Article 1 (A Sale vs. an Exchange: "Analyze the Benefits Before Selling") Article 2 (Why Should You Get a Home Inspection?) Article 3 (February Roundup: Number Of Home Sales Down, Even As Prices Push Up) Article 4 (State Considers Increase in Tax Credit For Lead Removal) Article 5 (Q&A with Michael Merrill) Article 6 (Spring Has Sprung! Time for Flowers!) Article 7 (24/7 Homebuying On The Web!)

A Sale vs. an Exchange "Analyze the Benefits Before Selling" By Robert HB Buckner, New England Division Manager for Asset Preservation, Inc., Qualified Intermediary for IRC Section 1031 tax deferred exchanges and a subsidiary of Stewart Title Company. Questions regarding exchanges can be directed to him at (877) 845-1031 (toll-free) or e-mail: hbbuckner@earthlink.net. The benefits of IRC Section 1031 exchanges can be tremendous! Each exchange transaction provides New England investment property owners the ability to defer thousands of dollars in capital gain taxes, both at federal and state levels. If the requirements of a valid 1031 exchange are met, capital gain recognition will be deferred until the taxpayer chooses to recognize it. This essentially results in a long-term, interest-free loan from the IRS. AN EXAMPLE An investment property owner in Massachusetts sells a rental property for $400,000. The owner originally purchased the property for $200,000. There is $200,000 of debt and the property has been fully depreciated. The capital gain is approximately $350,000 (assuming 75% of the property is depreciable). If the investor performs an exchange, federal capital gain taxes would be: $150,000 (depreciation recapture) x 25% = $37,500 $200,000 (capital gain balance) x 20% =$40,000 $350,000 Capital Gain Taxes Owed$77,500 The state taxes owed (where applicable) would need to be added to the federal taxes due. Assuming the property owner sold in Massachusetts, the following additional taxes would need to be paid: State level (MA) 2%, $350,000 x 2% = $ 7,000 Total Capital Gain Taxes (Fed. & State) $84,500 The next comparison analyzes the value of the new property that could be acquired in a sale versus an exchange. The comparison assumes an investor makes a 25% down payment and finances 75% of the property (75% loan-to-value ratio). A SALE VS. AN EXCHANGE SALE EXCHANGE Equity $200,000 Equity $200,000 Capital Gain Tax $84,500 Capital Gain Tax $0 Cash to Reinvest $115,000 Cash to Reinvest $200,000 ASSUMING A 75% LOAN-TO-VALUE New Property $462,000 New Property $800,000 This example illustrates that the real power of a tax deferred exchange is not just the tax savings – it is the increase in purchasing power generated by this tax savings! Each dollar saved in taxes provides an investor the opportunity to purchase two to three times that savings in additional real property. The benefits of an exchange become even more apparent when an investor exchanges out of the replacement property at a later date and, once again, rolls their entire net equity into one, two or even three larger properties. HIGH TAXES MAY BE OWED ON PROPERTIES WHICH HAVE NOT INCREASED IN VALUE Even on properties that have not increased substantially in value, the longer a property is depreciated, the larger the ultimate capital gain. The capital gain taxes owed can make the cost of selling prohibitive. Generally speaking, the longer a depreciable property is held, the greater the tax benefits of an exchange. REFINANCED PROPERTIES MAY BE MORE COSTLY TO SELL As properties increase in value, many owners often borrow against their equity to obtain cash. Although borrowing cash is not a taxable event, refinancing depletes the equity available to pay taxes on the sale to a buyer. Often a seller who refinances can have more taxes owed than cash proceeds received at the closing. An exchange easily solves this dilemma and allows the investor to take advantage of another excellent investment opportunity.

Why Should You Get a Home Inspection? Written by Steven Petitpas, NCARB, ACSE, Aesthetic Images Home Inspection Division (617) 323-4955. He is a Boston based registered architect who also performs home inspections. He has over 20 years of experience in residential and commercial construction and is also a licensed builder. He is an active member of the National Council of Architectural Registration Board and American Society of Civil Engineers. Are you willing to put down several hundred thousand dollars on a house that may potentially need tens of thousands of dollars of work? Would you know by simply looking at a house what may be wrong with it? Are you willing to trust that the seller or the realtor is going to tell you all the problems that exist within the house? If you can answer "yes" to any of these questions, then you don't need a home inspection, you need your head examined. A good home inspector can tell a lot about a building by observing the conditions of the house. House construction is not done by rocket scientists, but it can be quite complex. Experience tells the inspector whether problems exist in the house. Building codes have changed over the years, and even though existing buildings do not have to comply with the current codes unless altered, certain building standards have been abolished. Your home inspector should be able to tell you if your new home contains such outdated standards and inform you of the current requirements. That information alone is worth the price of the inspection an could possibly save a life, especially when dealing with electrical or heating systems. Aluminum wiring can cause fatal fires and faulty heating systems can cause deadly carbon monoxide poisoning. Every home buyer should have their prospective purchase inspected by a knowledgeable home inspector who is experienced in current building codes and building practices and is willing to take the time to inspect the house closely. A basic home inspection for a single family house should take on average 2 hours and should contain a visual inspection of all building systems and components contained within the house itself, such as the structural, plumbing, electrical, heating, exterior finish and roof systems. There are literally hundreds of items your home inspector should be looking at. Not every home owner knows what to look for or how it should look. It takes specialized knowledge to be able to inspect a house. After all, information is the name of the game. A basic home inspection is not the only inspection you should have done prior to the purchase of a home. Every home should also have a termite inspection, and if small children are going to be living in the home a lead paint inspection should also be done. Beware of any individual inspector who says that those types of inspections are part of their basic inspection service. Don?t be shy, ask if they have additional licenses. If they say "yes," ask to see them. It is next to impossible to perform these multiple inspections with only one inspector. Termite and lead paint inspections should only be performed by licensed inspectors because these types of services are regulated by the state. Most good inspectors associate themselves with specialty inspectors and as such may be able to coordinate these other inspections for you for a small additional cost. The least expensive inspection is by no means the best. If you're spending two to three hundred thousand dollars for your new home you should be prepared to spend at least $250 for the basic home inspection and $125 each for lead paint and termite inspections. A good inspection company should be able to package and coordinate all three inspections for you. Even newly constructed homes should be thoroughly inspected. Building practices have changed and not necessarily for the best in some cases. Starting May of 2001, all home inspectors will have to be licensed. However, to date the only requirement in Massachusetts for home inspectors is that they can spell "home inspection." Even though someone may be qualified to join national associations and organizations for home inspectors, this does not necessarily mean that they are qualified to perform building inspections. There is no substitute for an opinion by someone who is actively involved in the building industry such as a registered architect, a licensed builder or a professional engineer, all of whom are regulated and licensed by the state to protect public safety and welfare. For now, the ordinary home inspector is not regulated in this manner. How valuable is an opinion of an inspector who does not have a license, registration or professional standing to protect?

February Roundup: Number Of Home Sales Down, Even As Prices Push Up By Jay McHugh Washington D.C.: Economists who monitor home sales around the country say the nation is beginning to go through a curious period, with the total number of sales starting to fall - not because there are no buyers, but because there aren't enough sellers. In January, for instance, the rate at which homes sell on a national basis was down 10.7 percent compared to the rate in January 1999. While gradually increasing interest rates are part of the problem, many parts of the country report there just are not enough homes for sale to satisfy demand. At the end of January, there were 1.15 million existing homes available for sale nationwide, which represents only a three-month supply. That figure also is a record low for national inventory - indicating that the supply of homes has dropped more than 23 percent from December 1999 and has fallen nearly 44 percent from one year ago. As could be expected, a result of short supply is higher prices. According to the National Association of Realtors, the national median price of an existing home is $132,200, up 1.5 percent from a year ago. Interest Rates Waffling, But Generally Up Washington D.C.: The housing industry is reporting that mortgage interest rates are continuing their slow move up from year ago levels, but there also are indications that many home buyers are not be deterred by the rates. Freddie Mac reports that the national average commitment rate for a 30-year, conventional fixed-rate mortgage was 8.21 percent in January, compared to 7.91 percent in December and 6.79 percent in January 1998. Ironically, however, a recent study that focused on the California housing market suggested there had not been an uptick in the number of consumers seeking Adjustable Rate Mortgages, which start with a lower rate and then increase over the life of the loan. According to Acxiom/DataQuick, only 32 percent of the state's home buyers needed ARMs to purchase homes in December, compared to 32.4 percent in November. The data firm suggests that means that most people have ample funding to buy homes. Buying Second Homes San Diego, CA: Real estate researcher Acxiom/DataQuick is reporting that of 6.1 million homes purchased last year, about 800,000 of them were vacation or "second" homes purchased largely by aging baby boomers. The company notes that the number of second-home sales has been steadily increasing over the years, accounting for about 13 percent of all homes sold last year. The study showed that 38 percent of those homes were bought with cash (no mortgage) and the median price was about $92,000. Predictably, the largest markets for second homes were Florida, California and Nevada. PEMs Mean A Less Energy Dependent Future Upper Marlboro, MD.: The research center of the National Association of Home Builders says the day is coming when homes will be less dependent on local utilities for their electrical power, instead generating their own electricity from "polymer electrolyte membrane" (PEM) fuel cells installed in the house. In cooperation with Energy Partners LC of West Palm Beach, FL, the research center has been testing PEMs, which create electricity through an electrochemical conversion process. The cells combine hydrogen -- derived from fuels such as natural gas, propane, methanol, or gasoline -- and oxygen to produce electric power without combustion. The reaction is quiet and similar to a battery except that, unlike a battery, the fuel cell never needs to be "recharged."

State Considers Increase in Tax Credit For Lead Removal By John MacIsaac State legislators are looking at increasing the tax deduction for removing hazardous lead paint. Supporters say it will help provide more affordable housing, and real estate experts say hundreds of property owners will be encouraged to delead if the measure is passed. Gov. Paul Cellucci has said he supports increasing the tax deduction, but House Speaker Thomas Finneran and Senate President Thomas F. Birmingham have yet to say where they stand. "Until we have a chance for more fiscal analysis, he will reserve judgment," said Alison Franklin, a spokesperson for Birmingham. If you'd like to encourage your state legislator to support the idea, log on to the State House web site at http://www.state.ma.us/legis/legis.htm to send your legislator an email. Or phone the State House at 617/722-2000 to reach your representative. Property owners can already deduct $1500 annually per residential unit from their state taxes for deleading. Several bills before the House and the Senate propose an increase in the deduction to $2500 per housing unit. A bill filed on behalf of the Massachusetts Association of Realtors by Rep. Robert DeLeo, a Winthrop Democrat, would also increase the amount property owners can deduct for interim deleading measures. The law currently allows $500 per year per residential unit. DeLeo's bill would increase it to $1500. The realtors association wants to see hazardous lead paint removed from more homes. "Not a very large percentage of the housing stock has been deleaded. For that reason, we think this bill will continue to encourage compliance with the Lead Paint Law," said John Dulczewski, the association's communications director. Officials at the Greater Boston Real Estate Board predict 750 more property owners would perform deleading if the increased deduction is approved. In 1996, 1,248 taxpayers took advantage of the deduction at a cost of $2.35 million to the state, according to Jeffrey Busha of the Department of Revenue. The last time the lead paint tax credit was increased was in 1994 when it went from $1000 to $1,500, according to published reports. State Senator Richard Tisei, R-Wakefield, supports the effort to increase the lead paint tax credit again and believes it will help in the effort to provide affordable housing in Greater Boston. "I'm hopeful with the housing crunch, and housing being so difficult to get, that the legislative leadership would recognize that one of the biggest impediments to getting affordable housing in the state is that the lead law is so onerous. There are probably thousands of units in the Greater Boston area that aren't being used at all," Tisei said. How to Deduct for Deleading Residential property owners who perform deleading and obtain a letter of compliance with the state's lead law are eligible for the current tax credit of $1,500 per unit. The credit is $500 per unit when interim measures are performed. A seven-year carryover of unused credits is allowed. The unit must be inspected by a licensed lead inspector both before and after the deleading is performed. Letters of compliance must be filed with the property owner's state tax returns to receive the credit. Owners of condominiums may not claim the credit unless common areas, exterior surfaces, and fixtures are deleaded in full compliance with the law.

Q&A with Michael Merrill of Merrill & McGeary, a real estate attorney. Q: I am in the process of purchasing a single family house from a friend. I am fairly experienced in real estate, having purchased three properties in the past ten years. My friend and I are in agreement on the terms of the transaction. My friend?s lawyer prepared a purchase and sales agreement on a Greater Boston Real Estate Board form. The inapplicable provisions were deleted and the agreement looks fine to me. Should I sign it and pay the deposit? There is no broker involved. Who should I make the check out to? P.W., South Boston, MA A: The purchase and sale agreement is the most important document in the real estate transaction because it defines the rights and obligations of the parties. All aspects of a real estate transaction must be in writing in order to be enforceable. Sometimes, although not often, friends who are in agreement do not identify all of the potential issues that might surface. As a result, what had been an amicable agreement could become a nasty dispute. Therefore, although you are experienced, I cannot recommend that you sign the agreement prepared by your friend?s lawyer. You should have your lawyer review the agreement. I guarantee that your lawyer will identify issues that you were not familiar with and, as a result, make changes that will protect your interests. The mere fact that the agreement is a widely accepted form agreement is not a reason for you to sign without further review by a real estate lawyer. Finally, in a transaction where there is no real estate broker, the deposit check is generally held by the Seller?s lawyer and not the Seller. Michael W. Merrill Q: I purchased a condominium and will close in approximately forty-five days. Prior to closing, I would like to paint the unit, clean the carpet, and install some light fixtures. Is this possible? Would you advise it? A: The general rule is that the buyer has no right to enter a property to perform work prior to closing. Many sellers for a variety of reasons, not the least of which is potential liability, do not want a buyer or his/her workmen in a property before the deed has been recorded. There is also a risk to the buyer that the sale, due to unforeseen circumstances, may not occur. As a result, the buyer may expend money and improve the seller?s property without compensation. Nonetheless, arrangements can be made between a willing buyer and seller to allow work to be performed prior to closing. An agreement can be drafted that deals with the issues of scope of work, condition of the property, timing of the work, insurance coverage, compensation, if any, should the sale not occur, and general hold harmless language. Most real estate attorneys are familiar with this type of agreement. In summary, through negotiation with a willing seller, you may be able to have the work performed. However, for the good of both parties, the agreement should be clear as to the rights and obligations of the buyer and seller. Michael W. Merrill

Spring Has Sprung! Time for Flowers! By Sara Rosenfeld, Sr. Vice President, Co-Manager of Hunneman & Coldwell Banker Whether you are a homeowner or a tenant, we all appreciate beautiful surroundings. Some parts of our lovely Metro Boston areas have been looking much better lately thanks to many people who work countless hours on their gardens, window boxes, flower barrels, or a flower pot by just planting flowers and cleaning up and around their home. Can these efforts make a difference in the property values in your neighborhood? Can a little bit of extra color and sprucing up add to the desirability of your home? Gardening has been a favorite hobby or pastime for many people and is also considered a good form of exercise for others! Adding some flowers to your environment gives many a very good feeling. If you are considering selling your home, a good realtor will always suggest for the homeowners to add flowers, both inside and outside of the home. This added feature could even make your property more desirable than the competing properties on the market, resulting in not only the sale, but also the sale at a better price. My 18 years of working as a real estate professional has been limited to the communities in and immediately surrounding Boston. If you are a city property owner, whether it is your primary residence or rental property, one of the most inexpensive ways to increase the value of your home is to work on your landscaping and cleaning up the exterior of the property. Keeping the exterior of a city home clear of any trash or debris takes work. I believe it is the responsibility of not just the homeowner, but also the tenants who are occupying the property to help in keeping the property clean. What happens if you don?t have a yard to landscape? I am sure you have seen how many of our larger buildings around town are boasting their addition of flowers to their exteriors. Large planters are starting to adorn stair entries. Hanging baskets of flowers are dangling from the tops of porches. Window boxes full of flower arrangements are springing up all over the place. Check out the garden centers of many of our home improvement and department stores in the area and you will discover a large selection of the items you can use to beautify by gardening. My favorite ones to suggest to occupants of apartment buildings or condos are the new line of white wire window box holders and flower pot holders that can easily be installed and removed. If you have a window, you too can have a garden! Condominium associations have decided to invest some of their common funds in additional landscaping. If you live in a condo that has not joined in on this trend, I strongly suggest that you bring it up with your fellow condo owners. Many condo buyers working with the agents in our office are making comments about the buildings that have added the extra landscaping. Don?t forget to add a little color to the community, too! My thanks to the growing number of business owners who have added flower boxes to their windows, barrels of flowers to the sidewalk outside of their stores, or planted around the base of a city or town-owned tree in front of their business. They have all helped to make our surroundings that much nicer!

24/7 Homebuying On The Web! By Shari Marquis, President of the Residential Association of Realtors. The world is changing and moving quickly into cyberspace and so is the real estate industry. The real estate industry has gone ?high tech.? The web is filled with ads for homes; there are literally millions of real estate web sites. How does a buyer find his way through the maze? There are several large web sites that have most of the active homes for sale in them. The largest and most popular site is Realtor.com and most local listings are in there since the MLS Property Information Network puts in their listings. There is a daily automatic download so you should be able to find the most accurate information on this site. There is also a lot of very helpful consumer-oriented information on the home buying and selling process. In addition, there are links to sites with demographic information about schools and crime statistics. The internet address is www.realtor.com. You can also reach the site through the Greater Boston Real Estate Board?s web site, which is www.gbreb.com. It is easy to use. After the web page appears on your screen, click on ?find a home.? You will see a map of the USA, click on MA, and follow the directions to search for the area and type of home you are looking for in your price range. You can search by various criteria including room, bedrooms, fireplaces, amenities, and more. Searching for a home on the web in Realtor.com can be a tremendous time saver if you use the web to narrow down your home search. Many homes now have virtual tours on the web and you can eliminate properties that don?t interest you. You will also find links to broker and agent web sites, along with links to lenders, moving companies, and other venders who are part of the home buying and selling process. You will be able to look at photos of properties and get basic information such as number of rooms, bedrooms, and bathrooms, size of house, lot size, and descriptive comments about the house. You will also find the names and telephone numbers for the listing agent and listing firm and in many instances homes pages about them. What you will not be able to access is the street address, names of owners, or list date and expiration date. The properties are identified by their MLS numbers, which you can use to identify a property when you call a Realtor (either a listing agent or any other agent in the MLS system) to arrange to see properties you are interested in. This process should allow you to rule out homes and communities that you have absolutely no interest in. However, although you may save many hours of driving around and looking at homes you are not interested in, be careful not to automatically rule out homes that have the potential to meet your housing needs with some adjustments. Shopping on the net will never replace the on-site visit to the property. Your eyes can see a lot more than a photo of the outside of a house. Lastly, although technology may speed up the process, the personal service of the Realtor will never be replaced.