In recent months the real estate market has changed. Albeit for the better in most cases, but there is still some skepticism and some unrealistic expectations on all sides of the transaction. Yes, there are properties that go under contract quickly and are being sold above asking price, and yes in a lot of cases the house closes. However, not all houses are the same, even when located in the same market, so what worked for your neighbor may not work for you.
There are some problems that I see repeatedly. One is when the buyer makes an offer on a house and the house doesn’t appraise for the agreed upon purchase price. In many cases the seller only wants to sell at that contract price. The buyer sometimes assumes that if the house doesn’t appraise the seller will lower its price to make the sale. The buyer may lose costs expended in appraisal, title exam and inspection among other things if the seller refuses to lower the price. He may also lose the home of his dreams. The seller may lose the sale if the buyer cannot pay above appraisal. In this case no one wins.
It is important to have realistic expectations of a home’s appraisal value, whether you are the buyer or the seller, especially if the buyer is obtaining financing to purchase. As a seller, having a pre-appraisal prepared prior to listing can be money well spent and will provide you an in depth understanding of what the house will appraise for, not what someone is willing to offer. As a buyer, you want to protect your offer by making your contract contingent upon the appraisal.
If you are willing and able to make the transaction work no matter how the appraisal comes in, then you are that much closer to having a successful transaction. Experienced real estate agents can help the buyer and seller come to an agreed upon price (based on recent market information) that should be approved for financing so that all parties win. For those that want to go it alone, it can work, however you should be prepared to do a lot of homework and be willing rely on other professionals, whether it be an appraiser or an attorney or both to help achieve a successful sale.
It has been pretty busy around the office, so it has been a while since my last eblast. For some of my clients this is the first one you have received. When I can, I try and provide a little information about issues that I see on a regular basis and I hope that you find it beneficial.
Since the beginning of the year I have set up quite a few new Limited Liability Companies (“LLCs”). In many cases it is good practice to own real estate in an LLC. This may not be the correct vehicle for everyone, so it is important to discuss the plethora of considerations related to your particular property with an attorney. Some people shy away from using an LLC because of the initial start up costs, the potentially higher loan rate or the additional tax returns. In many instances however, an LLC can be extremely beneficial and may save you time and money in the long run.
When buying property with another person, the LLC Operating Agreement outlines what happens to the property when partners want to split, if one partner dies as well as other matters. Without a written agreement there is the potential for litigation or becoming partners with someone’s relatives. An LLC can also provide asset protection from creditors and perhaps insulate a liability to the specific property and LLC.
One overlooked area is the benefit of using the LLC to own real estate in states where you do not reside. Most people know that upon death their estate gets administered or probated. When there are assets in other states, an ancillary proceeding is needed (a second probate). If you own out of state property through an LLC, you can eliminate the need for the ancillary proceeding, since your Executor will be able to transfer the ownership of the Company privately. This small adjustment in your Estate Plan can save your Executor time and extra probate costs.
So prior to your next real estate transaction or maybe in reviewing your current holdings, consult with a professional and decide if the benefits outweigh your cost and consider transferring your property to an LLC.