This article focuses on property where the reported loss is on an individual income tax return. The ability to deduct the loss relates to several factors, including the nature of the property that sustained damage, the potential for recovery from insurance, whether the property was located in a declared federal disaster area, and whether the damage was complete or partial.

What Type of Property Do I Own?

For tax purposes, casualty losses are divided into three categories of property and the treatment of losses is distinct for each group. One category is business property and includes equipment, a factory building, or even goodwill from an active trade or business. The second category is income-producing property, which is generally investment property that can be real or personal property such as artwork and investment real estate. The third type of property is property held for personal use, such as a home, car, boat or furniture. There are certain ambiguities between the various property types and a fuller explanation of these differences is beyond the scope of this article. Items of mixed use, such as property used for both personal and rental purposes, and the vacation-home rental rules are examples of these ambiguities. You should consult a tax advisor for help in dealing with the intricacies of these rules.

How Much is My Casualty Loss?

For business or income-producing property that was completely destroyed, the loss is limited to the adjusted basis of the property at the time of the casualty event. For business and income-producing property that sustained partial damage or personal-use property either completely destroyed or partially damaged, the calculated loss is the lesser of the adjusted basis of the property or the decline in the fair market value of the property as measured before and after the casualty event. An appraisal is generally required to determine the "before and after" fair market values. Courts have upheld that a casualty that permanently decreases the fair market value of a property can be claimed as a casualty loss even if minimal actual damage was caused to the property itself. Consider the example of a beach house that was worth $5 million before a severe flood. There was only $200,000 of physical damage to the property but, due to permanent impairment to the neighborhood, the fair market value of the property is $3 million after the flood. Courts have accepted that $2 million is the permissible casualty loss deduction as long as the impairment to the value of the home relates to permanent factors and is not transitory in nature.

An alternative way to measure the casualty loss is the cost of repair. This alternative method can be used for less extensively damaged items as long as the repairs do not increase the value of the property to an amount greater than that before the casualty. Also the repairs cannot be made to items that were not actually damaged.

Where Do I Claim The Loss on My Tax Return?

On an individual tax return, casualty losses claimed for personal-use property and income-producing property are treated as itemized deductions. The loss amount for personal-use property must first be reduced by $100 and then by 10% of adjusted gross income (AGI) to determine the amount allowed as an itemized deduction. The 10%-of-AGI limitation prevents many taxpayers from claiming a casualty loss for personal-use property. By comparison, income-producing property is not subject to this limitation. Care must be taken to properly categorize between personal-use and investment property to maximize the deductibility of casualty losses.  Losses claimed for business property are deductible in full as a reduction for AGI, an even more favorable tax treatment. For those taxpayers who are concerned about the AMT, the casualty loss is allowed under both the regular and AMT taxing regimes for all types of property.

How Does Insurance Affect My Casualty Loss Amount?

Many valuable items are insured in case of an unexpected loss due to a major storm or other catastrophe. If a personal-use property item that is being claimed as a casualty loss was insured either in whole or in part, a claim must be filed with the insurance company in order to claim a deduction for the insured portion. Likewise, you must exclude any expected reimbursement from the calculated loss. For example, if a car recently purchased for $40,000 was completely destroyed, but was only insured for $30,000, then the casualty loss deduction allowable is $10,000 as the additional $30,000 loss is expected to be recovered through insurance. Should the insurance not pay that amount, a subsequent casualty loss deduction could be claimed for the amount denied by the insurance company. If you do not file an insurance claim, then only $10,000 would be calculated as the loss regardless of whether the insurance company denied the claim. If a taxpayer underestimates the amount of insurance reimbursement, any excess is treated as income when it is actually received. In our example, if the insurance company decided unexpectedly to pay $35,000, the taxpayer would have to pick up the additional $5,000 as income in the year it is received if a $10,000 loss was taken initially.

What Are Benefits of a Federal Disaster Area Designation?

The President has the authority to declare certain areas as Federal Disaster Areas, which can accelerate a tax refund claim when claiming a casualty loss. The idea behind this is if a casualty loss occurred in a Presidentially Declared Federal Disaster Area, the victims of such a large tragedy may be in immediate need of cash to rebuild and repair. Thus, the federal government allows a casualty loss claim to be effective for the tax year immediately preceding the tax year in which the casualty event occurs. Many areas in New York, New Jersey, and Connecticut that were affected by Hurricane Sandy were declared Federal Disaster Areas and, while Hurricane Sandy occurred in tax year 2012, a casualty loss can be claimed for tax year 2011 if the casualty took place in one of those designated areas. This keeps the taxpayer from having to wait until their 2012 tax returns are filed in 2013 to claim the deduction. Since the 2011 tax deadline passed for most calendar year taxpayers on October 15, 2012, an amended return can be filed to claim an immediate refund. The taxpayer has three years from the due date of a return to file an amended return and claim a refund. Importantly, claiming the loss in the prior year is at the election of the taxpayer for disaster area losses. He or she can choose the tax year in which the loss is claimed. If the Hurricane Sandy-loss occurred in a location not declared a disaster area then the loss can be claimed only for the 2012 tax year. 

Can a Casualty Loss Generate a Net Operating Loss (NOL)?

Large assets that are lost due to a storm may generate unreimbursed losses that exceed income in the year that the loss is being claimed. Regardless of whether the casualty loss relates to business, income-producing activity or personal-use assets, the loss can generate a Net Operating Loss (NOL), which can be carried to other tax years -- backwards or forwards. Further, although general losses from passive activities may be suspended under the passive activity loss rules, the tax code provides that losses that meet the casualty requirements are not considered passive activity losses and are fully allowable.

What is My Cost Basis Going Forward After Claiming a Casualty Loss?

Once a loss has been claimed for an asset, the taxpayer needs to know what the basis of that asset will be going forward. The basis of the asset must be adjusted downward by the amount of the loss claimed. If a taxpayer were to claim a $500,000 casualty loss on a property whose adjusted basis before the casualty event was $700,000, the basis immediately after taking the loss would be $200,000.

Operating Business - Goodwill

The tax treatment of a casualty loss from an operating business is complex. As mentioned earlier, the general rule is that the loss allowable is equal to the change in the fair market value before and after the casualty event, but limited to the adjusted basis in the property. The fair market value of many businesses may include a significant amount of goodwill. A loss could be based on the permanent impairment of goodwill resulting from the casualty event. Professional tax advice should be sought when dealing with business casualty losses involving goodwill.

Conclusion

While the ugly side of natural disaster may cause immediate turmoil and distress, it is important to know that there are options available through the tax code to help speed up the recovery process. The tax treatment of casualty losses is complex and the distinction between property categories is not always clear. In times of distress, quickly claiming a cash tax refund can accelerate rebuilding a home or business. A tax advisor can navigate this process with you and assist in your recovery effort. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

“Some of this is probably because this is the spring selling season really hitting its stride,” notes S&P’s David Blitzer, “but certainly not all of it. My guess is half of what we’re seeing is real gains, not just seasonal shifts.”

The biggest gains came in some of the hardest hit areas, where investors rule the market and where they’re finding fewer and fewer homes to buy. Phoenix saw a whopping 8.6 percent annual jump in home prices, while Miami also saw healthy gains. Atlanta is still a sore spot, with home prices down 17 percent annually, thanks to a still huge supply of foreclosed homes.

So is this the end? Have home prices nowhere to go but up? The analysts aren’t so sure.

“We are coming back and this looks like a solid turn. It’s going to take a few more months to cement all the evidence in place, but it looks very good,” said Blitzer.

“It’s unlikely that house prices can continue rising at this sort of pace for much longer,” warns Paul Diggle at Capital Economics. “After all, the tight supply conditions that have led to sharp price gains are unlikely to persist now that banks appear to be processing foreclosures and short-sales at a quicker pace.”

While it may be tempting to call a bottom to prices, HIS Global Insight’s Patrick Newport warns it is, “premature to do so.” He also cites a large foreclosure pipeline and the possibility of a weakening economy. “The most likely scenario, in our view, is that home prices will zigzag over the coming months, rising during the selling season, slipping in the fall,” says Newport. “We are expecting home prices to cautiously start moving up in 2013, however.”

Sales of existing homes declined in May, according to a new report from the National Association of Realtors, not just because the overall housing market is struggling, but because there are simply not enough homes to buy.

There are currently 2.49 million for sale, a drop of 20 percent from a year ago. To make matters worse, supply is lowest on the low end, where so much of the investor activity has been over the past several years.

This lack of supply has seriously skewed the readings on home prices for the second straight month.

The median price of an existing home, as reported by the Realtors, rose 7.9 percent in May annually, but NAR chief economist Lawrence Yun was quick to point out that this does not mean the average home owner gained that much equity; it is simply a big shift in the type of home that is selling. Sales of homes priced under $100,000 dropped two percent from a year ago, while sales of homes priced between $250,000 and $500,000 shot up nearly 29 percent (though still at low volumes historically). Again, this is due to lack of supply on the low end, specifically distressed homes.

While there are still plenty of delinquent mortgages and homes in the foreclosure process, 5.57 million according to a new report from Lender Processing Services, the big bank servicers are still trying to go back and modify many of these loans. There is also still a huge backlog of foreclosures in judicial states like New Jersey, Florida and New York. Inventories of foreclosed properties in non-judicial states (where you don’t need a judge in the foreclosure process), like Arizona, have dropped to under a three-month supply.

Realtors say they did not see the usual spring bump in supply, as fewer regular homeowners put their homes on the market this year. The big question is, why not? Mortgage rates just hit yet another record low at 3.66 percent on the 30-year fixed, according to Freddie Mac. Home prices are stabilizing, if not gaining. Low supply should be a signal to homeowners that they could possibly get a bidding war. Still, nothing.

Fear is clearly a factor, as is negative equity. Between 11 and 12 million borrowers still owe more on their homes than they can sell them for, and many more borrowers in a near negative equity position; that means they can’t get enough equity out of their homes to cover the Realtor fees and the moving costs, nor to put down on a new home. That’s why the market is ripe for first time buyers, but they are not stepping up either, at just 34 percent of purchases. In a normal market, they would make up 45 percent. That, again, is part fear, but largely tight credit.

Mortgages may be cheap, but they are not easy.

The supply situation has gotten so bad in Northern Virginia that the Realtors there launched a new campaign this week titled, “Ask Me,” trying to get potential sellers to contact agents to find out, “Is it the right time for me to sell or buy a home?”

The Northern Virginia Association of Realtors, in the release, claims there is less than 2 months’ supply of available homes for sale in the market, a 37 percent drop from a year ago. Unemployment is trending down, and sellers have been able to get 97 percent of their list price, according to NVAR. The Realtors there are literally begging for more supply.

This supply situation proves just how tenuous and unique the current housing recovery is. It is heavily dependent on investor activity, not real, organic buying, selling and moving up. An investor purchase registers one sale, but a regular sale represents at least two, as the seller will likely buy another home, and so on and so on. Investors are certainly necessary to clear all the distress left over from the housing crash, but until we see not just more sales but more sellers out in the market, the housing recovery will remain in low gear.

The number of home buyers signing contracts to buy existing homes jumped nearly six percent in May to the highest level since April of 2010, according to a new report from the National Association of Realtors.

Back then buyers were rushing to beat the deadline for the home buyer tax credit. This spring buying surge was particularly strong out west where the NAR’s Pending Home Sales Index jumped 14.5 percent. Investors are driving the market out West, racing to buy distressed properties and take advantage of today’s very hot rental market.

Realtors say they expect total home sales for 2012 to be up around 10 percent from a year ago, but they caution that low inventory and tight credit, for buyers and builders alike, are holding the market back.

“If credit conditions returned to normal, and if we had more inventory, especially in the lower price ranges, more people would become successful buyers,” writes NAR’s chief economist Lawrence Yun in a release. “In an environment of historically favorable housing affordability conditions, it’s frustrating to see some consumers thwarted in the process.”

The supply of homes for sale has dropped precipitously in the past year, as banks are slower to work through delinquent loans, investors are grabbing up foreclosures at a fast pace, and negative equity is making it impossible for many sellers to list their homes on the markets. Mortgage delinquencies are down to their lowest level in four years, according to a new report today from the Office of the Comptroller of the Currency (OCC). New home construction is still near record low levels, despite rising off its bottom. 

“There may be a housing recovery because they’re not building any new houses,” notedJim Cramer this morning on CNBC’s "Squawk on the Street."

Public home builder Lennar[LEN  28.65    1.26  (+4.6%)   ], based in Miami, beat earnings expectations, with new orders up 40 percent in the second quarter. Pricing is also improving.

“Evidence from the field suggests that the ‘for sale’ housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process,” noted Lennar CEO Stuart Miller in the earnings release. “The recovery process continues to be very localized.”

Some analysts warn that while the spring season has been the strongest since the housing crash, there are still millions of delinquent loans to work through, which combined with negative equity and still-tight credit, could create a zig-zagged recovery at least through the end of 2012.

AP FILE PHOTO

Otteau predicts that home prices will be flat this year, after falling almost 5 percent statewide last year, and will not return to their 2006 peaks until 2020.

"We are at a turning point in the housing market and the economy," said Otteau, who tracks the statewide market from his office in East Brunswick and whose forecasts are widely followed. "The bounce in home sales [in January and February] is nothing short of astounding." He said sales are up about 30 percent in the first two months of the year, compared with last year.

But that doesn't mean sellers can hike their asking prices, Otteau said. With incomes flat and banks cautious about lending, buyers will be unwilling or unable to pay inflated prices, he said.

"Homes that are overpriced will not sell," he said.

Otteau predicts that home prices will be flat this year, after falling almost 5 percent statewide last year, and will not return to their 2006 peaks until 2020.

Otteau's forecast, before an audience of real estate agents in East Hanover, came on the same day that the National Association of Realtors reported that its index of pending home sales rose more than 9 percent from a year earlier. Pending sales are those in which a contract has been signed, but the deal has not closed.

Otteau said that Garden State home buying will be fueled this year by an energized job market, as well as more affordable home prices and mortgage rates below 4 percent. Average New Jersey home prices have fallen 26 percent from the market peak in 2006, and are back to 2003 levels, he said.

There's pent-up demand among potential buyers, who have waited four or five years because they were insecure about their jobs or worried that home prices would fall further, Otteau said. And rising rents mean that many households will soon decide it's better to buy than rent.

But he warned: "This improvement is not a return to the market frenzy we saw back in 2005."

And more than 16 percent of New Jersey homeowners are either in foreclosure or late on their mortgage payments, according to the Mortgage Bankers Association. That represents "a deep, dark hole" for the housing market, especially in rural and inner-city areas, Otteau said.

Foreclosure filings have slowed dramatically since reports emerged in fall 2010 that lenders were cutting corners in their legal efforts to evict homeowners. Since then, several legal cases on foreclosure practices have been decided or settled, both nationally and in the state. Those settlements are expected to lead to more foreclosure activity this year, as the legal system begins to clear the backlog of cases.

Foreclosures tend to sell at a steep discount - 20 percent to 30 percent less than similar properties, according to research. That tends to pull down values of neighboring properties.

"Areas with large concentrations of foreclosures will see prices decline," Otteau warned.

Scott Eells | Bloomberg | Getty Images Jamie Dimon

"I believe we’re very close to the inflection point. People look at prices that are still coming down but all the other signs are flashing green," Dimon said during a job fair in New York for hiring veterans.

Housing is more affordable and "the shadow inventory everyone talks about is lower today than it was 12 months ago. It will be a lot lower 12 months from now," he said.

Distressed inventory "is actually coming down, not going up. Homes for sale are about half what they were four years ago. You could come up with a pretty bullish case. If the economy grows, housing gets better, quicker."

He said the U.S. economy is "getting stronger all the time. It’s broad-based, companies are in great shape...Consumers are in great shape."

So are the banks — JPMorgan was one of those that passed the Federal Reserve's  latest round of stress tests. The bank was so pleased by this it jumped the gun and announced it was raising its dividend and buying back shares before the official release of the test results.

Dimon believes the threat of a double-dip recession  is behind us.

"No one can forecast the economy with certainty," Dimon said, "but most of us in business [have] got growth plans that have nothing to do with the actual state of the economy. We’re going to always open new branches," do more marketing, hire more people and work to bring in more customers.

Europe's financial problems, at least for now, have been "put to bed," he said, and while he expects China to have a "soft" economic landing, it will still have 7.5 percent growth, he said.

Meanwhile, the U.S. has had 24 straight months ofjob increases. JPMorgan[JPM  42.96    -0.93  (-2.12%)  ], he said, has "never stopped expanding," opening branches in the U.S. and around the world even during the financial crisis, and it wants to add 3,000 veterans to its banking and call center staff under the "Hiring our Heroes" jobs program.

If the economy is doing so well why is the Federal Reserve holding interest rates down until late in 2014?

"I think they want to see 300,000 to 400,000 jobs a month for six months before they declare victory" and raise rates, the JPMorgan CEO said. "If that actually happened, I think they might reverse course."

As for the stock market, he said American companies are "enormously valuable, and you can buy them at very good prices. They are among the best companies in the world… You could buy a good piece of America at a very good price."

Homes purchased by investors skyrocketed 64.5% to 1.23 million in 2011, up from 749,000 the year before, according to the National Association of Realtors.

"Investors have been swooping into the market to take advantage ofbargain home prices," said Lawrence Yun, NAR's chief economist. "Rising rental income easily beat cash sitting in banks."

Many investors were on a shopping spree, with 41% of buyers picking up more than one property during the year, compared with 34% in 2010, according to NAR. The median number of properties they bought rose to three from two during that time.

And almost half of all investors paid for the properties with cash. Even buyers who secured a mortgage to finance the purchase offered hefty down payments. The median down payment for both investment and vacation-home buyers was 27%.

"Clearly we're looking at investors with financial resources who see real estate as a good investment and who aren't hesitant to use cash," said Yun.

Foreclosures have helped fuel the second-home sales surge. Half of the investment purchases made last year were distressed sales, either foreclosures or short sales, as were 39% of vacation home purchases. 

According to NAR, the median home price for investment properties was $100,000, a bargain compared to 2005 when the median investment property sold for $150,000. Meanwhile, the median vacation home sold for $121,300, down 19% from 2010 and a significant decline from the median price of $200,000 six years earlier.

Most investors said they intend to hang on to the properties instead of flipping them for a quick profit. The typical investor said they plan to hold the home for 5 years, with half of them reporting that they purchased the property mainly to generate rental inco

In nearly every market in the nation right now, buying is more affordablethan renting. Continued tight mortgage financing, however, makes it difficult for some buyers with less than stellar credit history to buy homes.

For real estate investors, that means a steady supply of bargain properties -- and potential renters.

Once gun-shy home sellers may be feeling more confident as they set listing prices these days, which could translate into higher sales prices down the road, according to areport released Thursday.

The asking prices for homes on the market climbed 1.4% nationally in the first quarter compared with the prior quarter, said Jed Kolko, chief economist for home-listings company Trulia.

The report, which tracks asking prices for Trulia’s listings in 100 metro markets, showed the largest month-over-month uptick since the beginning of 2011. Asking prices rose 0.9% in March and 0.6% in February. The highest monthly increase in 2011 was an anemic 0.2%. Since the year-ago period, asking prices were down 0.7%. Typically, Mr. Kolko said, sales prices lag behind listing-price trends by two to three months.

This is the first time Trulia has produced this report, which aims to use asking-price data over the past year to predict market trends. Only the most recent listing-price data for homes are included, and comparable property types and neighborhoods are used for a more apples-to-apples comparison. The report looks at a three-month moving average for listing prices.

The figures are seasonally adjusted, and therefore take into account the rise in prices typically seen in the spring. On an unadjusted basis, asking prices rose 2.4% over the prior quarter. The report also looks at asking rents, which it says rose 5% in the first quarter compared with a year earlier.

The most dramatic improvement is being seen in markets like Fort Myers, Fla., and Phoenix, where the foreclosure crisis struck hard and early. Some markets with dramatic price declines in recent years are now experiencing some of the largest year-over-year asking-price hikes, Mr. Kolko said, in part because of investors buying up properties.

Some of the markets on the other end of the spectrum — those with the largest asking-price declines year-over-year, like Seattle and Sacramento, Calif. — could be facing a different trend: surging rental demand. Cities with above-average job growth, while good for housing in the long-term, are generating more demand for rentals than with owner-occupied homes among the newly employed, Mr. Kolko said.

In addition, the “bounce back” in asking prices is also less pronounced in cities that fared better during the bust, he added.

To be sure, the market has a long way to climb back after the collapse in prices during the housing bust. Average prices on a national basis are back to early 2003 levels, and are down about 34% from the 2006 peak, according to the S&P/Case-Shiller indexes.

Huh?

The explanation came that same day, when the real-estate website Zillow.com sent out a press release saying it had modified the formula it uses to estimate the value of some 97.3 million American homes, known as the Zestimate, to expand the coverage of its database of homes and improve accuracy. The company had added 25 million new Zestimates, incorporated user-submitted data about improvements and gave greater weight to more recent sales data.

For some, the value of their home went up. Others saw dramatic decreases. Overall, Zillow says, most adjustments in valuation were of 10% or less, and the overall margin of error for Zestimates dropped from 12% to 8.5%, not far off the typical 5% margin of error that most home appraisers claim.

Zillow says that slightly more Zestimates went down than went up, but declined to provide more specific information about exactly how many home valuations went one way or the other. The company also said that there was little variation by region, except that in some markets, Zestimates were made “more accurate” by the revision than others. In Denver, for example, the margin of error for home-value estimates went from 12.2% to 5.5%, meaning that Zestimates there are 55% more accurate than they were before, Zillow says.

Some markets with more volatile housing markets and lots of homes changing hands in distressed-sale situations, saw more dramatic shifts, Zillow says. This is because the new algorithm for calculating Zestimates gives more weight than before to recent home sales, as a way of catching up with the most current local housing market conditions.

Mr. Trumbo, of Phoenix (where Zestimates were made 47% more accurate, according to Zillow), actually got both sides of the stick. His primary residence in Phoenix dropped in Zestimate value from $489,000 to $396,900, but a townhouse he owns as an investment property in San Francisco actually rose in value, from $670,000 to $737,600.

Still, his personal “net worth” statement, which incorporates the value of his house based on Zillow’s estimates, showed that he was $40,000 poorer than he had been a week before. He dashed off letters to Zillow’s CEO, as well as to the CEO of his bank, Wells Fargo, explaining that Zillow’s change had caused him to lose $40,000 in paper net worth.

“These changes have already affected pending financial decisions, but it’s really hard to predict the effect of adjusting the net worth of millions of Americans, by billions of dollars!” he wrote in one letter. “Consider the family that used Zillow when deciding on a home purchase two years ago. After paying their mortgage for two years, thinking they were ahead of the game, today they discover that they paid $50,000 too much for the home and were underwater on day one.”

Bill Garber, a spokesman for the Appraisal Institute, the main trade group for U.S. property appraisers, said that Zestimates, like most automated valuation models, or AVMs, are not used by appraisers as a benchmark because they are based on public information and information from local multiple-listing services that is often inaccurate.

“Zestimates are a form of AVM … AVMs have limitations, the biggest being the lack of inspection and oversight of any improvements. Complex markets render them nearly useless. They’re basically an aggregation of public records data, and public records are riddled with errors,” Mr. Garber wrote in an email. “Some AVMs are now intermixing MLS information, which is also filled with incorrect information. Garbage in, garbage out.”

Of course, the Appraisal Institute does have a dog in the fight — its members earn their keep by having homeowners or real estate agents pay them to do thorough appraisals of individual properties.

Zillow is not an appraiser, and has maintained all along that the Zestimate is purely a “starting point” for determining the value of one’s home, and not an appraisal meant for commercial use. In an interview, Zillow chief economist Stan Humphries emphasized that the company has “never advised that [the Zestimate] be used as a standalone appraisal,” and argued that the adjustment of home prices is “actually good for consumers” because Zillow’s algorithm for determining home values is now more accurate.

In a statement, Zillow added: “In fact, when a consumer has decided to buy, sell or refinance a home, we always recommend they contact a local professional like an appraiser or a real estate agent. Additionally, we have the only automated valuation model that allows homeowners and their real estate agents to update home facts, like number of bedrooms and bathrooms and square footage.”

Still, Mr. Trumbo is not alone in being upset. One Zillow user, in a forum on thecompany’s website, wondered, “why did our home drop $300,000 in one year?”

One can see why the homeowners who lost Zestimate value might be upset. The website’s brand has become entrenched, used by real estate voyeurs and homeowners alike. Other websites, such as Trulia and Redin, provide estimates of a house’s worth based on comparable nearby sales and tax assessments, but none claim to have such a sophisticated formula for calculating a home’s worth. And, of course, there’s that catchy name—“Zestimate.”

A question remains, though: If Zillow’s new formula is truly more accurate, and if that means that some people, like Bill Trumbo, see their home values fall even lower, can homeowners handle the truth?

The new task flow in Bank of America's short-sale management platform, Equator, will enable short-sale specialists to conduct tasks like document collection, valuations and underwriting simultaneously. When buyers walk, agents will have five days instead of 14 days to submit a backup offer.

Bank of America is requiring a new third-party authorization form for short sales initiated beginning April 14.

When the changes to Equator take effect Saturday, five documents will be required to process short sales initiated with an offer:

• A purchase contract including buyer's acknowledgment and disclosure.
• HUD-1.
• IRS Form 4506-T.
• Bank of America short-sale addendum.
• Bank of America third-party authorization form.

The Equator platform will be offline the night of Friday, April 13, and into early Saturday, April 14, to implement changes.

Offer documents and supporting documents for all short sales submitted with an offer must be uploaded before Friday, April 13, or files may be declined.

Although the settlement is only expected to help a fraction of homeowners who owe more their properties are worth -- perhaps one in 20, according to one estimate -- it will also help bring certainty back to housing markets by removing some of the obstacles that have been keeping homes stuck in the foreclosure pipeline.

Announced last month, detailed terms of the agreement between mortgage servicers and a coalition of state attorneys general and federal agencies were filed today.

Broadly, the settlement calls for mortgage servicers to pay $5 billion in fines and commit to a minimum of $17 billion in homeowner relief, including principal reductions. Another $3 billion is earmarked for helping underwater borrowers refinance.

"We will see an increase in short sales, because lenders and loan servicers will get the same credit for doing a short sale, as if they did a loan modification or principal reduction," said Rick Sharga, executive vice president of Carrington Mortgage Holdings LLC.

The Wall Street Journal reported Sunday that the structure of mortgage write-downs was a major point of contention in the year-long negotiations leading to the settlement.

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Allowing debt forgiveness on approved short sales to count against the required $17 billion in principal reductions helped secure a settlement that will reach more borrowers, the paper said. Loan servicers will also get partial credit even when it's investors, rather than the banks themselves, taking the loss, the Journal said.

A researcher at the Brookings Institution told the Journal that the settlement could help about 5 percent of underwater borrowers, or about 500,000 homeowners.

"We will probably see a short-term increase in forcelosure activity, because the servicers and lenders at last have a sense of certainty about what they can and cant do," Sharga told Inman News. Part of that increase will also be among loans that don't meet the criteria of the agreement.

For loan servicers to get credit for a principal reduction, a loan must be at least 30 days delinquent, have a pre-modification loan-to-value (LTV) ratio of at least 100 percent, satisfy specified debt-to-income ratios (DTIs), according to an analysis of the settlement by the lawfirm K&L Gates. At least 85 of occupied properties must have had an outstanding principal balance at or below the highest Fannie Mae and Fanni Freddie conforming loan limit cap as of January 1, 2010.

Because servicers won't get 100 percent credit for all types of relief that are provided, the actual amount of relief provided could total as much as 32 billion, state attorneys general said in announcing the settlement.

"In terms of the overall housing market , our position is this will have very little effect on anything," Sharga said. "Consumer advocates don't think it went far enough, and people who look at housing markets realize that the number of properties and the amount of money involved won't have a measurable effect on markets."

Federal housing officials addressed those and other concerns today.

"This agreement does not -- and is not intended to -- solve or resolve all the issues and abuses related to the housing crisis,"  officials with the Department of Housing and Urban Development blogged today. "This agreement is very narrow as to what it releases banks from.  This settlement is intended to address the servicing aspect of the crisis, which did not cause the housing crisis."

The settlement doesn't prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage-Backed Securities Working Group, HUD noted. State and federal authorities can also pursue criminal enforcement actions related to conduct by servicers, including civil rights, fair housing, fair lending and other violations.

Also, if the remaining six to 14 loan servicers sign on to the settlement, it would grow to about $30 billion with more than $45 billion in benefit to homeowners, HUD said.

Cade Holleman, executive director of the Irvine, Calif.-based National Association of Women REO Brokerages, said the day is fast approaching when brokers and agents who have concentrated heavily in real-estate owned properties will have to diversify.

Short sales, refinancings, and loan modifications are each "pulling REO inventory out of the game," he said.

"You've got to keep your eye on that process," Holleman said."You can no longer be 80 percent REO," but must diversify into short sales and property management.

Pending home sales fell a seasonally adjusted 0.5 percent from January to February, which was up 9.2 percent from the same time a year ago, NAR said today in releasing its latest Pending Home Sales Index.

Last week, NAR reported a similar trend for existing-home sales, which were down 0.9 percent from January to February, but up 8.8 percent from a year ago.

The pending sales data released today provides a glimpse into more recent trends, because it tracks homes that were under contract in February -- deals that will in most cases be finalized within one or two months.

NAR said 31 percent of Realtors experienced contract failures in February, in some cases because buyers' mortgage applications were rejected or because appraisals came in below the negotiated price.

In the Northeast, NAR's index slipped a seasonally adjusted 0.6 percent from January but was up 18.4 percent from a year ago.

Pending home sales fell 3 percent in the South from January to February, but were up 7.8 percent from a year ago.

In the West, the index declined 2.6 percent from January to February and was 1.8 percent below the index rating in February 2011.

In its latest economic forecast, NAR predicts existing-home sales will total 4.65 million in 2012, up 9.1 percent from last year. That forecast assumes that the U.S. economy will grow at a 2.3 percent annual rate and add 2.7 million jobs this year

Design Pics | LJM Photo | Getty Images

But as the wider economy begins to strengthen, and Americans start to feel better about their current and future finances, they are dipping their toes back into the housing waters, in the form of remodeling.

"Residential remodeling this winter is as strong as it has been in more than five years. We expect residential remodeling to continue to grow throughout 2012," says Joe Emison of Texas-based BuildFax, a division of BUILDERRadius and creator of the BuildFax remodeling index.

Residential remodeling, as measured by building permits in January, were at an annual rate of, up 13 percent from December and 11 percent from a year ago, according to BuildFax. The index shows particular strength in the Midwest and the West.

Sales of foreclosed properties may be helping the numbers, as investors have swarmed the market, buying up distressed properties and turning them into rentals. Many of those properties have been either abandoned or vandalized and need at the very least basic refurbishing and at the most full renovations.

Great news for U.S. companies that serve the remodeling market, and of course their stocks. Sherwin Williams [SHW  108.99    -2.84  (-2.54%)   ] , which gets 77 percent of its revenue from the U.S. market, is trading at an all time high, going back to its IPO in 1964. Home Depot [HD  49.36    -1.22  (-2.41%)   ]is seeing the best levels since April of 2002, and shares of Lowes [LOW  30.33   -0.76  (-2.44%)   ]are at a high not seen since 2007. Both get all of their revenue from U.S. customers.

Others poised to profit: Weyerhaeuser  [WY  20.37    -0.67  (-3.18%)   ], which takes about 65 percent of its revenue from U.S. sales and of course U.S. Gypsum [USG  15.25    -1.31  (-7.91%)   ] , whose shares are up 103 percent in the last three months, United Rentals [URI  38.61    -2.89  (-6.96%)   ] , which rents construction equipment, shares up 44 percent this year, and MASCO[MAS  12.05    -0.22  (-1.79%)   ] , which makes all kinds of building products.

This entire sector is exceptionally well placed because it can profit off not only distress in the overall housing market, but improvements in it as well.

As homebuyers trickle back in this spring, they will fuel further renovations, and as banks work through distressed loans and sell foreclosures off to investors, there will be ever more housework to be done.

Joshua Lott for The New York Times

Jayson Meyerovitz, a broker in the Phoenix area, is concerned about bank-owned foreclosures: “If so many houses hit the market, what is going to happen then?”

By ERIC DASH

Lenders have also been more willing to let distressed borrowers sidestep foreclosure by selling homes for a loss. That has accelerated the pace of sales in the area and even caused prices to slowly rise in the last two months, but realty agents worry about all the distressed homes that are coming down the pike.

1. Most of us have a profile page on Facebook but it shouldn’t end there. You should have a page for your business as well. Having a business page will allow your existing clients to stay in touch with you and also refer you more easily to their friends and family. In addition, people who are interviewing you to choose you as their REALTOR® may also “check you out” on Facebook. It allows them to see you on a different level and connect with you more personally.

2. After you have created your business page, take the next step and create a page that is specific to a niche or specific target market or a specialty you service. For example, if you are experienced in working short sales, create a page like Knoxville Short Sales. On this page, post what is happening in the industry, the short sale process or learning about the HAFA program.

3. Invite your friends to “Like” your page. Once you have 25 friends, you can create a branded Facebook domain name. Just go to www.Facebook.com/Username to name your page. This will create an easy to remember name like www.Face-book.com/AvoidForeclosure.

4. Once you have your page created, convert it to work like an additional website.Create a welcome page that looks and feels like your brand and your website strategy. Include clickable sections and calls to action that get the visitor over to the lead generation elements in your website. Include buttons like “Search Properties Now,” “Hot Property Alerts” or “Foreclosure Deals.” New friends or leads that you send to your Facebook page will land on this page first, which is why it can be a powerful lead generator for your website.

5. Now that you have your page and an easy-to-remember domain name, focus on “waving the flag” and driving traffic to your Facebook page. Add your Facebook domain name to every single marketing element you use in your business. Whether it’s your business card, postcards, listing flyer, magazine ad or your website, don’t forget to include it with your contact information.

6. Ever notice the ads on the right-hand side of Facebook and also how those ads seem to relate to you? This is target marketing in action. Run Facebook ads that drive traffic to your main site or to specific landing pages that focus on lead capture. When running these ads, you can hyperfocus down so those ads will only appear to those who share certain interests or in a certain age bracket or a geographic area.

7. Track your lead generation and conversion stats on what works. When running ads on Facebook, you can see the percentages of “click throughs” and see which ads generate the most interest. Also look in the backend stats of your website and track how many hits are coming from Facebook. This will allow you to know where to focus and continue your marketing efforts.

Tricia Andreassen is CEO/founder of Pro Step Marketing. She is a leading industry Web strategy expert, a nationally recognized speaker with Broker Agent Speakers Bureau, and one of RISMedia’s Real Estate magazine’s monthly columnists. For two decades she has trained and coached real estate professionals on how to bridge technology, web strategy and traditional marketing into a cohesive marketing strategy. For more information, please visit www.ProStepMarketing.com or call 1-866-799-9888. Her company has created turnkey Web marketing systems and a short sale marketing system that pulls all these elements together so you can focus on real estate.

Pending sales of existing U.S. homes unexpectedly surged in October, data from a real estate trade group showed on Thursday, despite concerns that problems in the foreclosure process might curtail activity.