DEAR BOB: Twelve years ago we successfully sold our home”for sale by owner” and saved the real estate sales commission. Nowwe are trying to sell our townhouse without an agent and are encounteringnothing but problems. The additional legal paperwork and required disclosuresare amazing. More important, we discovered that even paying a local Realtor toput our listing into the local multiple listing service (MLS) for a $795 feehasn’t brought results. The local agents aren’t showing our home although it isreasonably priced and we offer a 2 percent broker co-op commission. We had onevery serious buyer who came back three times. But she wanted us to reduce oursales price by 6 percent to compensate since we wouldn’t have to pay a salescommission. Any suggestions how we can sell our home and save the salescommission? –Norman V.
DEAR NORMAN: No. As longtime readers know, I do notrecommend attempting to sell your home alone without a professional real estateagent. Although I am a real estate broker, unless I sell a rental house to mytenant, I always list it with a local Realtor. There are many reasons.
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Full-time, professional real estate agents know local marketvalues, whether they are rising or falling. By attempting to sell alone, youcould be vastly underpricing your home. Or maybe it is overpriced soprospective buyers will stay away.
Most prospective home buyers shy away from “for sale byowner” newspaper classified ads. They fear the seller is”strange” for not listing with a realty agent. There is a good reasonmore than 80 percent of home sales are handled by real estate agents.
As a do-it-yourself home seller, although you paid $795 toput your listing in the local MLS, that doesn’t mean it will be activelymarketed. The MLS is a very powerful marketing tool, but your home also needsexposure on the Internet, such as www.Realtor.com,and other Web sites, which only a pro-active listing agent can provide.
Offering a mere 2 percent sales commission to a buyer’sagent is an insulting joke. Get realistic. In today’s competitive home salesmarket, you should list with a successful, aggressive real estate agent to getyour home sold and to comply with today’s disclosure requirements to preventfuture legal problems.
NO EASY WAY TO GET A LIFE TENANT OUT
DEAR BOB: My father died in 1986. He left his house to me,his only child, subject to a life estate for his second wife. My stepmother isnow 93 and still living in the house, which is in a horrible state ofdisrepair. About five years ago, after reading your item about terminating alife estate for “waste,” on my behalf a local real estate attorneybrought a lawsuit against her because she let the house deteriorate. However,the sympathetic judge ruled there was not sufficient waste to terminate herlife estate. The house (worth around $300,000) is “declining” but ina decent neighborhood, and the life tenant isn’t spending a penny to maintainit. Is there anything I can do? –Ryan R.
DEAR RYAN: Of course you could bring another lawsuit forwaste. But there is no guarantee of success.
Another alternative is to offer your stepmother cash toterminate her life estate. Perhaps she would like to move to an assisted-livingcenter where she can receive care and cooked meals in a nice facility. Waving$50,000 or $100,000 cash (theoretically) in front of her might convince herit’s time to move out and terminate her life estate. For more details, pleaseconsult a local real estate attorney.
WHY IT IS BETTER TO INHERIT PROPERTY THAN RECEIVE IT AS AGIFT
DEAR BOB: After reading your recent article, I got theimpression it is economically better to inherit property than to receive it asa lifetime gift. But both situations are subject to tax. Please expand on thistopic. –Al R.
DEAR AL: There are many reasons why it is far better toreceive real estate as an inheritance than as a pre-death gift. From the heir’sviewpoint, inheritance is more beneficial than a lifetime gift because the heirreceives a new “stepped-up basis” of market value on the date of thedecedent’s death. This is a huge tax benefit, especially if the property hadbeen owned many years with a low basis.
When a property is gifted before death, the donee takes overthe donor’s often very low adjusted-cost basis. Also, if the net value exceeds$12,000, the donor must file a federal gift tax return. But no federal gift taxwill be due if the donor has given away less than $1 million in lifetimenon-exempt gifts.
However, if the decedent’s net estate exceeds $2 million,then federal estate tax must be paid by the estate before the heir receivesinherited title. Also, in a very few states, there might be an inheritance taxif the heir is not a close relative. For full details, please consult your taxadviser.
PROS AND CONS OF TENANCY-IN-COMMON APARTMENT BUILDINGS
DEAR BOB: I own a four-unit apartment building. I want tosell a 75 percent interest and retain 25 percent. If I sell 25 percent to eachof three investors, can they force a sale of the entire building by a partitionlawsuit? Or can any of the four co-owners sell their share without the approvalof the other investors? Is it possible to allow the investors to occupy aspecific apartment in the building? –John E.
DEAR JOHN: The situation you describe is known as atenancy-in-common (TIC). TICs are widely used to get around local rent controland condominium conversion ordinances.
But the major drawback is there is one mortgage on theentire property. Each TIC co-owner cannot obtain an individual mortgage, as cana condominium buyer. Another problem occurs if a TIC fails to pay their shareof the mortgage each month. Then the other owners must pay the deficit or risklosing the property by foreclosure.
Although I don’t recommend TICs for owner-occupied apartmentbuildings, because of the many potential problems that can arise, they havebeen successfully used for investment properties where the investors are notowner-occupants.
Yes, it is usually possible to provide in the TIC documentsfor the tenants-in-common to waive their right to force a partition sale of theproperty. The TIC documentation can specify a TIC can occupy a specificapartment in the building. For full details, please consult a local real estateattorney who is experienced with TICs.
CAN HOMEOWNER BE FORCED TO JOIN HOMEOWNER’S ASSOCIATION?
DEAR BOB: In 1997 I bought my home. There was no homeowner’sassociation. A developer bought the vacant lots in the subdivision and formed ahomeowner’s association. Now the developer is applying pressure for everyone tojoin. There is a private road that has been apparently turned over to theassociation. Is this legal? We are in the process of selling our home and wantthe new owner to make the decision to join or not? –Zuella P.
DEAR ZUELLA: I have never heard of such a situation wherethe private road is transferred to the homeowner’s association, unless therewas a vote of the affected owners or unless the developer controls a majorityof the affected vacant lots.
The best you can do is to disclose the situation to yourbuyer and let him decide if he wants to join the homeowner’s association.Perhaps a local real estate attorney can provide further details.
BE EXTREMELY CAREFUL WHEN BUYING LEASEHOLD CONDO
DEAR BOB: My son was recently transferred to Hawaii. He isconsidering purchase of a condominium in Honolulu. It is on leasehold land. Theinventory of available units seems very limited. We have benefited from yourrecommendations about IRC 1031 tax-deferred exchanges, living trusts, andtax-free cash from home sales, but have never before encountered leaseholdland. Your recommendations? –Bev P.
DEAR BEV: Your smart son is wise to question the purchase ofa condo that is on leasehold land. He should carefully investigate the terms ofthat land lease.
For example, when I was at a Realtor’s convention inHonolulu years ago, we went to inspect a beautiful new high-rise condobuilding. As an inquiring reporter, I asked about the land lease, its terms,and if there was a renewal option. I learned it was a 40-year land lease withno renewal option. Buying a condo in that building was clearly a very bad dealbecause as it gets close to the 40th year, the condo loses all its value sincethe building title then reverts to the land leaseholder.
Several years later, when I visited Honolulu, I inquiredabout the fate of that building. I discovered the condos did not sell and it isnow an apartment rental building. When buying any improvement on leased land,you can’t be too careful.
The new Robert Bruss special report, “Pros and Cons ofFast and Slow House Flipping for Big Profits,” by Robert Bruss, 251 ParkRoad, 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
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Copyright 2006 Inman News