Monthly Archives: January 2021

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