Don’t negotiate listing agent’s commission up front

DEAR BOB: My wife and I are selling our first home. What isthe average sales commission? I don’t want to overpay. Can we negotiate thebroker’s fee? –Anthony W.

DEAR ANTHONY: Great questions. Before signing a listing tosell your home, please interview at least three successful agents who sellhomes in your vicinity.

Purchase Bob Bruss reports online.

Each agent should give you a written comparative marketanalysis (CMA) showing recent sales prices and photos of comparable nearbyhomes, current asking prices of neighborhood homes (your competition), andasking prices of recently expired similar homes (usually overpriced).

Don’t be fooled by each agent’s estimate of your home’smarket value, based on his or her CMA. Some agents estimate high. That iscalled “buying the listing.” Other agents estimate low, hoping youwon’t interview other agents so they can make a quick, easy sale.

After interviewing three or more agents, suppose you learn 6percent is the customary local sales commission. It is usually not smart tonegotiate the listing commission downward at this point.

However, be sure the listing contract says the buyer’s agentwill receive 50 percent of the gross commission. This is extremely important toget your home shown by buyer’s agents through the local multiple listingservice (MLS).

The only time to negotiate reducing a sales commission iswhen an agent produces a purchase offer far below the listing agent’srecommended price. Then you can say, “This is a very disappointing offer.But if you cut your commission by 1 or 2 percent, we can probably accept.”

Also, never sign a listing longer than 90 days, just in caseyou select a lazy agent. If your listing agent does a great job, but the homeis unsold when the listing expires, you can then extend the listing by 30 days.

CAN INVESTOR MOVE FROM HOUSE TO HOUSE TO AVOID SALES TAX?

DEAR BOB: My wife and I own our residence in which we wouldhave a substantial profit upon sale. We are thinking of selling it, claimingthe $500,000 tax exemption, and then moving into one of our two rental housesfor two years before selling it, claiming the exemption again, and then movingon to our third house and again taking the tax exemption after another twoyears. Is this feasible? –Bill C.

DEAR BILL: Yes. It seems like you have done some creativetax planning to claim up to $1.5 million in total tax-free profits.

To qualify for the Internal Revenue Code 121 principleresidence sale tax exemption up to $500,000 for a married couple filing a jointtax return (up to $250,000 for a single home seller), you and your wife musthave owned and occupied your principal residence at least 24 of the 60 monthsbefore its sale.

After the first principal residence sale, you can use IRC121 all over again by moving into the rental house, living there at least 24months before its sale, and again claiming up to $500,000 principal residencesale tax-free profits. However, when you sell the former rental property, UncleSam will tax the amount of depreciation you deducted at the special 25 percent”recapture” tax rate. For full details, please consult your taxadviser.

SHOULD HOMEOWNERS PAY OFF $30,000 HOME LOAN AT 6.75 PERCENTINTEREST?

DEAR BOB: My husband and I have owned our townhome about 12years. It has a mortgage around $30,000 at 6.75 percent interest. We haveaggressively paid it down with extra principal payments each month. There is noprepayment penalty. We will soon receive a large amount of money and could payoff this loan. Would that be wise? My husband earns only about $70,000 per yearand I don’t work. We have two elementary-age children. Should we pay off thismortgage? –Andrea D.

DEAR ANDREA: Unless you have other higher interest ratedebts, such as credit cards, and if you will still have sufficient cashreserves, paying off your home mortgage can be very wise. The only reason notto do so would be if you would then be short of cash for an emergency orinvestment opportunity.

After you pay off your home mortgage, I highly recommend youobtain a home equity line of credit at your bank for at least 70 percent ofyour home’s market value. The interest rate should be the prime rate, or lower.

Your annual cost will be $50 to $75. But there is nointerest cost unless you use the money. Personally, I have several equity linesof credit. It is a great feeling to be able to write a check if I have a suddenneed for emergency cash.

The new Robert Bruss special report, “How to Get theBest Appraisal of Your House or Condominium,” is now available for $5 fromRobert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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