Question:
Some time ago you published an excellent four-step checklist for home buyers.
But I'm a home seller. Do you have a similar checklist for home sellers?
Answer: Selling a home is potentially the most profitable financial
transaction most people ever do. But one costly mistake can make a home sale a
nightmare. Here is my four-step checklist for home sellers:
- Get your home into tip-top, "red ribbon deal" condition. Most home buyers
want to buy a home in near-perfect "red ribbon deal" condition without the need
for any immediate fix-up work.
Take a note pad and walk around your home, inside and outside. Jot down everything
that needs cleaning, repairing or fixing. For example, most homes need interior
and exterior paint. This is the most profitable improvement you can make.
Pretend you're setting up a model home. View your home through the critical
eyes of a buyer. Would you buy your home in its present condition? Probably not.
In addition to painting, cleaning and repairing, add fresh landscaping and new
carpets, if needed, to make your home sparkle.
- Interview at least three successful local realty agents. Even if you're thinking
of selling your home alone without an agent, interview at least three successful
agents who sell homes in your vicinity. Most do-it-yourself home sellers eventually
hire an agent. By interviewing several, you'll know which agent should get your
listing.
Each agent should give you a written comparative market analysis showing recent
sales prices of comparable nearby homes, neighborhood homes currently listed for
sale (your competition) and the agent's estimate of your home's market value.
Then compare the analyses.
Before listing your home for sale with the best agent, be sure to phone his
or her recent home sellers to ask, "Were you in any way unhappy with this agent
and would you list with the same agent again?" Finally, don't sign a listing for
more than 90 days unless it contains an unconditional cancellation clause (just
in case you chose the wrong agent).
- Obtain customary inspections and make repairs before putting your home on
the market. The best realty agents recommend, as part of the listing process,
having a professional inspection plus any customary local inspections, such as
for termites, energy efficiency and code compliance.
Make any necessary repairs before putting your home on the market. By having
completed the inspections, you'll lessen buyer resistance when your agent can
show serious prospects the inspection reports.
- Set your asking price at your home's market value, not above or below. Since
you interviewed at least three realty agents before selecting the best, you should
have a good idea of your home's market value once it's in tip-top, model-home
condition. Don't overprice it. Setting the asking price even a few thousand dollars
too high will discourage buyers and their realty agents.
Buyer Should Limit Offer to Only 24 Hours
Q: We recently lost out on the purchase of a home to another buyer,
who offered slightly more than we did. Our agent is my nephew, and I'm trying
to help him get started in realty sales. He wrote in our purchase bid that it
was good for a week. After he delivered our offer to the seller, he reported to
us that the seller wanted to think it over for a few days. I thought we should
have gotten an immediate "yes" or "no." Is this procedure customary?
A: No. Home purchase offers are usually valid for 24 hours, unless
there is an unusual situation, such as an out-of-town seller who doesn't have
access to a fax machine or telephone.
Your nephew made a very bad mistake by making your offer valid for a week.
That gave the seller's listing agent time to "shop" your offer to get a higher
offer from another buyer. In the future, provide for a 24-hour offer expiration
time to prevent "offer shopping."
Cut-Rate Commission Could Hamper Sale
Q: We're just starting to think about selling our home. The only Realtor
we know is the one who sold us our home about six years ago. She charges a 6%
sales commission. Could we save on the commission by listing with another Realtor
or are commissions set by law?
A: Real estate sales commissions are negotiable between the realty
agent and the home seller. Most agents charge 6% or 7% of the home's gross sales
price.
Yes, you will find some realty agents who charge a lower sales commission
than the going rate in the community, but these agents find it difficult to interest
other agents in showing a home with a lower-than-normal sales commission.
If you want to get your home sold quickly, I suggest you agree to pay the
customary commission rate and be certain your listing is immediately put in the
local multiple listing service to give it maximum exposure to the marketplace.
Realty Agent Brings In a Competing Offer
Q: We made a purchase offer to buy a house and the seller counteroffered.
While we were thinking about raising our offer price, our real estate agent obtained
an offer on the same house from another buyer, who met the seller's counteroffer
price. As a result, the other buyer got "our house." Do you think this was kosher?
We think it is highly dishonest of our agent to disclose the counteroffer price
while we were thinking it over and to work with another buyer to purchase the
same house. Your opinion please.
A: Unless you were taking an unreasonably long time to consider the
seller's counteroffer, your agent, in my opinion, should not have encouraged another
client to make an offer on the same house, especially since the agent knew the
price the seller would accept.
The counteroffer isn't confidential information, since you were free to show
it to anyone. But your realty agent shouldn't have used that "insider knowledge"
to get another buyer; this action was probably a breach of fiduciary duty to you.
Were you damaged by the other party buying that house? That's hard to prove
since you were taking your time deciding about accepting or rejecting the counteroffer.
Did you accept the counteroffer before the other buyer made a purchase offer?
If so, then you may have a valid contract to buy the house. Consultation with
an attorney is advised if you wish to pursue the matter.
Stepped-Up Cost Basis Should Slice Taxes
Q: With all the uncertainty in Congress about the new tax laws regarding
home sales, I don't know if I should sell my home or wait. My husband died in
1996. I inherited his half of the house. But, at age 76, I physically can't keep
up our house alone. My problem is, if I sell, my profit will be over that "over
55 rule" $125,000 tax exemption you often discuss. We paid about $25,000 for the
house many years ago. Today, it is worth around $200,000. If Congress doesn't
pass the $500,000 home sale tax break, how can I avoid paying tax?
A: I have good news for you. When you inherited your late husband's
half of the house, that gave you a new basis stepped-up to market value on the
inherited half. Presuming the house was worth about $200,000 in 1996 on the day
your husband died, your basis for the half you inherited is $100,000. Add to that
your $12,500 cost basis for your half, your new basis is at least $112,500.
Presuming the house sells for $200,000 net after sales costs, the profit will
be $87,500. This is well below the current "over 55 rule" $125,000 home sale tax
exemption so all your profit will be tax-free.
In community property states, when community property is left to a surviving
spouse, the entire basis is stepped-up to market value so there would be virtually
no profit to tax.
Your situation shows why it's so important that everyone who inherits property,
especially senior citizens, consult their tax advisor about home sales. Thanks
to the stepped-up basis tax rules for inherited property, there is often little
or no taxable profit when inherited property is sold soon after inheritance.
Home Sale Tax Deferral Can Last for Years
Q: I sold my home in 1996 and bought a more expensive replacement in
March 1997. When I filed my 1996 income tax return, my tax lady filed IRS Form
2119 with my tax return to avoid tax on my sale profit. How long will this tax
deferral last?
A: The tax deferral of Internal Revenue Code 1034, the "rollover residence
replacement rule," lasts as long as you own the replacement principal residence.
You apparently met the law's requirements of buying a home costing at least as
much as your old home's adjusted sales price within 24 months before or after
the sale.
If you decide to sell your qualifying replacement home, you can again use
this tax deferral once every 24 months. However, if you never sell your principal
residence and die while owning it, you completely avoid profit tax. Your tax advisor
can give you further details.
Neighbor's Tree Is a Nuisance–What to Do?
Q: My neighbor's tree overhangs our lot line by about 5 feet. It drops
leaves and debris on my yard. I've asked him to trim the tree, but he refuses.
Can I take him to court to force him to trim this tree?
A: In most states, a neighbor can't be forced to trim an overhanging
tree. However, the neighbor whose yard is burdened can trim the tree if doing
so will not harm the tree. It's called the "rule of reasonableness." The same
general rule usually also applies to tree roots.
[Editor's Note: Adapted from Robert J. Bruss' How to Know
When to Refinance Your Home, available for $4 from Robert Bruss, 251 Park
Road, Burlingame, CA 94010.]
