DEAR BOB: About two years ago, I set up a revocable livingtrust and placed my checking, savings and stock brokerage accounts in it. But Irecently realized the title to my condominium is not in my living trust. Whatmust I do to place my condo into my living trust to avoid probate when I passon? –Larry T.
DEAR LARRY: You are not alone. Millions of homeowners createtheir revocable living trusts to avoid probate costs and delays for their heirsbut they forget to “fund” it with title to their homes.
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This is especially important if you own real estate in morethan one state, otherwise probate will be required in each state where yourproperties are located.
The easiest way to transfer title to your condo into yourliving trust is to sign a notarized quitclaim deed in recordable form fromyourself to yourself as trustee of your living trust. Then record it with thelocal recorder of deeds.
To be recordable, the quitclaim deed must usually includethe legal description of your property, the local parcel number and yournotarized signature. The easiest place to find your condo legal description andparcel number is on your owner’s title insurance policy.
SHOULD HOME SELLER REPLACE STAINED CARPET?
DEAR BOB: We plan to sell our home, which has worn andstained carpet. Professional cleaning won’t remove the stains. A friendsuggests we just clean the carpet as best we can and offer a credit to thebuyers so they can select their own carpet color. But I worry that is notputting the best face on our house and the carpet might turn off potentialbuyers. What do you suggest? –Penny S.
DEAR PENNY: You are correct. Replace that worn, stainedcarpet. Your friend is mistaken. Always get a house or condo into its bestpossible condition before offering it on the market for sale. Painting,cleaning and repairing are the most profitable.
Discounts don’t work. But don’t go overboard with majorrenovations. Spending a few hundred, or even a few thousand, dollars on newcarpet will pay off.
Most home buyers have zero imagination about how nice yourhome will look with new carpet. Avoid what I call “cheap-spec-house darkbrown” or any other color except light beige carpet.
You don’t have to buy top-of-the-line new carpet, but don’tinstall the cheapest carpet either. Most important, be sure to install agood-quality, new rebond pad, which makes the new carpet comfortable to walk onto put your prospective buyers in a good mood.
MUST HOME SELLER DISCLOSE REPAIRED DAMAGE?
DEAR BOB: I own a condominium that suffered water damageabout six months ago from the upstairs condo when a pipe in the wall sprang aleak. The condominium homeowner’s association paid for extensive repairs to mybathroom. Do I have to disclose this to my buyer? –Derek S.
DEAR DEREK: No. Unless the damage was not completelyrepaired, or there is evidence of the need for additional repairs, you don’thave to disclose what happened in the past. If homeowners were required todisclose all past repairs, the list for most homes would be a mile long.
All you must disclose are current defects and problems thathave a material effect on the market value or desirability of your home. Formore details, please consult a local real estate attorney.
WHY DOES EACH MORTGAGE LENDER HIRE ITS OWN APPRAISER?
DEAR BOB: I am in the process of buying a house. The selleraccepted my purchase offer but the sale won’t close for 60 days because the sellerneeds extra time to move her “stuff.” However, that’s good for me soI can shop for the best mortgage. The first lender, the bank where I have donebusiness at least 10 years, was very arrogant. They insisted on a $250appraisal fee, which I paid. The appraisal came in at exactly the sales price.When I questioned the loan officer, he said appraisers are instructed never toestimate a market value higher than the sales price (although I know I got abargain price below market value). Because I have plenty of time, I continuedmortgage shopping and found a much better deal with another lender. But thesecond lender refuses to accept my copy of the first appraisal and insists Ipay $300 for a second appraisal from a different appraiser. Is this legal? –BethW.
DEAR BETH: Congratulations on being a savvy mortgageshopper. As you have discovered, mortgage lenders hire the appraisers, not theborrower. A second mortgage lender will rarely accept an appraisal ordered bythe first mortgage lender because of nonsense professional appraisal rules.
The result is you, the borrower, get stuck paying a secondappraisal fee. However, if you found a much better mortgage, paying a $300second appraisal fee is very worthwhile.
REALTOR DOESN’T SET HOME VALUE, THE MARKET DOES
DEAR BOB: We are in the process of selling our home. Now Isee why you suggest interviewing at least three successful local Realtorsbefore listing with the best one. So far, we interviewed three Realtors andthey each provided us with CMA (comparative market analysis) forms, as you saidthey would. However, they used mostly different comparable recent home sales inour area. We have a “run of the mill” house with nothing unique butin a very desirable neighborhood. The Realtors set the market value of our homeat $475,500, $560,000 and $625,000. These are all experienced, longtime localRealtors. How can they set the market value of our home so far apart? –JosephH.
DEAR JOSEPH: That is amazing. But you should be aware theRealtor doesn’t set the market value for your home — the local market does.
Something is seriously wrong with those CMAs, especially ifthey didn’t use the same recent sales prices of similar nearby homes in yourvicinity.
You should be aware it is possible one of those agents triedto “buy” your listing by estimating a high market value and anotherestimated a low market value, hoping to make a quick easy sale. I suggest youkeep interviewing more agents before selecting the best agent to receive your90-day listing.
NO TAX-DEFERRED EXCHANGE FOR A PERSONAL RESIDENCE
DEAR BOB: My house, which I now want to sell, was rented totenants between 2000 and 2004. I moved back 26 months ago. Can I still do aStarker tax-deferred exchange? If not, would there be any benefit to carry backthe mortgage for my buyer? I am single, if that makes a difference –Lisa Z.
DEAR LISA: Sorry, you don’t qualify for an Internal RevenueCode 1031 tax-deferred exchange. The reason is the property is your personalresidence, not a rental or business property.
To make the property eligible for a tax-deferred exchange,you must move out and rent the property to a tenant.
However, because your property is currently eligible for anInternal Revenue Code 121 principal residence sale tax exemption up to $250,000for a single homeowner, that might be your best choice.
If you carry back the mortgage for your buyer, that iscalled an installment sale. It will spread out your profit tax over the life ofthe mortgage payments you receive.
The capital gain portion of each payment you receive will betaxed at the current federal 15 percent tax rate, plus applicable state tax. Ofcourse, the interest income you receive is taxable as ordinary income. For fulldetails, please consult your tax adviser.
INHERITING REAL ESTATE IS BETTER THAN RECEIVING IT AS A GIFT
DEAR BOB: I saw in a recent item you said it was bad toinherit real estate because of the reduced cost basis. Are you sayinginheritance is a bad thing? Please explain why you said “stepped-upbasis” is better –Chandler B.
DEAR CHANDLER: You misunderstood. I often say it is betterto inherit real estate than to receive it as a gift before death. The reason iswhen you inherit real estate from a deceased owner, you receive it with a new”stepped-up basis” of market value on the date of the decedent’sdeath.
If you receive a pre-death gift, as the donee you take overthe donor’s usually much lower basis than the current market value.
For example, suppose your mother’s basis for her house is$50,000. It is worth $300,000 today. If she gives you a gift deed, youradjusted cost basis will be $50,000, the same as her basis.
However, if you instead inherit that same house after shepasses on, your adjusted cost basis is the date of death market value at$300,000 in this example. Obviously, stepped-up basis is much better becausewhen you eventually sell that property your capital gain tax is payable only onthe increased sales price above the stepped-up basis. For full details, pleaseconsult your tax adviser.
The new Robert Bruss special report, “Probate PropertyProfit Secrets Revealed,” is now available for $5 from Robert Bruss, 251Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instantInternet delivery at www.BobBruss.com.Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
Copyright 2006 Inman News