Author Archives: jstewart

Homestead Capital Gains Tax By Jeff Stewart, CCIM


During an income tax revision in 2003, the IRS published a change to the tax code for homeowners. Known as the Section 121 Exclusion, it outlines the rules in which homeowners can limit the capital gains tax on the sale of their primary residence.

Section 121 excludes taxes on the first $250,000 of capital gains for individuals and $500,000 for married couples filing jointly when selling their home . . . with a critical limitation.  In the immediate five years prior to the sale of the residence, the sellers must have occupied the home an aggregate of at least two years.  They must also provide documentation of capital improvements when establishing the tax basis, much like rent property. Last year, I had several clients who had gains well above the exclusion.

I bring this to your attention because very few homeowners keep adequate records of their capital improvements on their homes. Most homeowners never dream that they will live anywhere long enough to have a $500,000 capital gain on the sale of their residence, but in this market it can happen. It is critical to keep good records to prove capital improvements or risk paying too much to the IRS.

The Austin Affordability Problem By Jeff Stewart, CCIM, SRES



Affordability. We need to find some solutions to the housing affordability problem if we want our children and their children to remain in Austin. The Texas A & M Real Estate Research Center’s chart shown here illustrates Austin’s growing affordability problem compared to other major Texas cities.

At the time of this writing, I searched the MLS for single family homes (not condos or manufactured) with an Austin mailing address, and in the the price range of $10,000-$375,000. I found 14 homes actively for sale. Only 7 of those homes were inside the city limits and only one looked like a house I would want to see clients buy.

The Research Center is constantly monitoring the affordability problem.  In the recent edition of their Tierra Grande Magazine (provided to all agents), they made cost projections for potential increases in interest rates and property taxes.  While interest rate hikes are pretty obvious, their property tax projection should alarm every Texas homeowner.

The current median priced home for the Austin / Round Rock area is just under $476,700.  For this purpose, we are going to round up and use $500,000 for our example. The Research Center chose to assume annual property taxes would stay at a 3% average tax rate, which places the tax burden on our example at $15,000 the first year. They also estimated that


values could increase an average of 10% per year.  Using these assumptions, the Research Center projects that in five years the taxes would climb to $24,158, $38,906 in ten years, and if all assumptions held true, taxes would be a crushing $62,659 in fifteen years!   This appears unsustainable to me.

It is important to note that the 2017 Tax Cuts and Jobs Act placed a $10,000 cap (for married couples) on the itemized deduction for state and local taxes, including property taxes.  In light of the rapidly growing tax burden in our earlier scenario, this was a significant tax increase  . . . that also affects the cost of homeownership.

Still on affordability, an interesting construction possibility that still has much to prove is the 3-D printed wall system.  The January 2022 edition of the Texas Coop Power magazine has an informative article about the 3-D construction process.  It has examples of recently built homes in East Austin and Army barracks at Camp Swift.  One home was featured in SxSW, as well.

The 3-D builder, ICON, is an Austin based company.  According to the article, their first  project was a welcome center and six tiny houses at Community First! Village. ICON and Lennar Homes have announced they plan to build 100 homes in the Austin area using the “printing” process. No word on where yet, but Lennar did say the homes would be similarly priced to those built with traditional construction. While not more affordable than conventional houses at this point, the goal is to be able to substantially increase supply. Ideally, a significant increase in inventory would eventually aid the affordability factor. For more information, go to

Another alternative construction process is taking place in my neighborhood. A house was recently leveled, but instead of a new traditional slab, the builder used piers of galvanized steel which were screwed into the ground.  You can imagine the surprise of the neighbors when a gigantic crane appeared and began to assemble manufactured home components that were built at a local mobile home plant.  The structure was largely assembled in two days.

The builder told me that he chose this method because the inspections were mostly done in the factory and not by City inspectors. Also, he believes he can complete the home in a fraction of the time a site-built home would require due to city inspections and shortages of materials and labor. I will keep you posted on the ultimate sales price and well this manufactured home is received in the marketplace.

Accessory Dwelling Units (ADUs) By Jeff Stewart, CCIM

Accessory Dwelling Units

Looking for an Austin real estate investment with solid returns? What about something that has the capability to generate enough cash flow that it might be possible to recoup the initial investment in less than ten years?  Perhaps less?  This opportunity might be as close as your back yard . . . literally.

ADUs, or Accessory Dwelling Units, have become the rage during the COVID pandemic.  Formerly known by the less than flattering handle of a “Granny Flat,” ADUs are now designed more for the Airbnb crowd.  Short-term rentals are regulated differently in almost every community, but where allowed, they provide a real opportunity to generate a surprising amount of revenue. Not long ago, I sold a home for friends and clients that had a great secondary unit in the back.  The rental unit was a well-furnished, attractive, single bedroom with a small bath. Patrons had easy access down a sidewalk beside the main house.  I was stunned to learn that they had been earning $20,000 or more each year.

Mindful of permits and city regulations, a number of firms specialize in everything from site-built units to prefab structures. Some look like they jumped off the page of Architectural Digest, yet are actually quite practical in their simplicity ands design.

In the past, this type of set up was usually most common as a garage apartment near campus and occupied by college students.  The advent of social media and an abundance of short-term rental websites has changed all that.  As Austin continues to grow as a vacation destination with SXSW, UT games, ACL & F1, the demand for short-term rentals has soared.

Again, most communities have strict policies regarding ADUs and most homes are not a fit; but for the right situation, this might be an opportunity for a small but rewarding investment.



Stanberry REALTORS

Decisions with the Golden Question By Jeff Stewart, CCIM, SRES

For the past six months or so, I have struggled with how to help prospective buyers decide what to offer.  This is new territory for me. With decades of experience as a landlord, homebuilder, developer, and real estate broker, I feel qualified to answer most any questions about a property . . . until recently. More now than probably ever before, my buyers are asking a question that I am unsure how to answer.  The question?  “How much over asking should I offer?” The problem is that I have no way of knowing what the winning bid will be when sales prices often far exceed other comparable sales.

So what is paying too much in an extremely competitive market? I am not sure, but I have heard of numerous cases of buyers’ remorse lately.  Where is that intangible line between the satisfaction of a winning bidding war and a sense that one paid too much?  It is a line that varies with each individual buyer.

In short, I have been struggling with the whole concept of representing a buyer who decides to offer $100,000 over asking.  Obviously, many other agents have no such reluctance – in fact I have dealt with several who regularly urge their clients to make such offers in order to win the sale.  Since March, I have had at least eight to ten offers on my listings that exceeded $100,000 over the asking price.

Justin Bariso has written an excellent common-sense article published by that I believe will help my buyer clients with this very real dilemma.  Justin refers to it as the “Golden Question.” He suggests that the golden question will help anyone make better decisions with fewer regrets.  It is simply one question that is really the same question in five different contexts. It is so simple and so obvious, yet it pertains to every individual making a difficult decision.

Justin offers this simple “decision tree,” if you will.  When my next client is struggling with a stressful decision, I plan to urge them to contemplate Justin’s simple questions:

How will I feel about this in:

  • a day?
  • a week?
  • a month?
  • a year?
  • five years?

So simple, but so logical . . . especially when dealing with the largest purchase most people will ever make.  If we are honest with ourselves, the answers to the questions can guide us to minimize our emotions and make better decisions with fewer regrets.

When preparing an income proforma for a commercial property, CCIMs are taught to make educated predictions about the future . . . inflation, market demand, interest rates, etc.  We do so, knowing full well that the future will certainly be a little different than we have imagined it, but acknowledging that we are making the most common-sense, long-term decision possible based the best information we have in the present.  The concept of asking the golden question is very much the same and I think it has the potential to give buyers a little more confidence in their decision-making.


Jeff Stewart, CCIM

Broker Associate / Stanberry REALTORS


PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice

Buyers’ New Strange Psychology By Jeff Stewart, CCIM, SRES



Today the Austin American Statesman had a front-page article describing our red-hot housing market.  Quoting research from Redfin, the piece detailed how more than 1,500 homes in the Austin area sold for more than $100,000 over list during the period of January 1 to May 23.  By comparison, there were only 22 such sales over the same time in 2020.

This begs the question, “Does that mean that these 1,500 plus homes were underpriced considering the market?”  I do not have an answer for that, but it would seem so.  However, let me tell you about a recent listing I had. Several weeks ago, I had a client list a rent house.  Based on recent experience selling similar rent houses, we priced this home higher than we would have just two months ago.  It immediately had quite a few showings. Unfortunately, even though the house was in a very popular neighborhood, the house had a few problems, and we received no offers . . . low or otherwise. In this market, it only takes a few days to realize the listing price is too high.  We substantially reduced the price and immediately began to receive offers . . . ALL well over the list price. I find this very interesting from the perspective of trying to understand the mindset of today’s buyers.

Considering all this, it demonstrates at least two critical points. First, for whatever reason, the listings probably must be somewhat underpriced in order to create the feeding frenzy we so often hear about.  This is difficult for sellers to swallow. If they are hoping for an ultimate price of $700,000, why would they willingly list it at $595,000?  Well, they would not in a normal market, but this is anything but normal.

The second point this brings up is that buyers are just not in the frame of mind to offer below list.  I am at a loss to explain why, but this has been my experience and others’ as well.  All told, for the first time in my long real estate career, pricing a listing is less about carefully analyzed sales comps and more about some strange, new buyer psychology.  We are in uncharted waters here.


Jeff Stewart, CCIM

5 Things Every Seller Needs To Know By Jeff Stewart, CCIM

5 Things Every Austin Seller Should Know

By Jeff Stewart, CCIM

We are living in crazy times.  The median days on market for new listings has been down to four days. It would seem that the only things needed to sell a house in Austin is a sign and a post on FaceBook.  Actually, that might be partially true.  A sign and a post on FaceBook are all it takes to get offers.  To get from verbal offers to closing can be a convoluted path in this market. So, lets take a closer look at five very important things every seller needs to know.

First is the strategy of pricing.  A risky tactic we occasionally see is to under price a property and create a feeding frenzy. While that might be an ego boost for the sellers, this just encourages low-ball offers from the bottom feeders.  On the other hand, an unrealistically high price risks losing the momentum of that first burst of buyer enthusiasm.  In a hot market such as ours, it is obvious within mere days if a property is over-priced.

The second important point is the need to establish a process for dealing with multiple offers.  Multiple offers are now the rule rather than the exception, and while nothing is set in stone, most listing agents have slowly adopted a process that garners the seller their best deal while treating all interested parties in a reasonable and honest manner.  No one likes to lose, but there is much less animus when all parties feel they had a fair shake.  If the number of offers becomes unmanageable, it becomes very difficult to communicate with all the buyer agents.  Currently, a common strategy for multiple offers is: 1) put the home in the MLS on Thursday night or Friday morning.  Once it becomes clear that several offers are on the way, suggest to the sellers that they consider all the offers on Monday morning and require all offers to be delivered by Sunday evening.  Many agents change the remarks in the MLS to reflect this.

Many buyers are surprised to learn that sellers are not required to respond to offers in a timely manner . . . or at all, for that matter. Someday, when the pendulum swings back to a buyers’ market, it will be very interesting to see if sellers dare to sit on offers for several days as they do now.

Third, I want sellers to know is that the offer with the highest price might ultimately be the wrong choice. Many factors should be considered in addition to price. Yes, the net proceeds are of primary importance, but it is pointless if the transaction does not close and fund.  The financial strength of the buyer, the expertise of the buyer’s agent, and the motivation of the buyer should all come into play.  It is not uncommon for the most inexperienced buyers and their newly minted agent to submit the highest offer, only to fail to get to the finish line when complicated issues come up.

The fourth thing on my list is awareness.  Sellers get dollar signs in their eyes when the contracts get bid up to incredible amounts.  I always warn my sellers of two things: 1) when people pay exorbitant prices, they expect the product to be flawless. Those expectations may be unrealistic.  Buyers may either be very disappointed with the inspection results or may expect the sellers to provide repairs and improvements that seem excessive. 2) Some buyers’ agents are well-known for their approach of having their clients offer outrageous prices to win in the bidding wars, with the promise that they will claw a large portion of that back in demanding repair dollars from an excessively harsh inspection. One excellent idea in combatting this strategy is to have a “pre-inspection.” Pre-inspections are becoming more common since they help sellers affordably address problems ahead of time. Plus, if the inspection is made available with the sellers’ disclosure, it is much more difficult for buyers to claim they were unaware of these items when they made their offer.

Finally, every seller needs to know the contract is just the beginning. Getting to the closing table is the goal, but challenges may arise, and it is best to expect a few.  Appraisers are not meeting their promised deadlines and lenders have been swamped with both sales and refinance deals. Also, due to the severe shortage of homes, buyers are rushed into impulse buying.  When three other groups are waiting outside on the sidewalk of the home you are viewing, it is extremely difficult to give your purchase the careful consideration it deserves.  No wonder so many transactions are falling to the wayside.  Enough sales fail at the last minute that I have changed my philosophy.  I was always against seller leasebacks.  It is unquestionably the best practice if the closing is the time of physical transfer.  I get that, but sellers might want to think about a two-week leaseback just so they do not move out for a cancelled closing.  I had a lender back out the day before closing once.

Different times call for different strategies, but we adapt. My best advice?  Remain calm and carry on.  I think I heard that somewhere.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM   Broker Associate

Stanberry REALTORS

FIRPTA- The Foreign Investment in Real Estate Tax Act By Jeff Stewart, CCIM, SRES

FIRPTA – One of the last paragraphs of the residential listing specifically asks if the seller is a ‘foreign person.” It fails to fully explain why.  The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the more onerous and misunderstood federal tax laws when it comes to real estate. The concept is simple: Foreign sellers of real estate must pay a 10% or 15% tax upon the sale of U.S. real estate. It sounds like a reasonably straight forward tax until one discovers, often to great financial distress, that the buyer is ultimately responsible. How is that? The buyer is legally tasked with acting as the withholding agent and for making certain that the IRS is paid the correct amount of tax. In other woods, the buyer is on the hook. As unreasonable as this might seem, one can see why the IRS might pose this burden on the buyer since the seller is likely out of the country. Also, any money sent past the U.S. border is almost certainly beyond the reach of the IRS . . . so it is easier to hold the buyer responsible. . . fair or not.

I can gratefully say that I have not knowingly had to deal with this complicated process.  The key point is that it is imperative to positively know if the seller is a foreign person, hence the question on the listing contract. Unfortunately, one can see why a seller might be a little less than forthright in answering. The FIRPTA withholding process is not for amateurs. A knowledgeable title company is extremely important in such a transaction.  However most importantly, It is critical to engage attorneys and CPAs with the required expertise when conducting a transaction that falls under FIRTPA.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM   Broker Associate

Stanberry REALTORS

Flood Insurance By Jeff Stewart, CCIM, SRES

FLOOD INSURANCE – Did you know that according to FEMA roughly 80% of the houses damaged by Hurricane Harvey did not have flood insurance? Of those homes which did have flood insurance, the average flood insurance claim was $116,000.   Are you properly insured? Are safe from flooding?

Perhaps, but consider that the Atlas 14 weather study determined that the 500-year flood zone in our area should instead be approximately what we currently call the 100-year flood zone.  Because of that study, the City of Austin has formally designated the FEMA 500-year zone as the 100-year zone in the City for development purposes. They fully expect the next FEMA maps to reflect similar changes.

The public has long misunderstood what those zones mean.  The 100-year zone is NOT an area with a 1 in 100-year chance of flooding.  Instead, it is an area that has been determined to have a 1% chance of flooding in any given year, which equates to a 26% chance of flooding over the life of a 30-year residential loan. Those figures remind me of the old joke where fellow asked the rancher how much rain do they get out at Snyder.  The old fella replied, “Justa ‘bout 28 inches a year . . . and boy-howdy, you ought to be here the day it comes.”

So going back to the 500-year flood zone . . . that sounds pretty safe doesn’t it?  I mean, the mortgage companies do not even require flood insurance in the 500-year zone.  Well, that are has a 6% chance of flooding over a 30-year loan.  Do you feel lucky?

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice



    Appraisals – “Hurry up and wait.”  By Jeff Stewart, CCIM

     Astonishingly low interest rates and a tidal wave of newcomers have swamped lenders and appraisers in the greater Austin area. Unfortunately, appraisers have become the bottleneck for most resale transactions. Since the appraisal process is largely unseen by the public, most of our clients only learn about the process whenever a problem arises, so let us look behind the curtain.

First, it needs to be said that a real estate license does not give agents the right to perform an appraisal.  We may offer an opinion of value or do a competitive market analysis (CMA), but absolutely nothing we do may be called an appraisal. Appraisers are licensed by the Texas Appraiser Licensing and Certification Board.

Regarding the bottleneck comment, until the last six months or so, a typical residential sale transaction took roughly thirty days from contract to closing.  Recently, many transactions are taking forty-five to fifty-five days to close, simply because of appraisal delays.  After the frenzy of working through multiple offers and hurried inspections, waiting for weeks for an answer on the appraisal definitely gives buyers and sellers a feeling of “Hurry up and wait.” So, what is the cause?

First and foremost, sales are just off the chart, but that is not all. In our Texas REALTOR magazine, I recently read that the number of appraisers in Texas has been declining as aging appraisers have retired and fewer young people are choosing it as a profession.  Perhaps one reason fewer people have an interest to become appraisers is that FANNIE MAE now has an automated system for lenders that looks at past sales data and often determines that an appraisal is not even required for a new loan.  Technology probably does not bode well for the long-term future of the appraisal industry.

Nevertheless, most mortgage loans still require an appraisal, and we must deal with the various rules and requirements that the public never sees . . . such as the changes brought on by Dodd – Frank regulations. After the financial debacle of 2008, the Dodd – Frank Act of 2010 was passed and greatly altered the way lenders, appraisers and title companies do business. For this article, we are sticking to the appraisers.

The Dodd – Frank Act sought to limit the ability for lenders to influence appraisers. Mortgage lenders are no longer allowed to use on-staff appraisers or hire specific appraisers. Appraisal management companies have been created to act as a buffer between lenders and appraisers.  The lenders submit a request for an appraiser and the management company broadcasts that request to their selected list of appraisers.  The appraisers are then free to bid on the job, or not. The bidders name a price and a promised delivery day, and eventually someone is chosen. The idea of the management company buffer was to stop the undue pressure that many lenders once put on the appraisers to get them to hit a value that would allow the loan to go forward.  Trust me . . . it was a common complaint that I heard from my appraiser friends.  While the lenders are no longer allowed to directly communicate with the appraisers, the same rules do not apply to the brokers. In fact, I often find it very beneficial to meet the appraiser at the subject property . . . and generally the appraisers seem to appreciate the input.

The types of items I have shared with appraisers varies, but it is often helpful for them to have a copy of the survey, a list of my sales comps, and most important of all – an accounting of any recent improvements. This is especially important on the big-ticket upgrades. Documentation of the more expensive improvements will aid the appraiser in making value adjustments when comparing the comps.

On several of my most recent sales, the appraisers have had to make major value adjustments in the appraisal due to the differences between the subject property and the sales comps.  For example, one home was several hundred feet larger than any home in the neighborhood . . . and had a pool, which no other recent sale had.  Appraisers have to use their best judgement in determining how to adjust for the value of other differences such as an extra-large lot or four baths instead of two, but the recent trend in flipping or tearing down houses is complicating the process.  Neighborhoods in transition can run the gamut from tear-downs to extremely remodeled flips to new McMansions.

To be sure, this is what the appraisers get paid for.  The issue for lenders and buyers comes when appraisers have so much work that they can pick and choose what appraisal assignment they wish to accept.  Why take on a complicated sale in East Austin when an appraiser can get plenty of easy work in a homogenous neighborhood of ten-year old homes in Hutto? It has been very difficult to place some appraisals in outlying areas. The appraisal cost can really climb if a property is extremely far out, unique or it is needed in a rush.

Finally, it is interesting to think about the price whiplash that appraisers are experiencing, along with the rest of us.  Imagine trying to support the sales value of a home that sold $40,000 over asking with eighteen offers – all over the asking price.  The odds are very good that the appraiser cannot arrive at an appraised value that reaches the sales price, yet if the buyers still choose to close (and by putting down more cash, many are), that sales price just becomes the new sales comp for the next appraisal.

It is crazy times.  All we can do is remain calm and practice patience.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice

Jeff Stewart, CCIM, SRES

Broker Associate

Stanberry Realtors


Get Outside – Safely By Jeff Stewart, CCIM

Looking to get outside?

If you are like most folks now days, you are trying to spend a little more time outside – and socially spaced.  While we are all very tired of COVID 19 and the limitations it has imposed on us, I would like to suggest spending some time outdoors . . . in a park.  Specifically a Texas State Park near you.

Some of you may know that I have served on the Texas State Park Advisory Committee for years.  Parks are my passion, and they do not get much better than our own state parks. While the coronavirus has definitely had a negative impact on the state budget, our state parks are hopping.  In fact, Rodney Franklin, the Director of Texas State Parks, recently reported to our group that every day seems like spring break as Texans seek to safely spend time enjoying our wonderful parks.  The camping is limited to 75% capacity and many parks hit their limit on day users, so reservations are definitely recommended; but with a little planning, Texans can find that perfect place to get away for a day or a week.  If you have never visited any of our nearly 90 state parks, well now is the perfect time. Get out and do something!  We as like to say, “Life’s better outside.” Come join us.  You won’t regret it.


PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM , SRES

Stanberry, REALTORS