For 4% Fee, Seller Can Expect No Marketing Effort

QUESTION: My wife and I decided to sell our home. We encountered one agent who said he would put our home listing in the multiple listing service for a 4% sales commission. He says another agent is likely to have a buyer and that agent will then earn 3% and he will receive 1%.

When I asked him how many listings he has, his vague reply was, “Oh, about 100.” What do you think of such an arrangement?

ANSWER: No agent can possibly do a good job handling 100 listings at the same time. That salesman is a “numbers agent” who knows that a certain number of his listings will sell by themselves.

Ask him what his percentage of sold listings is and for the names of sellers whose homes didn’t sell so you can call to ask their opinion of his service.

Many towns have a few realty agents like the one you describe. Some charge upfront fees, such as $500. Others survive on part of the sales commission when the house sells.

Either way, the seller gets virtually no marketing effort from the agent.

Live-In Owner Earns Tax Break in 2 Years

Q: You recently said that a home seller can benefit from the new $250,000 tax exemption if he owns and lives in his principal residence for as little as two years. I thought the home must be owned at least five years.

A: New Internal Revenue Code 121 says a principal residence seller whose ownership and occupancy “aggregates” at least two years within the five years before the sale can claim up to $250,000 tax-free profits.

This means a home seller could have purchased his principal residence as little as 24 months ago and claim up to $250,000 tax-free sale profits, if he also occupied the home during those 24 months. Five years of ownership is not required.

There’s No Age Limit for Reverse Mortgage

Q: My 83-year-old grandmother lives alone in her house and is very independent. The house needs a new roof, painting and other maintenance she can’t afford.

Is 83 too old to get a reverse mortgage?

Her income is limited to Social Security, but she does own some stocks and bonds. How does this affect her reverse mortgage qualifications?

A: There is no maximum reverse mortgage age. In fact, the older the homeowner is, the more monthly tax-free income he or she can receive. Your grandmother’s income and assets are irrelevant to qualifying. All she needs is a house or condominium in her name.

Seller Traditionally Pays Transfer Tax

Q: I recently sold my home and was told I had to pay the property transfer tax. In the sales contract, the buyer agreed to pay “normal closing costs.” Should the buyer have paid the transfer tax?

A: The property seller usually pays the county or state transfer tax, which must be paid so the seller can deliver marketable title to the buyer. However, if your sales contract specified that the buyer was to pay normal closing costs, it is arguably the buyer’s responsibility to pay the transfer tax, which is a normal closing cost. Please consult a local real estate attorney to see if it’s worthwhile to seek a refund of this expense from your buyer.

Sale’s All in the Family; Realtor Can Still Help

Q: Several years ago, my husband and I bought a house we now want to sell to my sister. We will do all the customary inspections, but I need to know whom to hire to do the sales transaction. I hate to pay a Realtor a full sales commission when we already have the buyer.

A: Unless you and your husband are willing to carry the mortgage for your sister, she should get pre-approved for a home loan. Meanwhile, you should contact a local Realtor who, for a modest 1% or 2% fee, will prepare the sales contract and arrange for the closing of the sale at a modest cost to you. If there are complications, a real estate attorney might also be needed.

Agent May Have Been on Fishing Expedition

Q: We are trying to sell our home without a realty agent. Last week a Realtor phoned us to say she had a prospect who might be interested in buying. The Realtor asked if we would pay her a full sales commission if the prospect buys. I said we would pay a 3% commission. The Realtor then refused to show our house to her prospect. Did we do something wrong?

A: No. It is customary for do-it-yourself home sellers to pay half the usual sales commission to a Realtor whose buyer purchases the house.

That Realtor who phoned you was probably testing to see if you were ready to list with a professional agent. The fact that she wasn’t willing to accept half a commission, which she normally would earn on a house listed by another agent, indicates that she probably didn’t have a prospect.

In the future, I suggest you include in your ads and on your lawn sign “Will cooperate” or “Bkr. co-op.” Agents know what that means.

This May Not Be Time to Lock In Loan Rate

Q: We have been pre-approved for a home loan, but our new house won’t be completed until September. The mortgage broker suggests we lock in our mortgage interest rate now. However, the lock-in fee varies, depending on the length of the lock-in. Do you think we should pay to lock in our interest rate now?

A: Home loan interest rates are trending down. However, some unexpected event could reverse that trend. Though I can’t advise whether it’s worth paying to lock in your mortgage interest rate now, I can tell you that, before you decide, you should ask the lender what happens if home loan interest rates continue dropping. Will you get the lower rate? Be sure to get the answer in writing to prevent misunderstandings.

Seller Seeks More Than $250,000 Exemption

Q: I am single, 63 and have owned my house for many years. I only about paid $55,000 for it, but it has appreciated to more than $500,000 in market value. Now I want to sell. My problem is that I’ll owe tax on about $195,000 profit after subtracting my $250,000 exemption. Is there any way I can get out of paying tax on that profit?

A: No. In the absence of special circumstances, single sellers with more than $250,000 home sale profits get stuck paying capital gains tax (at the new 20% rate) on sale profits over $250,000.

Unless you’re willing to participate in some tax acrobatics, such as moving out, renting your house to tenants to convert it to rental status and then making an IRC 1031 tax-deferred exchange for another rental property, there is no magic way to avoid tax when a single person’s home sale profit exceeds $250,000.

It’s Time to Replace Insurance Agent

Q: I’ve been arguing with my insurance agent about how much replacement-cost insurance we need. Our home is about 1,500 square feet excluding the garage. The agent estimates it would cost about $200,000 to rebuild our home in the event of a total fire loss. But I checked on construction costs, and home builders tell me our quality of home can easily be rebuilt for $100 or less per square foot. In other words, we are over-insured by at least $50,000. But the agent refuses to reduce our policy limit. What can we do?

A: Switch to a different insurance agent. Don’t put up with an agent who, without justification, is over-insuring your home simply to raise the premium (and his commission).

Remodeled Kitchen Won’t Enhance Sale

Q: I soon plan to sell a rental house. The kitchen is old-fashioned, and a contractor friend estimates that new cabinets, recessed lights, appliances and floor will cost about $10,000 for good quality. If you were planning to sell this house, would you spend $10,000 to remodel the kitchen?

A: No. Just paint, clean, repair and landscape. The buyer might not like your taste, so don’t get carried away. Spending $10,000 on kitchen remodeling won’t add that much market value to the house. Instead, paint the interior and exterior completely. Get the house into presentable condition and let the buyers fix it up their way.

Power of Attorney Keeps Seller Off Plane

Q: In April my husband began a new out-of-town job. I was left to sell the house and keep the kids in school until the end of the school year. We now have a buyer and the sale should close Aug. 15. Is there anything we can do to avoid having my husband fly back here to sign the closing papers?

A: Yes. He can sign a power of attorney form giving you authority to sign the closing papers on his behalf, as his attorney-in-fact. The title insurer usually has an acceptable form available.

This form is important because your husband’s power of attorney must be recorded before the deed is recorded. When you send the power of attorney form to your husband, be sure he signs it in front of a notary public, who will acknowledge his signature so that the document is recordable.

If your husband is outside the country, he must have his signature notarized at a U.S. Embassy or U.S. Consulate office; if he doesn’t, it won’t be eligible for recording in the U.S.

The new Bruss special report “How to Buy Your Home for Nothing Down” is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010. Credit card orders are welcome at (650) 348-6900 or fax at (650) 348-6916.