Is it wise to have a pre-listing home inspection?

DEAR BOB: I plan to sell my home in the next few months. Isit wise to have a professional home inspector prepare a report before I list myhouse for sale so I can use his findings to help establish the sales price? OneRealtor tells me I should not have the report made because if buyers rely onlyon his report, then I am liable if the inspector misses something. The Realtorsays home buyers in my area usually will not have their own inspection done ifI had one available and therefore I am taking on more liability. What is youropinion? –Mary B.

DEAR MARY: I strongly disagree with that Realtor. Every homeseller should have a pre-listing professional home inspection, as well as othercustomary local inspections, such as for termites, dry rot, energy efficiency,building-code compliance, etc.

Purchase Bob Bruss reports online.

Then you will know the condition of your home and if it hasany serious defects you should repair before listing the home for sale. Savvyhome buyers always have their own professional inspections. Unless asked, youdon’t even have to show your inspection reports obtained before listing. Buyersshould be encouraged to hire their own inspector after you have accepted theirpurchase offer.

After you have obtained the inspections and decided toeither repair defects or disclose them to prospective buyers, be sure tointerview at least three successful local real estate agents who sell homes inyour vicinity.

Each agent interviewed should prepare a written CMA(comparative market analysis). This form shows recent sales prices of nearbyhomes like yours, asking prices of similar neighborhood homes (yourcompetition), and even recently expired competitive listings (usuallyoverpriced).

The CMA form also shows each agent’s recommended askingprice and probable sales price for your home. Only after you have at leastthree CMAs are you ready to select the best agent to get your home sold.

TAX-DEFERRED TRADE MEANS YOU CAN’T TAKE OUT ANY CASH

DEAR BOB: I plan to sell my home and move out of state to alower-cost area. I have about $300,000 profit in a rental property on which Iwant to do a 1035 exchange. At the new location, comparable properties areworth about $250,000, so I plan to trade for two properties. Must I transferall my profits from the 1035 exchange to the new properties, or can I financethe properties with a new mortgage and pull out some of the profits? How soonafter making the 1035 exchange can I convert one rental property into mypersonal residence? –Pete R.

DEAR PETE: It’s called an Internal Revenue Code 1031 (not1035) tax-deferred exchange. All the properties must be held for investment oruse in a trade or business. Your personal residence is not eligible.

To qualify for such a trade, often called a "Starkerexchange," you must trade equal or up on both total price and equity. Thatmeans you can’t take out any taxable "boot," such as cash withoutowing capital gain tax on that "unlike kind" personal property.

Yes, you can trade up one property for two (or more)properties, as long as you meet the basic test of exchanging equal or up onboth total cost and equity. That means you can’t receive any net mortgagerelief or put cash in your pocket.

However, after the tax-deferred exchange is completed, youcan refinance the acquired properties to take out tax-free cash.

IRC 1031 does not say how long an acquired property must beheld as a rental before converting it to your personal residence, but most taxadvisers suggest renting it for at least six to 12 months before converting.Ask your tax adviser for further details.

WHAT TYPE OF PROOF IS REQUIRED FOR $250,000 HOME-SALEEXEMPTION?

DEAR BOB: I have seen endless mentions in your articlesabout living in your principal residence at least two of the last five yearsbefore its sale to qualify for that $250,000 tax exemption (up to $500,000 fora qualified married couple). But what proof does the IRS require if theyquestion eligibility? How does the seller prove it was the primary residence?–Susan C.

DEAR SUSAN: Unless the home seller is audited, the IRS doesnot require any proof the Internal Revenue Code 121 principal-residence-salerequirements were met. If you qualify for the full exemption, up to $250,000for a single principal-residence seller, or up to $500,000 for a qualifiedmarried couple filing a joint tax return, you don’t even report yourprincipal-residence sale on your income tax returns.

If the IRS should question your eligibility, you will needproof the home was your principal residence. Evidence could include utilitybills, voter registration, driver’s license, filing income tax returns fromyour principal residence sold, bank accounts, and nearby employment.

HOW ARE PROFITS TAXED ON AN INHERITED HOUSE?

DEAR BOB: Two sisters, both over 72, inherit a house. Theirdad purchased it in 1964 for $30,000. It is now worth $750,000. If they sell itbefore they die, what is the rate of capital gains tax? –Gregory D.

DEAR GREGORY: The adjusted cost basis of the house for thetwo sisters (their ages are irrelevant) was its "stepped-up basis"fair market value on the date of dad’s death. If they made any capital improvementsduring ownership, the improvement cost is added to this stepped-up basis.

When they sell the house for more than their basis, theexcess is their taxable capital gain.

For example, suppose the house was worth $300,000 a fewyears ago when dad died. They added $100,000 of capital improvements duringtheir ownership. Their basis is therefore $400,000. If they sell it for$750,000 net, presuming it is not their principal residence, they have a$350,000 taxable capital gain.

They will owe the current maximum long-term capital gain taxrate of 15 percent on their capital gain, plus applicable state tax where thehouse is located. For more details, they should consult their tax adviser.

BORROWER SAYS TAKE LENDER TO COURT OVER JUNK FEES

DEAR BOB: Unexpected mortgage junk fees seem to be a cruelsurprise at the closing settlement, imposed after all the emotional investmentin a new house has been made by the borrowers. Sitting at the closing table,with the prospect of losing your new house, makes it almost impossible to walkaway and not pay the lender’s junk fees. It seems the mortgage lender’s"good faith estimate" given to the borrower earlier is worthless andunenforceable. But what about another approach? Could the borrower pay the junkfees and then sue the lender in local Small Claims Court for a refund? Has thisapproach been used successfully? –Walter L.

DEAR WALTER: For readers not familiar with mortgage junkfees, they are charges imposed on borrowers by the lender for services that donot provide a specific borrower benefit.

Junk fee examples include underwriting fee, administrationfee, warehouse fee, documentation fee, loan review fee, preparation fee, andother names dreamed up by lenders. Examples of legitimate non-junk mortgagefees for specific services include appraisal fee, title insurance fee, attorneyor escrow fee, and credit report fee.

Small Claims Court decisions don’t get publicly reported sothere is no way to know your chance of success. It’s worth a try, but be sureto make clear in writing at the closing you are paying the lender’s previouslyundisclosed last-minute junk fees under duress.

REAL ESTATE VERBAL AGREEMENTS MEAN NOTHING

DEAR BOB: We rented a house on a one-year lease based on therental property manager’s promise to landscape the backyard. But we failed toput it in writing. The manager promised to have it installed by Oct. 1. It isnow January and we still have just dirt in the back yard. He says he’s a man ofhis word "where a handshake still means something." But the ownercan’t afford to put in the landscaping now. We’re tired of dirt and rocks inour back yard. Can we break our lease? –Ron F.

DEAR RON: In real estate, verbal agreements mean nothing.You should have obtained that landscaping promise in writing, signed by theowner (not just the property manager).

If you break the lease, due to failure of consideration, andthe landlord takes you to court, it is up to the judge to decide if you werejustified.

However, when a tenant breaks a lease, the owner has a dutyto mitigate damages by attempting to re-rent. At worst, you probably would onlybe liable for a few months of rent while the house is vacant. For more details,please consult a local real estate attorney.

The new Robert Bruss special report, "The 10 Key QuestionsSmart Home Buyers Ask to Avoid Getting Ripped Off," is now available for$5 from Robert 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
).

***

What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2007 Inman News

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