Real Estate Mailbag
Q: DEAR BOB: We own a two-bedroom, one-bath home in top condition in a popular vacation area. In August we signed a 90-day listing with a real estate agent. She warned us that the average sales time in the market was about 150 days. We received one low-ball purchase offer. The house has been off the market since our listing expired. We have talked with several other local agents and they all advise us the market has slowed in the last few months and two-bedroom houses are not in great demand. Although we don't have to sell quickly, we want to sell because we rarely use the house. What would you do in our situation? -- Daren W.
A: DEAR DAREN: You own what is known among real estate agents as a "difficult house." Over the years, I've bought and sold my share of such residences, although I didn't know they would be difficult houses when I bought them. I found one technique that always works with such houses: a lease with option to purchase.
Most real estate agents will never tell you about lease-options. The reason is the agent has to wait for most of his sales commission until the option is exercised, often in a year or two. I bought my current home with a lease-option. The sales agents had to wait about six months to receive their commission until I exercised my option after I sold my previous residence.
My favorite way to sell a home with a lease-option is to run a classified newspaper ad such as "$10,000 moves you in. Open Sunday 2-4. Bring your checkbook." The ad then describes the house and lists the address.
When properly marketed, lease-options work to sell difficult houses. There are always more lease-option buyers than sellers.
DEAR BOB: In 1990 we bought a rental condo on which we deducted depreciation over the years. In January 2003 we made the condo our primary residence. We sold it last July. Then we moved into a house we had bought in July 2000. If we sell this house now and close the sale in June 2006, can we sell without paying capital gains tax?
-- Lucy M.
DEAR LUCY: No. Speak with a tax adviser -- it appears you are about to make a costly mistake. If I follow your letter correctly, you lived in the former rental condo as your principal residence for at least 24 of the 60 months before its sale. Therefore, its sale qualifies for the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return in the year of the home sale). However, the depreciation you deducted during the condo rental period will be "recaptured" and taxed at the special 25 percent federal tax rate, plus any applicable state tax.
As for your house that you want to sell in June, it cannot qualify for the IRC 121 tax exemption. That's because you used IRC 121 for the July 2005 sale of your condo principal residence. IRC 121 can only be used once every 24 months. You cannot use your tax exemption again until July 2007. If you sell your house in June 2006, your capital gain will be fully taxable.
DEAR BOB: In 2003 my then-boyfriend and I bought a condo together as tenants-in-common. Because my credit and income were much better than his, the lender suggested obtaining the mortgage and taking title in my name alone since I provided the down payment. However, about a month later, I signed a quitclaim deed to my boyfriend for a 50 percent interest in the condo -- he paid half of the mortgage payments each month. In October 2005 I caught him cheating on me and I kicked him out. I haven't heard from him since. How can I get him off the title? -- Jennie J.
DEAR JENNIE J: There is no easy way to get him off the condo title. Presuming you can find him, you will need to sweet-talk him into signing a quitclaim deed of his 50 percent interest to you. Because you paid the down payment, he has little or no equity in the condo. But he will probably want something in return for his notarized signature on the quitclaim deed.
Cash usually works. Sooner or later, he will need $1,000 or $2,000 cash. Don't appear eager. It might take six months or longer, but eventually he will accept your offer and sign the quitclaim deed. However, be sure his signature is notarized and the deed is in recordable form.