MONEY Kids and Money

The Best and Worst Ways to Give Your Teen Credit

When your kid needs access to serious money, what kind of plastic is best for the job?

When your children’s concept of pocket change involves actual change, helping them keep track of their money is pretty easy. But when they start needing serious coin to gas up a sports utility vehicle, or travel abroad, you need more sophisticated financing alternatives like a credit card.

Keith Singer saw the light when his teenage son’s backpack was stolen at school, and he realized there had been $300 in his wallet. “He lost all his money,” says Singer, a wealth manager from Hollywood, Florida.

Here are some options, along with what you need to know before you give your teen access to credit:

Your Credit Card

Pros: Adding your child as an authorized user should take a simple phone call, and the child will have her own card to use. You can usually get a separate accounting of their charges.

Cons: The card will have your credit limits. Plus, no restrictions will be imposed on spending. Also, U.S. cards do not always work in foreign countries. They often have high transaction fees abroad, especially for cash advances.

Parents say: It’s hard to trust a teen with your own credit. Curtis Arnold, editor-in-chief of cardratings.com, added his two oldest children as authorized users on his accounts, but never gave them the cards. “We’ve never felt comfortable handing them a card other than for one-time use,” he says. His top fear: they would lose it.

Bank Account with ATM Card

Pros: It may take an in-person visit to a bank to open up an account for a minor, but then you can link it to a parent’s account to easily transfer funds. The ATM card makes it easy to get cash while traveling and can be used as a credit card. If you do not sign up for overdraft protection, transactions will be denied when funds are not available.

Cons: Beware that fees can rack up if the account does go negative or below a required minimum. Debit cards do not offer all the same consumer fraud protections as credit cards. They may incur overseas transaction or ATM service fees, and they require parental attention to keep adding funds.

Parents say: When one of Elizabeth Powell’s 16-year-old triplets went to England last summer, he opened up an account at his dad’s credit union. Then she transferred in several hundred dollars a month. The teen was able to use the debit card for his needs in British pounds, with minimal fees. “The system worked perfectly,” Powell says.

Keith Singer says one additional benefit for the bank account he opened for his son, who is now 17, is that it encouraged the teen to deposit his summer earnings.

Prepaid Debit Card

Pros: Getting one is easy, and most have slick mobile interfaces. As they are not linked to any bank account or credit line, there are fewer worries about overspending, loss or identity theft. Some cards, like Oink, allow parents to restrict spending in certain categories, like alcohol.

Cons: Some prepaid cards come with lots of hidden fees just to access your own money. They do not help build a credit history.

Parents say: Arnold likes the Bluebird card offered by Wal-Mart and American Express because, he says, “it’s like a credit card on training wheels.”

Most of all, he likes the relative safety of it. His oldest son had a credit card that was compromised while he was a senior in college. “With a prepaid, you don’t run that risk because they could wipe out the account, but not the whole checking account,” Arnold says.

Personal Credit Card

Pros: Building a credit score at 18 is smart. A typical newcomer does not start at zero, but rather at around 600, says Greg Lull, head of consumer insights at Credit Karma. That is in the middle range between the top of 850 and the bottom of 300.

Cons: If your young adult is not ready to handle the responsibility, his credit score will drop, and he will build up debt. Most young adults bottom out at age 21 before turning things around, says Lull.

Parents say: When our kids are ready, we’ll go for it. Arnold says of his third child, who is now 17: “Once he gets through freshman year of college, maybe we’ll do regular debit card, and then as an upper classmen, get a student credit card for him.”

MONEY Taxes

How to Avoid Audit Red Flags When You Change Up Your Taxes

red flag
iStock

A break from how you normally file your taxes can lead to costly mistakes—and attract the attention of the IRS.

Taxes are one of the few constants in life, but what happens when you change the way you do your return?

People move or get divorced, tax preparers pass away. There is always the lure of do-it-yourself—the number of people using tax software to file, like Intuit’s TurboTax, increases by 6% annually, according to the Internal Revenue Service. And then there is the reverse exodus of people who have decided their financial lives are too complicated, and they need to hire a professional.

With so many changes, consistency takes a beating. If you are on the wrong end of it, you could end up drawing the dreaded attention of the IRS.

Here are the items that can trip up taxpayers when they switch the way they do their taxes:

1. Mileage logs

When John Dundon took over his father’s tax business after he passed away last July, the biggest surprise for the Denver, Colorado-based tax preparer was that road-warrior clients were not keeping mileage logs.

“Boundaries erode all the time between practitioner and taxpayer,” Dundon says. Laziness seeps in disguised as trust, and years later, there are simply no logs.

Dundon tells his father’s crossover clients they need a renewed zeal for paperwork—get a GPS device or a smart phone app for next year. For 2014 taxes, he is asking clients meticulously through calendars and maps to sort it out.

2. Rental property depreciation

Depreciation is a deduction you can take on certain assets, like rental property. The tax impact can be pretty significant, especially if you are trying to off-set income like rent.

The dollar amount is determined by a formula you follow year-after-year, called a depreciation schedule, which could run almost the full course of a 30-year mortgage.

“You definitely need that schedule. You can try to guess at it, and you’d probably be okay, but you wouldn’t be doing it 100% right,” says tax preparer Anil Melwani, who runs his own firm, 212 Tax & Accounting Services, in New York.

If it was not done at all previously or done wrong? You’ll need to file an amended return to correct it, Melwani says.

3. Carryforward losses

The IRS allows taxpayers to take $3,000 in losses a year on investments, and to carry forward those losses indefinitely until the amount is all used up. But use it or lose it—meaning, if you miss a year because you forget, you can’t pick it up in the following years as if nothing happened.

Harvey Bezozi, who has his own firm in Boca Raton, Florida, has a new client this year who will likely have to file amended returns because she skipped over this with her last preparer.

4. Home office

Taking the home office deduction? Stay consistent with the square footage of your home office. The best way to do that is to get out your tape measure and only include space that you use exclusively for work.

If there’s a pingpong table in the middle of the basement study you’re trying to claim, that’s a no-go, says Dundon.

5. Life changes

There is a lot that a new tax preparer—or a tax software autobot—can learn about you by just looking at your past returns, but their questionnaires will not catch everything. If you have a baby, buy a house, get divorced, have income in a foreign country or have job-hunting related expenses, you’ve got to speak up.

But things can get missed when people do not know enough to know what they are missing. That’s what drove a DIY-type like Ben Jaffe into the hands of a paid tax preparer this year.

Jaffe, a 29-year-old who works in PR in New York, bought a house in 2014 while his wife had a baby. He made the switch away from tax software because, he says, “I wanted an expert opinion to verify that I was doing everything right.”

One hour and $500 later, he’s feeling confident: “It saved me a lot of time and stress.”

MONEY Credit

Getting a Free Credit Score is Now Easier Than Ever

The reason your number is going up or down can still be a mystery, though.

As a Citibank customer, I have been receiving my credit score on my statements since January. In February, my number went down five points, leaving me wondering: What did I do wrong?

There are still some mysteries in the world of credit scores, which financial institutions use to determine whether to give a person a loan and how much to charge for it. But the biggest unknown—what is your score?—has been solved.

While consumers could get their credit reports for years at no charge, their scores were not available, or they had to pay for them. In the past year, however, more than 60 million Americans suddenly were able to get either their FICO score, provided by the Fair Isaac Corp, or their VantageScore, from a system developed by the credit reporting bureaus.

Among the other financial institutions giving out scores each month are Ally, Chase, Bank of America , Barclays, Discover, and USAA.

“I keep this growing list of all of the free credit-related services that are now being given away from websites and credit card issuers,” says John Ulzheimer, president of consumer education at CreditSesame.com. “It’s cool to see the momentum.”

The push for open access came from both market forces and the U.S. government. The hope is that consumers with ready access to their scores will make smarter financial choices, like not paying bills late.

So far, so good. “The anecdotal evidence we’re seeing from both lenders and consumers indicates people who know their FICO Scores tend to develop healthier credit habits than people who don’t know their scores,” says FICO spokesman Jeff Scott.

Discover, which has provided about 10 million scores a month for the past year, has seen customer questions evolve from basics to the minutiae of the many factors, such as your payment history and the amount you owe, that drive the credit score algorithm. The company added a specially trained customer service unit to deal with questions, says Discover President Roger Hochschild.

What consumers generally need to know is that credit data is collected by three reporting agencies—Equifax, TransUnion, and Experian—and there are a range of scores generated. Car dealers may use a slightly different score than mortgage lenders, for instance.

Most people will find that their scores do not shift much, month to month. At Discover, 80% see a move of less than 20 points a month, according to Hochschild.

Also, most volatility is at the high end, above 775, on scores that top out at just above 800. But that in itself is nothing to worry about. “When you move from 790 to 750, you’re still in the great range,” Hochschild says.

A score below 600 is considered bad, while roughly from 620 to 690 is average.

My score probably fluctuated because of some big charges last month. Even though I paid them off in full, it would have lowered my available credit temporarily.

How to Affect Change

Whatever score you see you on your monthly statement will be a good indicator of your general creditworthiness. If it shocks you, you can take action.

Order full copies of your credit reports to see the details. You can get one free report annually.

Do not bother calling the financial institution providing the score, as you are unlikely to get much detailed information, says CreditSesame’s Ulzheimer.

Sometimes a low score is simply a mistake or a matter of one reporting bureau not aligning with the others.

This happened to Kevin Yuann, director of credit cards at Nerdwallet.com, a credit card information website. He found that one bureau did not have a listing of an account the others had, so it gave him a lower score. He was able to get the bank to report the account to the credit bureau.

You will not be able to change an item like a ding for a late payment. But it is useful as a deterrent for the next time.

In fact, Discover’s Hochschild thinks this might be one of the most valuable things about ready access to one’s credit scores: “It’s like knowing your cholesterol.”

 

MONEY Housing Market

Why More Home Buyers May Be Trading Up to Bigger Digs This Spring

fish jumping into bigger fishtank
Phil Ashley—Getty Images

A tight inventory of houses for sale has been stymying buyers who want to trade up. That could change soon.

Joe and Debbie Valerio, a couple in their 60s, put their Westport, Conn., home of more than 20 years on the market because it was getting too big for them.

When they found a nearby condo they loved, they pounced. That set off a chain reaction allowing Peter and Leah Baiocco, a couple in their 30s, the ability to trade up.

The Baioccos lived a few miles away, contemplating a future move to a bigger home once kids came along. With favorable economic conditions, they jumped at the chance to buy the Valerios’ $2.7 million house last April. After renting it out for nearly a year, the Baioccos’ starter house in Fairfield, Conn. is on the market for $739,000.

This seemingly simple sequence of events is still relatively rare in the U.S. housing recovery. Despite an improving economy and rock-bottom rates, inventory of available homes is inconsistent. Anything more than a trickle of listings sends prices down, causing sellers to pull their homes off the market.

Then prices go up again because competition gets fierce, and sellers re-emerge. As a result, a bustle of trade-up activity is expected for this spring’s selling season, before conditions change again.

“I think a lot of people have made a lot of money in the stock market the last few years. People who want to enjoy a luxury home, now is the time. Everyone has more cash available to them,” says Ken Barber, a real estate agent in Wellesley, Mass.

Other positive signs: new single-family housing starts are at a high since 2008, according to the Commerce Department’s latest report.

Also, fewer homeowners are renting out their homes to delay selling them, down to 35% in 2014 from 39% in 2013, according to Redfin, a real-estate brokerage.

And more consumers have positive equity. Last spring, 19% of homeowners in Redfin markets (such as Atlanta and Philadelphia) had low or negative equity. That was down to 11% in November. Nela Richardson, Redfin’s chief economist, expects it to hit 8% by March 2015.

Even better for buyers, interest rates are near-historic lows below 4%. “The question of staying versus leaving is shifting. For people who were afraid to leave their mortgage because they thought it was the best they’re ever going to get, now there is another good mortgage around the corner,” Richardson says.

Those trading up in 2015 should hit a sweet spot of selling near the top but not buying at the top, says Margaret Wilcox, an agent from agent in Glastonbury, Conn., for William Raveis.

Wilcox says a client couple recently traded up from a $500,000 house to a $1 million home. They did not get quite the price they wanted for the sale of their old home, but they got a discount of nearly $300,000 on their new purchase, Wilcox says.

There are a few red flags for buyers and sellers. Seller confidence is still low, with just 35% of sellers thinking now was a good time to sell, versus 48% the previous year, according to Redfin.

Keith Jurow, a housing market analyst who writes the Capital Preservation Real Estate Report, is something of a doomsayer and thinks talk of a housing recovery “is phony and only an illusion,” he says.

Given the number of mortgages originated between 2004 and 2010, he feels that too many of the people who would like to trade up still have little or no equity in their homes and are not prepared to do a sale below their purchase price.

“Unless you bring more cash to the table, you can’t trade up,” Jurow says.

Also, foreboding makes some people want to act now. They do not want to be the family that missed their chance, adds Bob Walters, chief economist for Quicken Loans. “People won’t delay forever,” he says.

The Valerios and the Baioccos have only happy thoughts about their real estate choices. They love their new homes.

“In our mind, it’s the house we’re going to be in forever,” says Peter Baiocco.

MONEY interest rates

4 Smart Moves for Borrowers and Savers in 2015

What rising interest rates could mean to you.

Most experts expect U.S. interest rates to rise in 2015, but no one knows when and by how much.

Rate increases rarely happen with great velocity, though. The last time the Federal Reserve raised the federal funds rate, which banks use to lend money overnight, was in June 2006. It brought the rate to 5.25% — after 17 increases.

By 2008, in the midst of the financial crisis, the federal funds rate was down to zero, where it has stayed.

A jump in interest rates in 2015 could have a big financial impact, however, especially if you are looking to buy a home, have credit card debt or own bonds.

Here is what to expect:

Consumer Loans

Rates for consumer loans, which include mortgages and automobiles, are bouncing around 3.75%, a quarter percentage point above historic lows reached in May 2013. Greg McBride, chief financial analyst for Bankrate.com, expects a series of rate hikes in the year ahead.

“This is going to be a very volatile year,” says McBride.

Overall, however, the net change will probably be within one percentage point.

For a car buyer, a change from 4% to 5% would be almost imperceptible. The average auto loan is $27,000, and borrowing that much over five years would mean a difference of just $12 a month.

Home loans are another story, so plan accordingly. Over 30 years, that one percentage point difference in interest rates on a $100,000 mortgage would mean you would pay about $22,000 more, according to an example provided by Quicken.

Credit Cards

Consumers looking to roll over credit card debt to a zero percent balance transfer should act fast, because offers have never been more generous.

“We don’t expect offers to get better,” says Odysseas Papadimitriou, chief executive officer of CardHub.com, which rates credit card offers. Duration of deals is at an all-time high, at an average of 11 months, and the average balance transfer fee is only 3%.

These deals could disappear if the Fed raises rates significantly or a tanking economy causes default rates to surge, Papadimitriou adds.

Consumers tend to focus on the length of the balance transfer deal, which can be up to 24 months, but Papadimitriou says you must also consider the monthly payments, annual and transfer fees and the interest rate after the introductory period ends.

To learn how much you will save each month, use an online calculator like Cardhub’s. It will tell you, for instance, that if you have average credit card debt of $7,000 and are paying the average rate of 14%, you would save enough to pay off your debt two months faster if you transferred it to a zero-percent card with no fee.

Most bank’s websites also provide some suggestions. For example, the Citizens Bank Platinum MasterCard offers a zero-percent balance transfer for 15 months with no balance transfer or annual fees.

Savings Rates

If you are a saver looking for higher yields, life is not about to get rosier in 2015.

“Rates are brutal,” says Morgan Quinn, feature writer for GoBankingRates.com. The yield on the typical savings account is less than 1%.

Good news in this category amounts to rates tipping over 1% on some CDs and savings accounts with high balances.

Interest rates on savings accounts probably will not head toward 3% until 2020, according to GoBankingRates latest report.

In the meantime, the highest rate Quinn was able to find was 1.4% at EverBank for “yield-pledge” checking with a $1,500 minimum opening deposit and an ongoing balance of between $50,000 and $100,000.

Bonds

The benchmark 10-year U.S. Treasury yield fell to 1.89% on Monday, its lowest since May 2013.

If interest rates go up, “it will be a tough year for bond investors,” Bankrate’s McBride says.

You can mitigate this risk with individual bonds by simply holding them to maturity, he says. But if you invest in bond funds, either directly or through target-date or managed funds in your retirement accounts, the value will probably decline.

That is not all bad news if you just stay the course. McBride’s advice: “Buckle your seat belt and hold on.”

MONEY Shopping

You May Already Be Too Late for the Hottest Holiday Toys

141210_EM_HottestToys
Richard Drew—AP If your kid wants Disney's Frozen Castle & Ice Palace Playset, let's hope you bought it already.

Favorites from Frozen, Legos, and more are gone from store shelves or going fast. Expect to pay up if you don't want to disappoint.

If you still have Disney’s Frozen Castle and Ice Palace Playset on your holiday gift list this year, you may already be out of luck.

With Christmas approaching, the $119 toy—made by Mattel Inc—is sold out. Of course, you can find it at resellers for about $225 and even as high as $700 on eBay. There are still plenty of other Frozen-themed toys available—but only for now.

Industry analysts, poring over results from the Thanksgiving holiday week, say the hottest 25 toys have already hit their price lows and will only get more expensive as Christmas nears and the remaining inventory flies off stores’ shelves.

The silver lining? Retailers made a huge bet on toy inventory this holiday season—ordering twice as many shipments of Legos as last year, for instance, according to research firm Panjiva.

Expect fierce price competition at major retailers like Wal-Mart Stores Inc and Target Corp, which carry thousands of toys, notes Jim Silver, editor-in-chief of Time to Play Magazine.

“There will be huge promotions going on,” he predicts.

The sales will not be nationwide shopping events like Black Friday, but will pop up sporadically, culminating in major sales on Dec. 20, the Saturday before Christmas which experts expect to be an extremely heavy shopping day.

“One by one, either loudly or quietly, they will be rolling out some amazing deals,” says Panjiva CEO Josh Green.

Early Birds Get Hot Toys

Consumers love sales, but Silver notes they may be very disappointed if they can’t find the hottest toys.

Besides the sold-out Frozen Castle, there are 12 to 15 items which are currently hard to find, including the Max Tow Truck. It is listed currently around $128 on Amazon.com, depending on color—well above its list price of $59.99. Another hot item is the Imaginext Supernova Battle Rover—currently available for $109.99 at Toys R Us, slightly below the list price of $119.

There are also about 25 to 30 toys that will sell out in the next two weeks, Silver says, especially the most popular new toys in the Lego, Barbie, My Little Pony, FurReal Friend, and Nerf lines.

Toys with a movie or popular culture tie-in drive demand, while interactive pets tend to be short-lived fads (think Zhu Zhu Pets or Furby).

“There are clear bets by retailers—orders for Frozen toys and My Little Pony toys are up massively versus 2013,” says Green.

Most hot toys hit their price lows on Cyber Monday, according to data firm MarketTrack. This year, for example, the FurReal Friend Get Up & GoGo dog, which has a manufacturer’s suggested retail price of $59.99, was being offered for $49.99 at most stores in early November. It went down to $39 just before Thanksgiving and hit $27 on Amazon on Cyber Monday.

The very next day, the dog, which responds to commands from a remote-control leash, was back up to $39. The price is now fluctuating at most stores because of limited supply.

Similarly, the My Little Pony Friendship Rainbow Kingdom Playset, which lists at $39.99, was on sale for $35 at Target on Black Friday and bottomed out at $19.99 on Cyber Monday on Amazon for a half-price sale. It is now back up to $34 at Wal-Mart and Toys R Us.

What should shoppers do if they want the hottest toys?

“Grab the hot items early and then get bargain toys when you can,” Silver says. But you may have to wait until next year to employ this strategy.

 

MONEY Shopping

Why You’re Shopping More for Yourself This Holiday Season

woman trying on shoes at store
Jason Hetherington—Getty Images

Is that giant TV in your shopping cart a gift—or for you? With more people snapping up holiday deals for themselves, retailers are starting to cater to these self-gifters.

Jill Bascou looked like a typical holiday gift shopper standing in line on Thanksgiving Day shortly after the Target in Marlton, New Jersey opened at 6 p.m.

Except she wasn’t buying for other people.

The 39-year-old was waiting to get herself an iPad. In her cart was the xBox her husband had been coveting, and her father was in another part of the store hunting down a giant, cheap TV—for himself.

Retailers call this self-gifting. Look at a major store’s circular advertising holiday gifts—from the $5 toasters at Kohl’s to a $279 Dyson vacuum at Target—and you’ll see the top draws are items people typically buy for themselves.

Marshal Cohen, chief retail analyst at NPD Group, started tracking the trend of self-gifting six years ago, after interviewing a shopper on Black Friday at a Macy’s.

The woman had a huge pile of clothes over one arm and a smaller pile on her other. Cohen was surprised to learn that woman was buying the big pile for herself. Her mother and sister were the designated recipients of the other pile.

Now 30% of purchases over the Thanksgiving holiday are attributed to self-gifting, Cohen says. Surveys from the National Retail Federation bear this out, showing that 77% of shoppers took advantage of discounts to buy for themselves over the holiday weekend.

Toys are the obvious exception, but almost everything else—the TVs, the home goods, even the clothing—are items that people are often buying for themselves.

Retailers have been catching on, adjusting inventories and messaging. Kathy Grannis, spokesperson for the NRF, points to a pop-up gift tag ad recently on Gap’s website that read “From Us to You,” and was clearly meant to engage self-gifters.

For clothing retailers, Grannis says the enticements to shoppers are often in the form of a significant discount off the whole store. Old Navy offered half off everything on Thanksgiving Day, which drew Sarita Henriquez, 36, of Burlington, New Jersey, to shop for herself, with no set spending limit in mind.

“I’m being greedy this year,” Henriquez said as she waited in her car for the store to open at 4 p.m.

“I hear self-gifting reported as greediness, but there’s really more nuance than that,” says Kit Yarrow, a consumer psychologist and author of Decoding the New Consumer Mind.

Yarrow breaks down self-gifting holiday shoppers to three types: those buying special things like outfits and decor in order to be more social; those delaying purchases because they are expecting bargains, and those who are buying on impulse based on what’s available.

Impulse buyers are the key target for retailers’ special doorbusters. These are folks like the Hartman brothers, (Ed, 25, Shawn, 24, and Tyler, 21) who, while visiting family for Thanksgiving, each waited for cheap TVs at a Best Buy near Cherry Hill, N.J. to put in their own homes.

Cohen’s advice for shoppers who missed out on the early sales and are still waiting for big discounts: “Be patient and wait for the price to come to you.”

Don’t obsess over getting the absolute rock-bottom prices if it means delaying what you want, Cohen adds. You can always return an item if you find it for less and try to get the store to price match—as long as you have your receipt.

And just wait until you see next year’s sales.

“Retailers will figure this out,” says Cohen. And then Thanksgiving week will be even more about self-gifting, “and then there will be another set of doorbusters for later in December.”

MONEY buying a home

How to Beat Newly Hot Real Estate Markets

Buying in a hot market can be tough. These tips can help beat the competition.

How much house will $2 million get you in the United States these days?

You could buy 25 pretty nice four-bedroom, two-bath homes in Cleveland, Ohio. Or, you could get just one modest ranch house in Los Altos, California, the most expensive real estate market in the country, according to a new survey by Coldwell Banker.

But, then again, you would probably get beat out by an all-cash buyer offering a higher bid.

Competition is fierce in today’s emerging hot real estate markets because the inventory of available properties is still extremely low. In areas like Silicon Valley, though, the economy is humming and buyers have plenty of money.

Los Altos is in the middle of the action, surrounded by the corporate headquarters for Google, Facebook and dozens of other major tech companies, as are other California cities: Newport Beach, Saratoga, Redwood City and Los Gatos, the rest of the top five on Coldwell’s list.

As other markets heat up around the country, buyers can learn a few things from what’s happening in some of the hottest places.

NEW MATH

If there is one thing Silicon Valley’s techies know, it’s algorithms. You’re going to need one in today’s top markets to figure out how far above asking you need to bid.

Sumi Kim Hachmann, a 32-year-old researcher at Quora.com, snagged her three-bedroom, one-bath house in Menlo Park last year after six months of trying. Each time she found a house she liked, she crunched the square footage and comparable sales to figure out how much to bid, refining her math each time she lost out.

She liked a fixer-upper listed at $1.1 million, and was willing to bid $100,000 over asking. Her agent told her to double that, at least. She did, but the sellers countered. The house sold for $1.4 million to somebody else

“That was definitely discouraging,” Hachman says. “But it was a learning experience.”

Next time, she went in with a strong offer that amounted to $1,000 per square foot, and won. Now, a year later, she’s incredulous that houses in the neighborhood are going for double that.

While price is largely controlled by location and size, you need to add a premium to your offer if you need a mortgage, says Joe Brown, managing broker of a Coldwell branch in Los Altos. Bids being equal, sellers prefer all-cash because there is less risk. Price will still prevail, though, so a higher bid from a qualified buyer with a mortgage should win.

Another caveat: Keep contigencies out of the purchase agreement. Doing this is difficult for mortgage-seekers because banks typically require that the purchase price match the appraised value of the house. With prices going so far above asking, that can get tricky.

“You either ask them to put a lot more down or have them sign something that they will waive the appraisal contingency,” says Ducky Grabill, a founding agent of Sereno Group realty, who is based in Los Gatos.

Grabill also suggests having the lender call the listing agent and let them know they will guarantee the financing.

LOWER EXPECTATIONS

Another strategy is to buy below your price point, says Brown. If you have the resources for a $2 million house but cannot compete with stronger buyers, then aim for $1.5 million and turn it into the house you want.

This is a modification of the old “buy the worst house in the best neighborhood” adage. But you cannot just sit on this kind of property and hope it will appreciate; you’ve got to renovate.

That’s what Amy Bohutinsky, chief marketing officer of real estate site Zillow.com, did with her own purchase of a fixer-upper in the Seattle area two years ago.

“If you buy it with the intent of fixing it up, it can be an easier way” into a house than engaging in a bidding war, Bohutinsky says.

She also recommends expanding the boundaries of your search: considering for-sale-by-owner properties, preview listings like Zillow’s “Make Me Move” section and “coming attractions” on listing sites.

BE READY

It is not enough anymore to show up at an open house pre-qualified for a mortgage and with a letter that sells yourself. You may need to have an engineer or other inspector come along, says Sereno Group’s Grabill.

She had a client recently clinch a $2 million all-cash deal after his first viewing, but only because he was able to do his due diligence on the foundation issues immediately.

This buyer was one of those bidding down on a property. He was really in the market for more like $2.5 million, and will put the remainder of his budget into fixing it up.

“They are throwing so much more money at properties to get it. It’s a little crazy,” Grabill says.

MONEY homeowners insurance

Why You Soon May Have to Pick Up More Home Repair Costs

measuring tape with money
Bart Sadowski—Getty Images

Insurers are moving from flat deductibles to higher ones based on the value of your home. Here's what you need to know about this change.

Two years after Superstorm Sandy, State Farm agent Jen Dunn is busy explaining new insurance math to her customers in upstate New York. Instead of the dollar-amount deductibles they have been used to for years, she is now writing their policies based on percentages.

For many, it means turning the typical $500 deductible into 1% of the insured value—for a $250,000 house, that means a gasp-producing $2,500.

“My clients who have been offered this initially say, ‘I don’t like this,'” Dunn says. But then she explains that the higher amount is usually offset by a lower annual premium. If they go years without a claim, they can save in the meantime.

Jason Corbett, 39, who lives in central Georgia, is using a 1% deductible. Because Corbett’s rural home is valued at slightly less than $200,000, it was a better deal than a flat $1,000 deductible. The difference between the two deductibles was only a couple of hundred dollars. However, he saved money by lowering his premium, so over time the difference in his out-of-pocket costs will be negligible.

If he had a $300,000 home and the deductible was double what he pays now, “that would be a different decision,” says Corbett, who writes a personal finance blog.

State Farm, the largest U.S. property and casualty insurance company by market share, says a “significant” number of its policies now have percentage deductibles. Other carriers, like Allstate Corp, USAA, and Nationwide, also offer the option to consumers in certain states, but the prevalence is not yet tracked nationwide. The practice is near-universal in Texas at this point, according to that state’s insurance office.

With a percentage deductible policy, things are a little different than the old-fashioned flat rate. Here are seven things you need to know:

1. Do not be afraid of high deductibles

You might be used to $500, but a higher deductible could actually be better for you.

“It’s a very smart move to buy high deductibles if you can afford it,” advises J. Robert Hunter, director of insurance for the Consumer Federation of America.

The main reason? Every claim you make against your homeowners insurance can raise your rates. One claim pushes it up an average of 9% and two claims will raise it by 20%, according to a recent study by insuranceQuotes.com. So you want to pay out of pocket for small claims anyway.

2. The 1% deductible is not a percentage of your loss

The new terminology makes people think of health insurance, but homeowner claims do not work that way, says Jim Gavin, director of insurance information services for the Independent Insurance Agents of Texas trade group.

Rather, the out-of-pocket deductible you have to pay before the company will cover any claims is based on a percentage of the insured value of your home—which is not the market value or the appraised value, but the cost of replacing your home should it burn to the ground and need to be rebuilt.

For example: If a kitchen fire damaged your $250,000 home with a 1% deductible, and it cost $5,000 to repair the damage, you would receive a check from the insurance company for $2,500 after paying the other half yourself.

3. Your out-of-pocket costs will regularly increase

Your $500 deductible stays flat forever, but a percentage deductible will go up incrementally over time as the insured value of your home rises.

Some homeowners may not even notice this, like Will Harvey, 34, of Tyler, Texas, who is five years into a 1% policy on his home. “If it went up, it wasn’t enough for me to remember it,” he says.

4. You will still have other deductibles on top of the basic rate

Many homeowners have add-on clauses like a 5% hurricane deductible that is common in coastal areas, or 2% for wind and hail damage. Many states require separate coverage for earthquakes and floods.

Those all still apply on top of the basic coverage for fire and theft, says Amy Danise, editorial director of Insure.com. So if you have any damage that is caused by a specified risk, you will have to pay out of pocket first for that.

5. Your might be able to pay down your percentile

If 1% is too much for you, you may have the option to accept a higher premium to lower out-of-pocket costs—going from 1% to half a percent or some other fraction. The value to you depends on how much your house is worth and how much you can afford to pay out of your savings if something goes wrong, says State Farm’s Dunn.

6. You can still shop around

Even in Texas, where almost every company offers a deductible of at least 1%, or sometimes up to 1.5% or 2%, some carriers still do things the traditional way. Texas insurance agent Criss Sudduth says the customers who might benefit more from a flat-fee policy are those whose premiums do not actually go down despite the percentage policy—either because the weather risks are too high or because their personal credit is bad.

7. You should still figure out your dollar amount

After years of hearing complaints from consumers who are confused, the Texas legislature passed a bill recently requiring carriers to explain what the percentage deductible translates into, in dollars.

In other states, if your carrier does not do this, you should find out the information yourself and write it on your declarations page, says Deeia Beck, public counsel and executive director of the Texas Office of Public Insurance Counsel.

MONEY Travel

3 Top Retirement Trips That Won’t Break Your Budget

Bartolome Island, The Galapagos.
Ray Hems—Getty Images Bartolome Island, The Galapagos.

That retirement dream trip may carry a harsh real-world price tag. Here's how save on costs and still travel comfortably.

Where is retirement going to take you? If you’re like most people, you’re dreaming of grand European tours, African safaris, maybe even Antarctica.

But even if you think you’ve budgeted generously for trips, you might get a harsh dose of reality when you see the actual price tag. A couple that puts aside $10,000 a year for travel may only be able to pull off one major trip per year, with maybe some left over for smaller jaunts.

What Patrick O’Brien, 71, and his wife Bobbie, 68, found out is that you can’t get too far on that. So what the O’Briens have done is a combination of lowering their expectations and raising their budget. They nixed Australia from their list, but over the years have done about 10 group tours, including two weeks in Alaska this year.

Here’s what three of the most popular trips for retirees will cost you:

GRAND EUROPEAN TOUR

How popular is the big European trip for retirees? Consider this: Viking River Cruises, one of the largest riverboat cruise operators, will carry more than 250,000 passengers in 2014 with a median age of 55, and 75% of them will do one of their European riverboat tours. The majority of those will sail from Amsterdam to Budapest, or some portion thereof.

Cost: A mid-tier balcony stateroom for an eight-day Rhine cruise in the spring will run about $8,000 for a couple, not including airfare, which can cost $600 a ticket from New York. Excursions and food are included, but not tips.

Budget tip: Off-season cruises are always cheaper, but on this route, Viking marketing executive Richard Marnell says the late-fall Christmas market specials are a big draw. “It has a feel and a vibe – they are an artisans’ heaven,” Marnell says.

GREAT WALL IN CHINA

Thelma Tiambeng-Bright’s dream retirement trip was to go to China, a feat she accomplished last year on a tour with YMT Vacations. The 70-year-old retired teacher, who lives in Duncanville, Texas, flew to California to join the group, which then flew to Beijing. From there, she saw the Terracotta Army, cruised the Yangtze River, saw the Great Wall and then Shanghai.

Cost: Tiambent-Bright’s 12-day trip cost about $4,000, including airfare. The current discount rate for a couple is $2,400, with $1,500 for airfare from a destination like Dallas.

Budget Tip: Travel with a buddy or significant other, if you can. Tiambent-Bright says she pays $600 to $800 extra on any trip she goes solo.

GALAPAGOS ISLANDS

For Patrick and Bobbie O’Brien, their dream retirement trip was to see the extraordinary wildlife of the Galapagos Islands, off Ecuador. They took an 11-day journey with Road Scholar, which was previously known as Elderhostel, a popular nonprofit group that plans educational trips for seniors.

One important feature for their budget was that the trip was all-inclusive. “We want to know how much money we will spend, and the nicest part is that there are no extra costs—you don’t have to worry about tipping or side trips,” says Bobbie O’Brien.

Cost: $8,000 for a couple, not including airfare to Quito, which will add $1,700.

Budget tip: When you want to go on the big trip, set it and forget it, suggests Peg Walter, a 70-year-old retiree from New York. “I cringe when I see the amount, because you pay for the whole thing in one lump sum,” Walter says. But then by the time she goes on the trip, she’s able to just enjoy herself because there are no extras involved on most of her tours.

“I call them ‘SKI’ trips —Spend the Kids’ Inheritance,” Walter jokes. “We’re not rich by any means, but we say, let’s try to use wisely what we have so we have memories.”

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