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Published June 07, 2012, 11:30 PM

Winning dream home could be financial nightmare

To keep $500,000 house, stroke of luck requires stack of cash
WEST FARGO - On the southern edge of this city sits a house worth $500,000. It’s a dream home, its builder says, and on Saturday, someone will win it.

By: Sherri Richards, INFORUM

WEST FARGO - On the southern edge of this city sits a house worth $500,000. It’s a dream home, its builder says, and on Saturday, someone will win it.

Eight hundred people are finalists in the Giveaway of a Lifetime, a promotional contest by Great Plains Integrated Marketing and Designer Homes of Fargo-Moorhead.

So many people toured the home at 406 Persimmon Place W. that stain wore off the front door, said Robert Leslie, president and owner of Designer Homes. Leslie said as he watched people walk through the house, their eyes grew large. They imagined themselves living in the house.

But even for the lucky winner, living in this dream home may still be just a dream. Due to taxes, special assessments and extra costs that come with maintaining a half-million-dollar house, the cost of living in this free home would be more than $2,800 a month, a Forum analysis found.

“You’d need a fantastic income to be able to afford this house you won,” said Joshua Huffman, a financial counselor for the Village Family Service Center in Fargo who teaches first-time homebuyer classes.

A common guideline by financial experts is to spend no more than 35 percent of income on housing. Adding up estimates for property taxes, special assessments, homeowner’s insurance, maintenance and a mortgage payment to cover income tax, the winner would need to make at least $97,544 annually to afford to live in the dream home.

Selling the house would net the winner about $300,000.

The prize

The Giveaway of a Lifetime house is located in the new Wilds of Westport development, designed to accommodate more than 800 homes, numerous lakes and parks.

The giveaway is a chance for the builder and its subcontractors to show off their work, and also a way to give back to the community, Leslie said.

The two-story house features a gourmet kitchen, walk-in pantry, living space, half bath and mudroom on the main floor, and four bedrooms with walk-in closets and a spa-like master bathroom on the upper level. Combined, the two floors total 2,843 square feet, not counting the unfinished basement.

“It’s a great way for all of us to showcase our product,” Leslie said about the house, adding that each of the sponsor trade companies gave of portion of what they do toward the giveaway.

The contest has been so well received by the community, Leslie said his company, the land developer and trade companies have talked about doing something like this every two to three years.

He notes it was free to enter the contest. People could sign up at the home, or call into one of the Great Plains Integrated Marketing radio stations.

“We did it so people could come in that may not have means to have a home like that, or even buy a raffle ticket, and be able to enter to win,” Leslie said.

“It’s a lot like winning the lottery,” he added. “If you won the lottery, you’d pay the taxes on the winnings. Except you don’t have to buy the lotto ticket; it’s a free chance to win the house.”

Here’s a breakdown of those taxes, and other costs of winning the house:

Income taxes

Anytime someone wins a prize, income tax is due on its value. While the exact amount owed by the house winner will depend on his or her other income and tax deductions, a prize worth $500,000 would push the winner into the top federal tax bracket of 35 percent.

Joseph Becker, an auditor with the research and education section of the North Dakota State Tax Department, calculated what a family of three earning $50,000 a year would owe the IRS and state if they won the house. The median household income in Cass County is $47,600, according to 2010 Census data.

With the addition of the $500,000 prize, the family’s federal tax bill would be $153,485, an increase of $150,350 over the $3,135 in federal taxes that would have been owed.

On the state side, a North Dakota resident would owe $17,313, an increase of $16,910 over the expected $403 state tax bill, Becker said.

That’s a total of $167,260 in additional income taxes for our fictional winner, whether the family chooses to keep or sell the house.

It’s possible the winner of the home would be able to pay cash for those taxes. But more likely, if the winner wants to stay in the house, he or she will need to qualify for a mortgage.

Leslie estimates a winner who wants to live in the house would need to take out a $200,000 mortgage, giving him or her $300,000 in equity.

Monthly payments for a $200,000 30-year mortgage at 3.5 percent would be $898.09, according to a mortgage calculator on State Bank and Trust website.

If the winner chooses to remain in the home, he or she will be also responsible for other costs that come with living in a luxury home.

Property taxes

The annual property taxes on a $500,000 house in West Fargo would total $8,895.83, said City Assessor Wanda Wilcox.

The winner would receive the two-year tax exemption for new construction. Provided the property owner is living in the home, this would save about $2,500 a year for 2013 and 2014, Wilcox said.

Special assessments

According to the West Fargo city website, the Persimmon Place property has been assessed for three projects, with interest rates of 4.4, 4.9 and 5 percent.

The total balance of these projects at the beginning of 2012 was $49,706.06, said Danette Olstad, who handles specials for the city of West Fargo.

The annual installment, which is paid in addition to property taxes, is $4,237.45, Olstad said.


Leslie said the cost to insure the home’s structure – not its contents – would be about $1,200 a year.

Ken Kraft, an agent with American Family Insurance, said a policy for a half-million-dollar structure plus $375,000 in contents (a standard 75 percent of the home’s value) would cost between $1,500 and $2,000 per year.

An exact insurance quote depends on the homeowner’s loss history, credit history and the endorsements added on to the policy, Kraft said. The fact that the home is new and it is located near a fire department would qualify for discounts.


Most experts say homeowners should set aside about 1 percent of a home’s value yearly to cover maintenance, said Huffman with the Village. On a $500,000 house, that would average about $420 a month.

“Maintenance will be there. You’ve got to plan for it,” he said.


The owner would also need to pay utilities on the house, which features gas forced air and an electric water heater.

A rough estimate for the monthly electric bill, based on the size of the house, is $190, according to Cass County Electric’s manager of energy management and conservation.

The natural gas bill will be about $100 a month, averaged out over the year, said Mark Nisbet, spokesman for Xcel Energy.

Actual figures would depend on usage.

To stay or sell

The official rules for the contest, posted on its website, outline the process of winning the home and the responsibilities of the winner. Leslie said radio stations, like Great Plains Integrated Marketing’s stations, “are really good at making sure they explain everything to the person who wins.”

Closing won’t happen until about five days after Saturday’s event, giving the winner time to ask questions and get affairs in order.

The winner has the option of rejecting the prize, Leslie said. “It would be sort of silly. The only thing you have to do if you can’t afford the house is sell it,” he said.

The contest was timed for early in the year so the winner will have enough time to sell it, if desired, Leslie said. The income taxes will not be due until April 15, 2013.

The rules state that if the winner sells the house, it must be listed with Re/Max Legacy Realty of Fargo – another Leslie family-owned company – with a 6 percent sales commission. That would reduce the winner’s take-home cash by $30,000 if the house sold for a half-million.

Leslie said he’s confident the house would sell quickly.

“Our market is so strong. As a home building company we are building them as fast as we can,” he said. “We’ve had people along the way ask if they could buy that house and build another to give away.”

Leslie said the giveaway has encouraged people to dream. Those who toured it were happy just to have to chance to see it.

“How can we ever have a dream if we don’t see something to dream about?” Leslie said.

Monthly costs of living in the giveaway home

These are the estimated set monthly costs the winner of the $500,000 home giveaway would have to pay to keep the house.

• $898.09 mortgage payment on $200,000 (to pay income tax)

• $741.32 for property taxes

• $353.12 for special assessments

• $145.83 for insurance

• $290 for utilities

• $416.67 maintenance

TOTAL: $2,845.03 per month

Giveaway details

The Giveaway of a Lifetime event will be held Saturday afternoon at Scheels Arena.

There are 800 finalists, all of whom are eligible to win secondary prizes, including a leather sectional, queen bed and frame, hot tub, and a yearlong vehicle lease.

At the event, 25 final contestants for the home will be randomly selected from those present. Each will be given a key, one of which will open a door on the stage. The first key to open the door will be the winner.

Closing on the home will happen within seven days of the event. All closing costs will be paid for by the sponsor.

For more information, go online to www.giveawayofalifetime.com.

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Readers can reach Forum reporter Sherri Richards at (701) 241-5556