and the real estate industry has been affected by them all. But one event which often occurs across the U.S. has largely been out of the limelight.

Sinkhole activity typically occurs in areas of Florida, Texas, Alabama, Missouri, Kentucky, Tennessee and Pennsylvania, according to the U.S. Geological Survey. These events take with them land surfaces, which oftentimes include homes, when rock in the underground space dissolves and creates an unsupported cavern, ultimately giving way and collapsing.

The recent resurgence of sinkholes in Florida is leaving homeowners with questions. Are there signs to look for? Can they be prevented? What if a home is destroyed during the selling process? There are steps that homeowners can take to protect themselves and their assets in the case of sinkholes.

Seek Out the Signs
Does the property have noticeable sinking, sagging or cracking walls? These are all tell-tale signs of a sinkhole, according to the Florida Department of Environmental Protection, Lou Nimkoff, president of the Orlando Regional REALTOR® Association, tells RISMedia.

EarthTech.com provides even more signs to look for, which can vary depending on the severity of the situation:

  • Tilting or falling trees or fence posts
  • Slanting foundations
  • Sudden pond drainage
  • Wilted vegetation in a specific area
  • The sudden appearance of earthy odors
  • Infestation of bugs, such as slugs and centipedes

Homeowners should also look out for holes or depressions in which surface or storm water disappears. If a vortex emerges through which stream or pond water swirls down, this is another sign of a sinkhole.

Evaluate the Property
If a sinkhole is thought to be present, homeowners must act quickly to have the home inspected. The first step is to report it to the state’s department of environmental protection. If the property is on the market, the buyer can request that the home be inspected by a geotechnical engineer.

“An evaluation by a geotechnical engineering company (often done in concert with the homeowner’s property insurance company) will provide recommendations regarding safety and options for repair,” says Nimkoff.

Manage a Sinkhole-Impacted Transaction
Both buyers and sellers will be affected if the property in question is in danger of being damaged by a sinkhole. To ensure clients are protected, real estate agents should recommend they hire attorneys with sinkhole experience.

“Buyers whose under-contract property becomes involved in a sinkhole should turn to their REALTOR® for a referral to a real estate attorney,” Nimkoff says. “Options for the buyers moving forward (cancellation or renegotiation of the contract; reimbursement or withholding of escrow) are subject to legal interpretation of the contracts and the language contained therein.”

If the sinkhole is discovered before the home goes on the market, both homeowners and real estate agents must follow local real estate disclosure laws. In Florida, the sinkhole must be fully disclosed using the appropriate forms.

“Sellers and their REALTORS® are required by Florida law to disclose the presence of a sinkhole; REALTORS® are further obligated to disclose by the REALTOR® Code of Ethics,” says Nimkoff.

Buyers wishing to walk away from a sinkhole property may be protected depending on the type of contract they sign. These contracts can vary by location and by attorney.

“Buyers whose accepted purchase contract includes an option to cancel pending satisfactory inspection results (or a maximum estimated repair amount) will most likely be able to walk away without losing their escrow,” Nimkoff says. “However, those buyers who utilized other types of contracts (such as an AS-IS) or who included minimal contingencies and wish to cancel the contract should consult with a real estate attorney.”

Remediate the Sinkhole
The good news is a sinkhole can be remediated if it is discovered before its collapse. The process varies depending on the severity of the sinkhole. Shallow, isolated sinkholes are typically repaired through excavation and the installation of a plug. If the sinkhole is deep, however, geotechnical contractors need to use special drilling equipment in order to fix the sinkhole without disrupting it. Some companies install injection pipes in which grout creates a concrete cap.

Of course, remediation does not always translate into a cooperative buyer. Sinkholes can be a deal-killer; however, a property should be remediated in any case to ensure the safety of the homeowner and their property. Insurance also plays a role, as added coverage may be required by the state once a sinkhole is discovered and remediated.

“The decision of whether or not to move forward on a property involved in a sinkhole is dependent on many factors that are personal to each buyer’s intent, the type of property, and the type and age of the sinkhole,” says Nimkoff. “Buyers should rely on their REALTORS® to guide them through all the things to consider as they make a decision.”

The best thing buyers and sellers can do is to become knowledgeable of which areas are more prone to sinkholes. While unpredictable, sinkholes have an easier time forming on specific land.

“According to the Florida Department of Environmental Projection, the entire state of Florida is made up of underground terrain (carbonate rock) in which sinkhole-forming processes are continually taking place, and there is no way to predict the formation of a sinkhole; however, there are definite regions where sinkhole risk is considerably higher,” says Nimkoff. “In general, areas of the state where limestone is close to surface or areas with deeper limestone—but with a conducive configuration of water table elevation, stratigraphy and aquifer characteristics—have increased sinkhole activity.”

Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Categories: Real Estate