The Rhode Island Real Estate Newsletter

#108 Q. Can I use my profit from an investment property to buy a primary residence and defer the gain via a 1031 Exchange? S.F., Foxboro, MA

A.  No.  Primary residences are excluded from the 1031
Exchange tax code.  In order to defer the tax on your
gain, you must purchase a like-kind property.

With all the foreclosures in our area lately, what advice would you give a novice buyer trying to purchase a foreclosed property?

A.  Do your homework, have a plan, attend a few auctions
as a spectator, and use professionals when needed.
That is the best advice I can give you.   Always be
prepared by researching everything you possibly can
prior to the sale—that's doing your homework.   Write
down on paper why you want this property, what you plan
to do with it, and how much you're willing to pay—
that's your plan! Go to a few auctions to see how they
work.  This will give you a good feel for how and when
to bid.  Finally, consult an attorney, broker, or an
appraiser to get good advice on the property that
interests you.  Good advice gives you a definite edge.

#55 Q. What are Rhode Island real estate property codes? P.S., Warwick

A.  These are simply numbers used by the state, cities
and towns to provide a convenient and standard
classification of real estate by property types.
It allows tax officials, researchers, and others to quickly identify a property by its code. 

The Rhode Island codes are:
(01) Single family dwelling.
(02) 2-5 family dwelling.
(03) 6 dwelling units or more.
(04) Combination.  A building with stores or shops
on ground floor and dwelling units on upper floor(s).
(05) Commercial I.  A business property of small or
medium size having a maximum value of $100,000.
(06) Commercial II.  A large business property having a minimum value of $100,000.
(07) Industrial.  Any industrial or manufacturing establishment.
(08) Estate.  A large luxurious residence with ample acreage. 
(09) Farm.  Any rural parcel of land of five acres or more with or without buildings of which at least
ten percent is used for agricultural purposes. 
(10) Utility and Railroad.  Any public utility or railroad property.
(Real estate and/or tangible property.)
(11) Seasonal and beach property.  Residential property such as a summer house, subject to seasonal occupancy. 
(12) Other improved land.  Any improved land not included in other classifications. 
(13) A vacant lot in a residential area.  
(14) A vacant lot located in an area zoned for commercial or industrial uses. 
(15) Any vacant land not included in other classifications. 
(33) Farm-forest-open space land. 


Q.  What are the SMSA’s for Rhode Island?  Also, P.S., Warwick

A.  That stands for Standard Metropolitan Statistical Area.  There are various SMSA’s throughout the
country.  They comprise groups of cities and towns with contiguous locations, similar identities or
homogeneous factors. 

In the Rhode Island area we have three Standard Metropolitan Statistical Areas.  The are:
• The Providence, Warwick, Pawtucket SMA made of 25 Rhode Island municipalities
and 8 Massachusetts municipalities.

• The New London, Norwich, Groton (Conn.) SMSA made up of 15 Connecticut municipalities
and Hopkinton and Westerly, R.I.

• The Fall River, Mass., SMSA comprising 5 Massachusetts municipalities and
Portsmouth, Tiverton, and Little Compton, R.I.

#103 Indecision at Foreclosure

Am I detecting confusion on the part of potential 
buyers at foreclosure sales because of indecision?

A.  To an extent I see that same thing happening
myself.  Our real estate marketplace is experiencing 
more auctions.  Many potential buyers are confused with 
the number of properties that reach the market through 
either foreclosure or public auction.  When they are 
confused they also become indecisive.  This 
indecisiveness translates into hesitation to buy at 
auction, even when the real estate is selling well 
below market value.  It appears that many of these 
would-be buyers feel the next auction, or the auction 
after that will produce even lower prices.  While I 
agree auction prices will continue to be below market 
value, a philosophy that dictates a waiting game would 
be disastrous for a buyer who knows what he or she 
wants and is prepared to act.   Public auctions in 
Rhode Island today seem to be like menus in a Chinese 
restaurant.  There are so many items to choose from 
it's difficult to make up your mind.  My suggestion is 
to make a decision that works for you.  If you see a 
property at auction that you feel can be had at a good 
price, then go forward.  If you wait to find the bottom 
of the market, it may just pass you by.  Look what 
happened to all those investors who waited and waited 
for the top of the market.  While they waited, the 
market unexpectedly fell and they were caught.  Now 
some of the properties they held are the ones you can 
purchase at auction.

What do the auction terms Minimum, Reserve, Absolute, and Buyer's Premium mean?

>Minimum:  The least amount the seller is willing to 
accept as a bid.  

>Reserve:  Bidding may start at any level and the
seller agrees to sell to the highest bidder, but
retains the right to accept or reject the highest bid.

>Absolute Auction:  There is no minimum bid or
reserve.  The highest bid received will be accepted
regardless of the amount.  This type of auction
presents the greatest opportunities for the buyer.

>Buyer's Premium:  The buyer is required to pay a
premium, typically 5 to 10 percent, in addition to the
price that was bid.  The premium is used to pay the
auctioneer's fees. An example:  If the winning bid is
$50,000, the buyer will actually have to pay $55,000 at
the closing.  Buyers must be careful to consider the
premium amount when determining their bid.

#61 Q. From a real estate standpoint what do you consider the “Northeast Corridor”? T.T., Salem, MA

My interpretation of the Northeast Corridor may be somewhat different than economists’ or demographers’
since, as you requested, I answer from a real estate perspective.  My opinion is that the Northeast real
estate corridor—a network of homogeneous and
ancillary real estate utility—begins in Maine at Portland, takes an abortive quick hop in
northern New Hampshire and picks up again with gust near the northern Massachusetts’
border where it continues without interruption through Massachusetts, Rhode island,
Connecticut, eastern Pennsylvania, Delaware, and ends somewhere between Baltimore,
MD., and Roanoke, VA. Along this 1,000-mile route we have strong industrial and
commercial centers supported by service businesses and strategically located near
housing units with good highway access and family necessities.  An example might be
the high-tech area along Route 128 in Massachusetts.  In my 1985 real estate forecast, I
felt that a blip in the corridor was evident in northern Rhode Island and southern
Massachusetts.  But his hole quickly closed in the real estate rush of the mid-‘80s, and
leaves the only reasonably open area in northern New Hampshire.  My Northeast
Corridor is real estate directed and you may get different opinions, but I feel comfortable
with this explanation.  I hope it helps you.

#102 Foreclosure of Mill

I recently went to the foreclosure of an old mill.
Although I understand the bank was owed a considerable
amount, they did not bid to protect their interests,
and someone bought the mill for a song.  Why would they
do that?

A.  I'm not 100 percent sure, but I think they may have
suspected that there were environmental problems 
associated with the site.  Under the law, the present 
owner of real estate is responsible for any hazardous 
wastes, contamination, or pollution of the site—and 
even adjoining properties.  The cost of clean up is 
very expensive.  The bank may have felt that the cost 
to clean up a potential environmental problems was more 
than the property was worth.  Remember that clean up 
costs are the same regardless of the value of the 
property.

Realtor Courtesy

When you are showing any of my listings, I would
appreciate the following:

1) Please be on time for the showing. Please leave your
children at home.  Please refrain from telephone
conversations during the showing.

(2) Please bring only qualified buyers to the showing. 
Unqualified buyers do neither of us any good.

(3) Please bring signed agency disclosure to the first 
showing. Your business card would be appreciated, also. 

(4) Please provide feedback, positive or negative, on 
the showing within 24 hours. 

Thank you very much for your courtesy and cooperation.
If you are showing one of my listings and you find the
foregoing inconvenient, please reschedule.  I will be
happy to accommodate you. 

A message to families of military personnel on active duty in Iraq and Afghanistan:

Your sacrifices for our country are not unappreciated.  
In a small way we would like to be of service to you
with free real estate appraisals and real estate 
counseling.

Please call or email us any time--and Thank You. 

Joseph W. Accetta, MBA, SRA, CRB, CRS, SRES, GRI
President

The information contained in the above newsletter is purely the opinion of the author. Any advice should be
corroberated, researched, and discussed independently with appropriate experts.