To Sell Or Rent - Will The 2 Out Of 5 Rule Apply To You?

To Sell Or Rent -  Will The 2 Out Of 5 Rule Apply To You?  As a Portland home owner, you are sure to have considered your options in the event that you might have to move someday. Would you choose to sell? Would it be more profitable to rent your home for awhile and let it appreciate in value?  There are more than a few things to think about here, so let's take a quick look and consider some finer points that might influence your decision.  Consult your CPA & consider whether the Two Out Of Five Rule will apply to you. If you rent for too long, you may lose your capital gains exemption (up to $250K for single, $500k for joint tax filing status) What is the two out of five rule?  "Primary Residence vs Investment PropertyThe home sale exclusion tax break is only applicable to the sale of a primary residence. In order to be legally considered a primary residence, as opposed to an investment property, is that the seller has lived in the property themselves for at least two out of the last five years.Do the 2 years need to be consecutive?The two years of on-site residency do not need to be consecutive. For example, a property owner might live in a house for a year, then move and rent it out for 3 years, then move back in for another year before selling; the property would still qualify as a primary residence.The seller does not need to be living in the property at the time of sale in order to claim the home sale exclusion. They just need to have lived there for a minimum of two out of the last 5 years."  From Two Out Of Five Rule  Access is paramount when listing a property for sale:  With tenants in place, access to the home for showings and open houses will be limited, usually requiring 24 hr notice for potential buyers to see the home.  The condition of your property will likely decline during the rental phase, and warrant $$$ for refresh prior to selling. Consider the cost of property management. Depending on your plans, you may consider hiring a property manager. Property managers handle the rental on the landlords behalf, for a fee. Generally, expect to pay around 10% of the rental income to a property manger. If you decide to DIY, remember to consider landlord tenant laws, time, energy and money it will consume to perform the property management duties.  Do your due diligence and find out whether you will be required to pay tenant relocation fees when/if you decide to sell. Different states, counties and municipalities have different rules surrounding tenant relocation fees. In Portland, depending on the situation, these fees can run upwards of $4500 plus deposits. When an owner of a rental home decides to sell, they must clear contingencies, prove the buyer is to be an owner-occupant (not investor), and then give 90 day notice to the tenant. Most buyers won't want to wait 90 days or adopt a tenant in a rent back. https://www.portland.gov/phb/rental-services/renter-relocation-assistance Sam Densmore/Realtor/Inhabit Real Estate  08/05/2024, All Rights Reserved 

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New Buyer’s Agency & Cooperative Compensation Rules - Have A Strategy To Navigate The Upcoming Changes

New Buyer’s Agency & Cooperative Compensation Rules - Have A Strategy To Navigate The Changes As per the recent NAR settlement agreement, first time and experienced home buyers & sellers are in for a few new twists in the home purchase process. Here are some key changes to be aware of and how to navigate them.  As of Aug 17, 2024 listing agents are no longer allowed to publish buyers agent commission offerings on the RMLS (Regional MLS).  New rules require that before showing a home to a potential buyer, a Buyer’s Agency Agreement (employment contract) must be in place. The BAA must outline the buyer’s agent’s fee - percentage, flat fee, or other agreed upon compensation to be guaranteed by the buyer, not the listing agent or seller. These changes will increase buyers upfront costs for buyers in some situations. As of Aug 17, 2024 listing agents are no longer allowed to publish buyers agent commission information on the MLS The good news for buyers is that this doesn’t necessarily mean that there won’t be an offer of compensation. Listing agents still prefer to work with a qualified buyer’s agent, and will encourage sellers to offer compensation as part of the transaction. The change here is that, should the buyer desire the seller to pay their agent, the request will have to be submitted as part of the offer. It’s anticipated that listing agents won’t discuss buyers agency fees until an offer has been made. If the offer is appealing, the seller may consider covering all or a portion of the buyers agency fee. New rules require that before showing a home to a potential buyer, a Buyer’s Agency Agreement (employment contract) must be in place.  What is a buyer’s agency agreement and why would you sign one? A BAA is an employment contract between the buyer and their agent that outlines the agent's fiduciary duties to the buyer, whether it is exclusive on non-exclusive, and how the agent is to be compensated, by the buyer, for their services in locating & touring properties, making an offer, and negotiating the fine points of the transaction on behalf of the buyer. In the past, agents were allowed to open doors for potential clients and even make offers without a contract in place, leaving both parties in vulnerable positions. BAA’s aren’t as scary as they sound - they are simply employment contracts that can be terminated at any time with written notice. Buyers shopping properties on the RMLS will be required to sign a BAA if they want to work with a Realtor. The BAA must outline the buyer’s agent’s compensation - this could be a percentage of the sale price, flat fee, or other agreed upon compensation to be guaranteed by the buyer, not the listing agent or seller.  Real estate transactions are contingent upon a series of events taking place, some of which provide opportunities to negotiate the terms of the agreement. For buyers it begins with the BAA. The terms of the BAA are entirely negotiable. Note that the new rules indicate that once the BAA terms are agreed upon, the buyer’s agent can only negotiate their fees downward. So if a seller is offering a 3% incentive and the BAA states 2.5%, the agent can only make 2.5%. Similar to other points of negotiation such as seller credits for closing costs, mortgage rate buydowns, price reductions, repairs to be made by the seller, rent back, and appraisal gap coverage, a request for the buyer’s agent's compensation to be paid by the seller or listing agent can be included in the buyer's offer. There are rumors that this may also change, but for now, those are only rumors. If the buyer’s offer is attractive on other points, sellers may agree to the request to pay the buyers agenct compensation.  These changes increase upfront costs for real estate buyers significantly.  In the same way future buyers plan for an earnest money deposit, a downpayment, home inspections and closing costs including lender fees, appraisal, insurance and taxes, buyer’s agency fees will also be a part of their plans. Having a strategy to negotiate getting these costs offset with concessions made by the other side of the table is crucial to getting the best deal you can when purchasing a home.  For more information about the recent settlement regarding cooperative compensation, check out this FAQ at NAR's website.  https://www.nar.realtor/the-facts/nar-settlement-faqs Sam Densmore/Realtor/Inhabit Real Estate 07/27/24 All Rights Reserved

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