Ask Realty Times - August 26, 2005 by Peter G. Miller
Question: I own a two-family house and want to sell it fast. I'm not in a position to go through the hassle of hiring a broker and showing it every day. How can I find a reputable investment company and would this route be advisable? Would I lose much in profit? Answer: Your goal is to quickly sell the home with little annoyance and -- with one huge reservation -- professional home buyers can certainly make that happen. The reservation? The goal of professional home buyers is to pay as little as possible. You need to ask what you really want. If it's okay to sell a home cheap, if you're fine with selling for less than market value, if you don't need or want the money, then don't use a broker. If for some reason you elect not sell through a broker, then at least have a real estate attorney review all proposed paperwork before you sign anything. Question: My husband and I purchased our house in April 2005 for a sale price of $187,500. This is our primary residence. However, we are in the process of selling our house in order to relocate to another state at a sale price of $275,000. We're relocating because I am pregnant and we'd like to be closer to family. The house was a bit undervalued when we purchased it and with sales prices rising in our area, we can ask more. We're in a very low income bracket and this is not an investment property. Since we haven't even lived here for a year, will we get hit with capital gains? Answer: That you are in a given tax bracket does not mean you will not face capital gains taxes from the sale of an asset. There are several issues to consider: First, you have made a substantial profit in just a few months. Assuming you put down 10 percent, $18,750, you will have a gross return of $87,500. Even after reductions for selling and closing costs and taxes you have done very well -- and the government would like to share in your success. Second, the usual rule is that to avoid capital gains taxes on up to $500,000 if married and $250,000 if single, you must have used the home as a prime residence for two of the past five years. You have not met this test, however you need to look at the exceptions which might allow partial capital gains savings. For instance, are you moving more than 50 miles because of a job change? Will there be multiple births resulting from the same pregnancy? For more information, see the 2004 final IRS guidelines regarding safe harbor exceptions and speak with a tax professional. Question: We just bought a house for $300,000 and the appraisal came in right on our offer. We have since talked to neighbors and found that several houses had sold in our neighborhood within the last two months prior to our purchase -- same floor plans, etc., each for under $250,000! We contacted our lender for a copy of our appraisal and the comparable sales in our subdivision were not even included! We are having a hard time making sense of this and what to do. Property in this area has gone up a lot in the last few years, but 20 percent in just a couple months seems extreme! We are now seeing other properties coming on the market for asking prices consistent with previous neighborhood sales, not with our sale or our appraisal. Further, our neighbor just had his house appraised for a refinance, and it came in far lower even though that house is larger than ours. What can we do? Answer: Recent sales may not have shown up on public records and may not have been available at the time of your purchase. As well -- and amazingly -- in some markets prices move up and down with great speed. Also, your neighbors may not have correct information. That said, you certainly have a right to ask how the appraised value was determined. First, write to the appraiser and ask how the sale price was justified. Second, if you've been working with a buyer broker write and ask the same question. If you're dissatisfied with the answers you receive, contact the state real estate commission and ask to speak with an investigator. As well, speak with a local real estate attorney. Question: I recently purchased a home doing a 1031 exchange. Am I allowed to move into it at some point in the future? Also, if I'm allowed to move into it, can I eventually sell it as a primary residence and avoid the capital gains tax? Answer: The idea of a tax-deferred exchange is to swap one property used in business and trade for another. However, there may be circumstances under which you can move into the replacement property, use it as a prime residence and get a capital gains write-off of up to $500,000 if married and $250,000 if single. Most likely -- under the American Jobs Creation Act of 2004 -- you will need to first rent the property for a year or two and then hold the property for at least five years. For details, speak with a tax professional. Question: I recently purchased a home where my driveway is more than two feet onto the neighbor's property. What typically happens to people that do this? Answer: What you have is an "encroachment" onto a neighbor's property. This may be fine if no one objects, and over time you may actually gain title to the driveway area through "adverse possession," but what if the neighbor is not pleased with the arrangement? Was there a survey of the property? If yes, was the problem detected? What about title insurance? Will it cover a claim? (Be aware that some title insurance policies will not cover surveying errors.) Did the builder have a survey before construction? For specifics and options, please have a real estate attorney review the matter. Question: Our home has not sold in a year. Should we list with a different broker or take it off the market for a few months? The property has 19 acres and is private and beautiful, but we must move for health reasons. Also, the local economy is not the best. Answer: Before doing anything, sit down with the current broker and review the marketing plan as well as local transaction activity. How long are similar homes on the market? How does your price compare? How are similar homes marketed? Where has the broker advertised? Most likely a change in price or terms will do the trick. For instance, instead of lowering the price perhaps offer to pay the first x dollars of the buyers' closing costs. If the current listing is finished, perhaps give your current broker new marching orders (price, terms, etc.) and a new 60- or 90-day listing to get an offer. Question: I signed a contract to purchase a new house eight months ago. However, both my wife and I just changed jobs. The new house hasn't started yet so what will happen if I terminate the contract now? Will I get back my earnest money? Answer: Purchase agreements written by builders tend to favor -- ta da -- builders. There is likely language in the agreement which does not require the property to be completed by a certain time because of weather, labor shortages, a lack of materials, the start of fishing season, the presence of air in the neighborhood, etc. The result is that you are likely obligated to complete the transaction even though construction has not been completed. But in our superheated markets you may have a contract to purchase a home which has risen in value. The builder may be elated to release you from the agreement if the property can be re-sold at a higher price. Also, see if the contract is assignable and can be re-sold -- an attorney can give specific advise. This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought. | 
