Posts About Appraisal and Appraisers written by the staff of The Robinson Real Estate Appraiser Group, Maryland.

The Rise of Multigenerational Living

A Response to Housing Affordability Challenges

The Baltimore metropolitan area, encompassing Baltimore City and surrounding areas to include Baltimore County, Howard County, Anne Arundel, Carroll County and others have witnessed a notable trend: an increasing number of families choosing multigenerational living arrangements as a practical response to the current housing challenges. Rising costs, lack of home inventory and the economic challenges of today’s market have buyers broadening their thought process on solutions.

The cost of housing in Baltimore and its surrounding counties has been rising steadily, outpacing wage growth and making it increasingly difficult for many buyers to afford housing. This coupled with the rise of healthcare, assisted living facilities, nursing homes and other elder care services have made multigenerational living (where multiple generations of a family choose to live together under one roof) become a viable option for many.  This arrangement also helps provide in-home housing for elderly relatives, adult children, young adults facing student loan debt or caregivers while maintaining some level of independence and privacy. 

In many cultures, multigenerational living has long been a traditional practice. The respect for elders, strong family ties, and the desire to provide care and support across generations contribute to the attractiveness of this living arrangement. 

When dealing with multigenerational households, there is typically the presence of an accessory dwelling unit (ADU). An Accessory Dwelling Unit, is a secondary housing unit that is located on the same property as a single-family home. Also known as granny flats, in-law units, or backyard cottages, ADUs (according to Fannie Mae) must include space for living, sleeping, cooking and bathrooms independent of the primary residence. They are designed to be smaller in size compared to the primary residence and are intended to provide additional housing options within existing residential neighborhoods. An ADU can be detached from the main dwelling, attached to the dwelling or within the dwelling. 

The regulations and guidelines for ADUs vary widely depending on local zoning laws, building codes, and community preferences. Many jurisdictions have specific requirements regarding the size, design, and occupancy of ADUs to ensure they are compatible with the character of the neighborhood and do not pose undue burden on infrastructure or parking.

Local and state governments may need to reassess zoning regulations and housing policies to accommodate the diverse needs of multigenerational households. This could include incentives for developers or builders to build multifunctional homes in support of accessory dwelling units (ADUs) to create separate living spaces within existing properties.

With the current state of the housing market and the changing needs of buyers, multigenerational living represents a flexible and innovative approach for our current demographic trends as well as addressing current housing inventory needs.  

Maryland Inheritance Tax and Maryland Estate Tax – Double Trouble!

Maryland inheritance tax is a tax imposed on the privilege of receiving property. The federal government does not have an inheritance tax, and only six states collect this tax. Maryland is one of those 6 states and Maryland also has an estate tax which is a tax imposed on the privilege of transferring property. Not exactly a perk for  being a Marylander!  Estate tax and inheritance tax are two types of death taxes that are often used interchangeably, but they have a key difference. Estate tax is calculated based on the net value of all the property owned by a deceased person and is paid by the estate before any inheritance is issued. Inheritance tax is based on the amount that beneficiaries receive from the estate and is paid by them.


Some individuals are exempt from the inheritance tax in Maryland, depending on their relationship to the person that has passed away. Currently, property that passes to a spouse, parent, grandparent, sibling, step-parent, step-child, child or other lineal descendant, spouse of a child or other lineal descendant, or a corporation that has only people in this category as stockholders, is entirely exempt from the Maryland inheritance tax. A primary residence owned by domestic partners held in joint tenancy at the time of one partner’s death is also exempt from the inheritance tax. However, property that passes to any other beneficiary than those mentioned is subject to the Maryland inheritance tax of 10%.


The estate tax threshold for Maryland is $5 million as of 2023. This means that if you die and your total estate is worth less than $5 million, the estate owes nothing at all to the state of Maryland. If your estate is worth more than $5 million, though, there is a progressive tax rate for all wealth above that $5 million mark that your estate will have to pay before money can be dispersed to your heirs.


If you are fortunate enough to have an estate worth beyond 5 million dollars there are a things you can do to lessen the amount of estate taxes.


Give it away! Consider making gifts while you’re still alive. Any gifts you make during your lifetime will help reduce your total estate value, and you’re probably gonna make some people very happy! For 2023, the annual gift tax exemption is $17,000, up from $16,000 in 2022. This means you can give up to $17,000 to as many people as you want in 2023 without any of it being subject to the federal gift tax. The gift tax is imposed by the IRS if you transfer money or property – worth more than an exempted amount – to another person without receiving at least equal value in return. This could apply to parents giving money to their children, the gifting of property such as a house or a car, or any other transfer. There is also a lifetime exclusion of $12.92 million in 2023.

 
Trusts are a popular option because they can be used to avoid the probate process as well as reduce estate taxes. Trusts are an important part of estate planning and can be used to protect your assets and ensure that your wishes are carried out. A trust is a legal entity that holds title to property for the benefit of another person or organization. It can be used to transfer ownership of assets, such as real estate, stocks, bonds, or other investments, from one person to another without going through probate court. Trusts also provide tax advantages and can help reduce the amount of taxes owed upon death. With proper planning, a trust can help you ensure that your family’s financial security is protected after you’re gone.

 
Another consideration to avoid estate and/or inheritance tax is to relocate. Location, location, location!!! Consider finding a state without these financial penalties.


Speaking to a financial advisor, estate planner and/or an attorney tailored to your specific needs is the best route when deciding  what will happen with your wealth. Since you can’t take it with you, at least you can be in charge of where it ends up. Thank you for reading and best of luck protecting your future fortune!

Do Rising Interest Rates Affect Real Estate?

Interest rates play a crucial role in the housing market. Lower rates typically promote an increase in demand for properties, this in turn drives up pricing, while on the flip side of that, higher interest rates reduce the demand since the costs of a mortgage increase deterring prospective home buyers. We have been in a special situation in the past few years with respect to the pandemic.  The Covid-19 pandemic caused so much chaos and instability regarding jobs, economic growth, recession and so many unknowns it left  Americans and the world with our heads spinning.   In an effort to stimulate and grow the economy the rates were lowered to record lows in past years in hopes to aid economic growth and stability in a very unstable time.The Federal Reserve pumped money into the economy, spending trillions of dollars on mortgage-backed securities to hinder another financial crisis. This move allowed lenders to offer rock-bottom interest rates, tumbling to the mid-2% range by the summer of 2021. With the low mortgage rates prices continued to increase since buyers could borrow more money for less than ever before. The low rates coupled with the available housing supply being low caused even further price increases in home values. With buyers fighting over the homes that were on the market, bidding wars were not that uncommon in portions of 2021 and 2022. 

In March of this year the interest rates began to rise in an effort to combat inflation and curb the continual rise of home prices across the country. So far, the Fed’s six hikes in 2022 have increased rates by a combined 3 percentage points . Generally, interest rate hikes will raise costs for homeowners and reduce buying power. As mortgage rates increase, houses become less affordable. An increase of 1% interest rate can have a significant impact on mortgage costs. You can expect monthly payments to increase by an average of 10-15% . Buying power decreases and homes become less attractive for purchase thereby reducing the demand for homes. Sellers are then forced with the question of whether to reduce their price to have their home be more attractive and affordable for purchase.  The area, supply, demand, location, home type, condition and income are a few things that need to be considered before putting your house on the market and/or lowering your current price. Interest rates have continued to have a major influence in the overall market.

Investors do not necessarily share in the despair of rising interest rates compared to the typical buyer. Rising rates means fewer people can qualify for loans and will choose to rent rather than buy. Rents are at an all time high due to the demand for housing. There is more possibility for higher rates of return on investments during times of high interest rates and overall demand for rentals.  The investors that pay cash for bartering reasons or the ability not to use a bank for the purchase of a home can receive a hefty stream of cash flow without the imposed rate variation from a conventional bank.  But as we all know…it is easier to make money when you have money!

In conclusion, real estate pricing and interest rates are in a relationship with one another that can not be broken, they are like a married couple, always trying to find the best balance for both parts to work smoothly for a greater benefit. 

Baltimore Trends and the Outlook for 2019

Buyers and sellers are in for another nail biting year of making predictions regarding the Baltimore metropolitan market. There seems to be a slightly harder road ahead than last year due to the future of the Federal Fund Rate. Interest rates are projected to rise from its current 5% to 5.5% by the end of 2019. The rate hike will be based on data from the overall economy growth. If the economy does not move forward with the growth as expected, the hikes will likely be delayed.

The Baltimore market is projected to have slightly more inventory with an overall 2% increase in housing prices in 2019.. so on the horizon there will be more inventory, higher prices and a raise in rates. This combination is making it more difficult for the first time home buyer to secure a home. Millennials make up the largest demographic of new home buyers which will be heading into a year where home-ownership looks to be a little tougher than the past few years.

There are other factors coming into play this next year on a national level that is new territory for all of us. The tax bill that was passed at the end of 2017 was in effect for the full year of 2018. This reform is new so the outcome is unknown of the positive or negative effects on the 2019 economy. The reform includes changes in standard deductions for married couples and for singles: you’ll need to take a close look at that this year to be sure you will still be itemizing because the standard deduction is much higher. There is also a limited tax advantage on mortgages: mortgage interest is still deductible, at least in principle (pun intended), for the vast majority of homeowners. However, whether they actually receive that deduction or not will depend on a multitude of other factors. This is yet another scenario in the economy that a simple answer does not apply.

On a more local level, the economy of the Baltimore Metropolitan area (in part) will soon feel the benefits of the recent decision of the new Amazon Headquarters in northern Virginia. The second Amazon headquarters is going to go by “HQ2.” The company says that this won’t be a satellite facility, but rather an equal to its current headquarters in Seattle, Wash. It also notes that it will be investing $5 billion into its creation. Located approximately 30 miles outside of Washington DC, Loudoun County is part of a burgeoning tech corridor. The employees would live in Loudoun County or commute from one of the surrounding counties, Maryland (directly to the north), or West Virginia (due west). So with the influx of jobs and the need for housing the opportunities for an economic boost for the Baltimore area looks to be quite positive.

The economy is multi-faceted, multi layered, temperamental and always changing; home prices follow this trend. Robinson Appraisal Group can offer you their services on determining the value of your home in an ever-changing climate. We offer home appraisal services in Baltimore County, Baltimore City, Harford County, Howard County, Carroll County, Anne Arundel County and Cecil County.