For Sale By Owner

By Robert J. Bruss
Saturday, April 21, 2007

Bruss is away. These questions are taken from previous columns.

Q: DEAR BOB: Twelve years ago, we successfully sold our home ourselves and saved the real estate sales commission. Now we are trying to sell our townhouse without an agent and are encountering nothing but problems. The additional legal paperwork and required disclosures are amazing. More important, we discovered that even paying $795 to put our listing into the local multiple listing service hasn't brought results. The local agents aren't showing our home even though it is reasonably priced and we offer a 2 percent broker co-op commission. We had one very serious prospective buyer who came back three times. But she wanted us to reduce our sales price by 6 percent because we wouldn't have to pay a sales commission. Any suggestions on how we can sell our home and save the sales commission? -- Norman V.

A: DEAR NORMAN: No. As longtime readers know, I do not recommend attempting to sell your home without a professional real estate agent. Although I am a real estate broker, unless I sell a rental house to my tenant, I always list it with a local real estate agent.

Full-time, professional real estate agents know local market values, whether they are rising or falling. By attempting to sell alone, you could be vastly underpricing your home. Or maybe it is overpriced, so prospective buyers stay away.

Most prospective home buyers shy away from "for sale by owner" newspaper classified ads. They fear the seller is strange for not listing with a realty agent. There is a good reason more than 80 percent of home sales are handled by real estate agents.

Although you paid $795 to put your listing in the local multiple listing service, that doesn't mean it will be actively marketed. The MLS is a powerful marketing tool, but your home also needs exposure on the Internet, such as Realtor.com and other Web sites, which only a proactive listing agent can provide.

Offering a 2 percent sales commission to a buyer's agent is an insulting joke. Get realistic. In today's competitive home sales market, you should list with a successful, aggressive real estate agent to get your home sold and to comply with today's disclosure requirements.

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 is now 93 and still living in the house, which is in a horrible state of disrepair. About five years ago, after reading your item about terminating a life estate for "waste," a local real estate attorney brought a lawsuit against her on my behalf because she let the house deteriorate. However, the sympathetic judge ruled there was not sufficient waste to terminate her life estate. The house (worth about $300,000) is in a decent neighborhood, and the life tenant isn't spending a penny to maintain it. Is there anything I can do? -- Ryan R.

DEAR RYAN: Of course you could bring another lawsuit for waste, but there is no guarantee of success.

Another alternative is to offer your stepmother cash to terminate her life estate. Perhaps she would like to move to an assisted-living center where she can receive care and cooked meals in a nice facility. Waving $50,000 or $100,000 cash in front of her might convince her it's time to move out.

DEAR BOB: After reading a recent column by you, I got the impression that it is better to inherit property than to receive it as a lifetime gift. But both situations are subject to tax. Please expand on this topic. -- Al R.

DEAR AL: From the heir's viewpoint, inheritance is better than a lifetime gift because the heir receives a new "stepped-up basis" of market value on the date of death. This is a huge tax benefit, especially if the property had been owned many years with a low basis.

When a property is gifted before death, the recipient takes over the 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 tax will be due if the donor has given away less than $1 million in lifetime non-exempt gifts.

However, if the decedent's estate exceeds $2 million, then federal estate tax must be paid by the estate before the heir receives title. Also, in a few states, there might be an inheritance tax if the heir is not a close relative. For details, consult a tax adviser.

DEAR BOB: I own a four-unit apartment building. I want to sell a 75 percent interest and retain 25 percent. If I sell 25 percent each to three investors, can they force a sale of the entire building by a partition lawsuit? Or can any of the four co-owners sell their share without the approval of the other investors? Is it possible to allow the investors to occupy a specific apartment in the building? -- John E.

DEAR JOHN: The situation you describe is known as a tenancy in common (TIC). TICs are widely used to get around local rent control and condominium conversion ordinances.

But the major drawback is there is one mortgage on the entire property. Each TIC co-owner cannot obtain an individual mortgage as can a condominium buyer. Another problem occurs if a co-owner fails to pay his share of the mortgage each month. Then the other owners must pay the deficit or risk losing the property by foreclosure.

Although I don't recommend TICs for owner-occupied apartment buildings, they have been successfully used for investment properties where the investors are not occupants.

Yes, it is usually possible to provide in the TIC documents for the tenants in common to waive their right to force a partition sale of the property. The TIC documentation can specify a TIC can occupy a specific apartment in the building. For details, consult a local real estate lawyer who is experienced with TICs.

DEAR BOB: I bought my home in 1997. There was no homeowners association. A developer bought the vacant lots in the subdivision and formed a homeowners association. Now the developer is applying pressure for everyone to join. There is a private road that seems to have been turned over to the association. Is this legal? We are in the process of selling our home and want the new owner to make the decision to join or not. -- Zuella P.

DEAR ZUELLA: I have never heard of such a situation where the private road is transferred to the homeowners association without a vote by the affected owners or unless the developer controls a majority of the affected vacant lots.

The best you can do is to disclose the situation to your buyer and let him decide whether he wants to join the homeowners association.

DEAR BOB: My son was recently transferred to Hawaii. He is considering buying a condominium in Honolulu. It is on leasehold land. The inventory of available units seems highly limited. We have benefited from your recommendations about Internal Revenue Code 1031 tax-deferred exchanges, living trusts and tax-free cash from home sales, but have never before encountered leasehold land. Your recommendations? -- Bev P.

DEAR BEV: Your smart son is wise to question the purchase of a condo that is on leasehold land. He should carefully investigate the terms of that land lease.

For example, when I was at a convention in Honolulu years ago, we went to inspect a beautiful new high-rise condo building. I asked about the land lease and its terms and if there was a renewal option. I learned it was a 40-year land lease with no renewal option. Buying a condo in that building was clearly a bad deal because as it gets close to the 40th year, the condo loses all its value, as the building title then reverts to the land leaseholder.

Several years later, when I visited Honolulu, I inquired about the fate of that building. I discovered the condos did not sell and it is now an apartment rental building. When buying any improvement on leased land, you can't be too careful.

DEAR BOB: I bought a property as my sole and separate property under my name alone. Then I added my wife and the in-laws to the title. We refinanced, and I signed a deed to my in-laws. The title and mortgage are in their names. It seems that they don't want me to go back on title. Is there anything I can do? I made the down payment from my 401(k) plan. Please help. -- Eric D.

DEAR ERIC: Why would you add your in-laws to the title to your property? That makes no sense.

Worse, unless you have horrible credit, why would you transfer your interest in the property to your in-laws? Was refinancing so important that you were willing to give up ownership?

Now there is nothing you can do to force them to deed the property back to you unless you can prove fraud, duress or mistake.

DEAR BOB: We live in a very nice apartment upstairs from a commercial grocery store, which our family owns and operates. It has been a very convenient arrangement for the 23 years we have owned the store and lived above it. Not many folks have the luxury of just walking downstairs to the work they love. But we had an opportunity to sell the store to a relative at a handsome profit. Now we are thinking of selling the property, subject to the 25-year grocery store lease. Our nice problem is that our net profit will be around $800,000 for the sale of the building. My wife and I can shelter $500,000 of that with the principal-residence-sale tax exemption you often discuss. Is there any way to avoid paying tax on the remaining $300,000 profit? -- Hugo V.

DEAR HUGO: Congratulations on your profitable situation.

Yes, you can sell your combination principal residence and business property and avoid paying tax on your handsome profits. Please consult an experienced tax adviser for complete details.

Be sure the tax adviser is familiar with Internal Revenue Procedure 2005-14. It permits concurrent use of both Internal Revenue Code 121 for the sale of your principal-residence portion of the property and Internal Revenue Code 1031 for the tax-deferred exchange of the business or investment part of the property by trading for another business or investment property of equal or greater cost and equity.

DEAR BOB: About eight months ago, I received my real estate sales license. Since then, I have been working in a large brokerage office, where I have yet to make a sale. My manager is very supportive. However, I feel she is losing confidence in me. So am I. What can I do to get started selling homes? I have been trying to get listings and have taken floor time to work with buyers, but no sales so far. Fortunately, my husband has been very supportive, but we need more income. Any ideas? -- Sharon V.

DEAR SHARON: I notice your letter is postmarked from a large city and you are working with an excellent brokerage firm. However, maybe you are trying too hard.

If your brokerage firm has an active rental department, I suggest that you ask to transfer to rentals and become a rental agent. The result will be almost immediate rental commissions.

If your brokerage doesn't handle house or apartment rentals, perhaps you should switch to another brokerage or property management firm, one that specializes in residential rentals.

Then keep in touch with your renters with a monthly newsletter. If you did a good job for them, when they are ready to buy a house or condo, you will be the first person they call. You can then gradually ease into residential sales.

I know several super-successful real estate agents who started out as rental agents for immediate income and then switched to house and condo sales.

DEAR BOB: As a real estate broker for 17 years, I especially enjoyed the letter from a home seller who was unhappy about her four-month listing with a "bad agent." You gave an excellent answer, explaining what constitutes "due diligence" and suggesting that the seller meet with the brokerage's manager to perhaps transfer the listing to another agent. However, my question is: Who judges due diligence by a real estate agent? Some home sellers will never be satisfied, especially in the slowing market in most areas, no matter how hard the listing agent works. -- Evan R.

DEAR EVAN: Great question. Unless the listing dispute winds up in court for a judge or jury to decide whether there was lack of due diligence by the listing agent, it is up to the home seller to decide whether he or she is satisfied with the listing agent's performance.

Having been a real estate broker for 39 years, I recall only a few home sellers who were unhappy with my listing agent services. The most frequent complaint was, "You don't advertise my house enough." The reason was usually that the house was overpriced, based on comparable nearby recent sales prices.

However, there is another side to the story. As listing agents typically do, I often took overpriced listings where the seller insisted listing at a price I knew was too high. I always said: "Let's give it a good try for 30 days. But if we don't receive any purchase offers, then let's agree to reduce the asking price." That method usually worked.

Nobody can say for sure what is due diligence. But any agent who takes a listing, puts it into the local multiple listing service and does nothing else to get that listing sold is showing lack of due diligence. Unfortunately, such agent conduct occasionally occurs, especially when the listing agent expects a buyer's agent to see the MLS listing and produce a buyer without further effort by the listing agent.

DEAR BOB: I want to deed my house to my sister but keep the mortgage with my current lender. Can I do the deed transfer, record it and keep the current lender without an attorney? My sister will continue paying off the mortgage instead of getting a new mortgage, which would cost more money. -- Lien N.

DEAR LIEN: Yes, you can transfer title to your sister by executing a quitclaim deed and recording it with the county recorder of deeds. However, your sister won't have the benefit of an owner's title insurance policy to be certain she receives marketable title.

Your name will always be on that mortgage until your sister refinances, pays it off or sells the property. She is buying "subject to" your mortgage and should be aware that the lender might enforce the due-on-sale clause and call the balance due in full.

If that happens, she can either pay an assumption fee, typically 1 percent of the mortgage balance, or refinance with another lender. However, that is highly unlikely if she makes the monthly payments on time.

She should notify the insurance agent to add her name to the homeowner's insurance policy as an additional insured in case the house burns down or there is a liability claim.

DEAR BOB: A friend lives in a home where her son holds title. But he is delinquent on the mortgage payments, and foreclosure is pending. What recourse does the mother have? She quitclaimed the title to her son when she was disabled. Now the son won't give the title back. -- Art D.

DEAR ART: Unfortunately, your friend's situation happens far too often. Her obvious mistake was deeding the title to her son while she was disabled.

A far better alternative, if she thought she was going to die soon, would have been to create a revocable living trust, naming her son to receive title after she died. The primary advantage is to avoid probate costs and delays, with a secondary advantage of management of her assets if she is unable to do so.

At this point, there is nothing the mom can do to force the ungrateful son to deed the title back so she can cure the foreclosure default. She should consult a local real estate attorney.

DEAR BOB: Is there any way to carry over IRS Schedule E losses to the next tax year? Why can't I defer expenses to offset future taxable income? -- Claude R.

DEAR CLAUDE: If your Schedule E tax loss is from operating your rental property, probably due mostly to the non-cash depreciation deduction, you can carry over "suspended" tax losses to future tax years.

Or you can use suspended tax losses to offset your capital gains profit when you sell your rental property. It sounds like you should consult a new tax adviser to be certain you are maximizing your real estate investment property tax benefits.

DEAR BOB: About five years ago, I co-signed a home mortgage for my niece so she could buy a condominium. All went well until about four months ago. She lost her job and refuses to take a job that doesn't pay as much. She is now four months behind on her mortgage payments. Frankly, there is no way she can catch up, even if she does find the perfect job. However, I have a 723 FICO score, which I don't want to lose. Other than paying the missing mortgage payments, which now are about $14,000, how can I protect my good credit? -- Fred G.

DEAR FRED: You can't. You probably now realize it was a major mistake to co-sign on your niece's mortgage. I'm sure you wanted to help her and you trusted her to make the monthly payments. But when she defaulted, it not only hurt her credit rating, but also hurt yours as a co-signer.

Your situation is a classic example of why not to co-sign on a mortgage obligation.

Legally, you are liable for the missing mortgage payments. However, if there is sufficient equity in the condominium, the lender will probably foreclose and either be paid in full by a bidder at the foreclosure auction or receive title to resell the condo.

Chances of the lender suing you for a deficiency loss are not great, but it could happen.

DEAR BOB: My late mother battled cancer for five or six years. Three years ago, she deeded her house to me to avoid probate and a possible claim by her ex-husband. She died about four months ago. I have decided to sell the house, but my tax adviser says that because I received a lifetime gift, I took over my mother's very low cost basis of $160,000. Today, the house is worth at least $550,000. Since I did not own and occupy the house as my primary residence, is there any way I can avoid capital gain tax on this profit of about $390,000? -- Paula W.

DEAR PAULA: No. If you didn't inherit the property, you don't get a new "stepped-up basis" to market value on the date of the decedent's death. Because you received a pre-death gift deed to the house, as the donee you took over your donor's low adjusted-cost basis.

However, the current maximum federal capital gains tax rate is only 15 percent, plus any applicable state tax. Your tax adviser can provide full details.

Readers with questions should write Robert J. Bruss at 251 Park Rd., Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com.

Copyright 2007, Inman News Service