Month: December 2018

Property Tax Proration at closing—Latest known times latest known is not always safe.

Wisconsin property taxes are billed for the year after Mid-December. The basis for the tax is the value of the real estate and improvements as of January 1 of that year. This value for the year is not known before late spring. The second factor in the formula to determine your tax bill is the “Mill Rate”; a percentage of the assessed value. This Mill Rate is not available until the fall when the local government budget and expenses are determined.

A timeline for obtaining the numbers that go into the formula to determine the 2019 Tax Bill is this:

January 1, 2019
The Value of Real Estate and Improvements will be set for the property as Of January 1….This Value will not be known until late Spring
June 1, 2019
2019 value of the real estate and improvements is sent by city to Owner
November 2019
Local Governments approve their budget for 2020, and establish a Mill Rate (percentage per $1,000 value of property)
December 2019
Property Tax Bills are mailed to property owners.

All offers written to close after December 31, 2018 will require some thinking to safely complete the Closing Prorations section of the Offer. The Offer provides 5 choices to select from, and none of these choices is the right one to select 100% of the time. Knowing the date of closing you can complete the formula for each choice and see how the outcomes differ. Example:

New Construction: On January 1, 2018 the real estate was the lot only. Assessed Value of lot for 2018: $100,000. Assessed Value of improvements for 2018: $0. On January 1, 2019 the lot will include an improvement of an 100% completed house. The Offer you are drafting today will close March 30th at a purchase price of $750,000. At closing there will be three months of property taxes to be paid, presumably by the seller. If the you select either of the first two choices: Net General Real Estate Taxes for the preceding year, or current assessment times current mill rate, the buyer will receive a credit from the seller for a fraction of the actual cost of the three months of property taxes.

Jan 1, 2018: $100,000 Value. March 30, 2019 the assessment for 2019 will be unknown. The 2018 Mill Rate will be known. Assume it is $20.00 per $1,000. The formula to determine the annual tax using choice 1 or 2 is (100 X $20) = $2,000 annual tax bill. The portion paid at closing by the seller will be ($2000/365) = $5.48 per day times 89 days = Y. Y=$487.67. Here’s the problem. In June the tax assessment will arrive in the new owner’s mail box. The assessment may be the purchase price $750,000. ($100,000 for the land, and $650,000 for the improvement (house)). When the tax bill arrives in December at the 2019 Mill Rate of $21.50 per thousand, applied to the 2019 Assessment of $750,000, the bill will be $16,125 or $44.18 per day— a tad bit more than $5.48 per day or $488 for the first 90 days of the year. The seller’s fair share of the tax bill was more like $3,900.

It gets more complicated as we adjust the factors but you get the idea… All Realtors are not the same. Some learn to think be accurate, and others do what they think they were told and take their chances.



Unprepared, uncommitted home buyers load up on contingencies.

What’s the radon level in the building where you live today? What about at your office where you spend at least a third of your every day? About 20 hours of every 24 are spent in these two places, and not once has the typical home buyer tested these environments for radon gas. And yet, the typical home buyer includes a radon test in their Offer to Purchase. Radon gas is everywhere. Every house has radon gas. The EPA has established no safe level of exposure to radon gas. After remediation the radon gas level still will not be zero.

Consider this: There is no contingency that you will get financing. There is a contingency to get a commitment letter, but that could be gotten before you leave home to shop for houses. What’s a defect? A typical home has “defects” as defined in the Offer. The typical concession after an inspection, in even the most expensive homes, amounts to pennies relative to the purchase price. And still almost every offer includes a contingency to inspect and find no defects. Neighborhood restrictions are typical. If they might prohibit something you want to do, you could discover this before you spend any time looking for a home in that neighborhood. And yet, there it is included in Offers to Purchase.

Why are these contingencies loaded into Offers? They’re there for the benefit of the buyer, and by benefit I mean exit door. A contingency allows a buyer time to decide if they want to buy, and time to continue or restart negotiations. A contingency is advantage buyer. For every condition a contingency has been created, a resolution prior to making the Offer is possible. The resolution is always knowledge and understanding. A prepared home buyer is the buyer all owners want to be in business with. Being prepared is easy when you know what to prepare for.

This spring you may buy a house. If you’re prepared your chances of owning your first choice home will increase dramatically. Between now and then, get yourself fully pre-approved for financing, study up on radon gas, how a real test is conducted, and the cost of remediation. Get the facts on lead paint. Learn the cost of repairs you know you can’t afford. Review your contract strategy with your attorney.

The typical home buyer will wait until they have an accepted Offer to do their due diligence. The typical buyer loads their Offer with contingencies, and contingencies tell owners “This person isn’t prepared”. Given a choice, owners will accept offers from people who are most prepared and show their preparedness by loading their Offer with assurances, not contingencies.

Instructions are on the box

 
SNL’s Perfect Christmas.

Christmas Eve. Memories of joyful frustrations repeated annually because in 12 months it’s easy to forget the agony of defeat. Young Dads across America are about to learn or be reminded they can’t do everything. It’s time to begin assembling that cool playhouse, piece of furniture, or toy your child has waited their whole entire life to get. You will be at it until you quit around midnight. If you’re one of those dads about to embark on the construction of the most complex piece of anything ever made in China, I offer you this hope: you’re not alone. We’ve all been there…even the dad who won the 5th grade science fair contest with his working exact replica of the Mars Rover, is going to be defeated tonight.

If I knew then what I know now, I probably would have ignored myself. But in case there is someone out there who takes instructions, here’s a tip: Before you start ask yourself, “What do the instructions say?” Somewhere in the box or on the box there are instructions. The drawings of some of the pieces won’t match anything in the box, most of the parts included will be. Some won’t be. If you finish and you have extra parts, don’t worry; in March you’ll discover where that part was supposed to go.

It’s never too late to read the directions. Oh, you’ll have to take apart what you started, but before you quit, ask yourself: What do the instructions say? They’re in the box. Merry Christmas.

Objections are to be understood, not overcome

Sales is a cliche driven enterprise with each having the half-life of carbon 14.  (Always be closing.)  The Wisconsin Real Estate Magazine December 2018 edition has a feature article titled The Art of Overcoming Objections. Sales industries have the same human nature challenge with objections as as we all do; we resist hearing them and endeavor to overcome them until someone else listens  and delivers. 

Our industry has Zillow as a fantastic example. In 1995 Realtor.com had the opportunity to own the public real estate information market. The public wanted more information. The modern tool for delivering the information to satisfy the demand (internet)  was here, the industry attitude was still in 1983: data was not to be shared with the public. We overcame the objection to our right to proprietary information  so effectively that Zillow became the solution and leader in real estate data trust. 

I believe objections accepted and respected will take us a lot further than objections overcome.  In fact, has anyone ever overcome your objection? I doubt it. More likely we end the defense of our objection, let the conversation move on, and find common ground with the next person who gives our objection some respect. 

Sure there are some objections which are not legit, but seriously do we have to win over all objections?  Is there some value in conceding the consumer just might have a good point? Of course.   Instead of becoming the quick wit with all the answers to every idea we don’t accept, it’s much easier and reasonable to find the relevance and sincerely accept the objection as a smart solution to a concern of the customer.  

Given the opportunity to overcome an objection, stop and ask yourself, “Why can’t this objection be legitimate?” and ask the next question of the consumer, “How can we resolve your objection in our solution?”  Find a way to legitimize concerns, wishes, expectations, and move on to a cooperative relationship.

Counter Offer: Specific & Simple

The Offer to purchase is carefully crafted with phrases, number of days, a specific format, and defined terms.  When drafting counter offers (or amendments) the closer we stay to the exact language in the Offer the more likely we are to keep the document on track to be an enforceable contract.   Stray for the format and we open the door to ambiguity.  

Specific and Simple:

The inspection contingency on the WB 11 provides a deadline for the buyer to object to defects identified in the inspection report on line 421.  The contingency is deemed “satisfied” unless buyer within ____days of acceptance, (delivers a Notice…)  The blank on line 421 calls for a number, not a date.  If the number is unacceptable to the seller (let’s say the buyer wrote “21”), the line and number are addressed in a counter offer:
(1) Inspection Contingency. P 9 of 9. Line 421. Change “21 days” to “10 days”.
This format tells the reader to find the inspection contingency on p 9 of the offer, go to line 421, find “21 days” and change that number to “10 days”.  Everything else stays the same. 

The financing contingency on p 5 also uses X days from acceptance for a deadline for the buyer to deliver a commitment letter to the seller.  Let’s say it was 30, and now we are running up against the deadline and lender needs 7 more days.  Rather than do an amendment to “extend the financing contingency to December 14, 2018” write this in an amendment:
(1) Financing Contingency. P 5 of 9. Line 219 change “within 30 days” to “within 38 days”.  Stay with days, and avoid inserting dates. 

Another practice habit is use the method of satisfaction the same as it’s in the Offer. Rather than “Remove contingencies” state that the “Contingency will be Satisfied”.  The intent of getting away from removing contingencies to deeming them satisfied is to remove the cumbersome step of a person performing an action to remove the contingency from the Offer.  Notice that nothing is ever removed under the existing language of the Offer. Satisfied is the term. 

Keeping it simple is simple when we keep the words and phrases as they are written in  the Offer and change only those words or phrases or numbers you want extracted and replaced.  Think like a surgeon. Cut out only what you need and leave the rest.