Cutting Back on Home Sales Commissions

By Robert J. Bruss
Saturday, June 9, 2007

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

Q: DEAR BOB: As a real estate agent, I want to thank you for your recent item about the drawbacks of cutting home sales commissions below the customary rate. My specialty is listings. I find that working with buyers is much less productive, though I make exceptions for good referrals. I've been selling homes for 14 years and will negotiate the sales commission on expensive homes to remain competitive. However, I tactfully tell my sellers that if I reduce my commission to 4 percent or 5 percent, the buyer's agents will show my listings last, only after showing all the full-commission listings. Whether it's ethical or not, that's what happens.

You also might enjoy knowing about a recent full-commission, well-priced listing I had, which didn't get even one offer after 60 days on the market. It's a beautiful older home but on a very busy street. I suggested that my seller raise the commission from 6 percent to 7 percent, with 4 percent to the buyer's agent. She agreed. I held a well-publicized "broker's tour" with a deli lunch and got 125 local agents to re-tour the house. Within the week, the house sold for nearly the full asking price. Raising the sales commission can sell a house in a slowing market -- Sharon R.

DEAR SHARON: Thank you for your insights based on longtime sales experience. Too many home sellers focus on the sales commission, thinking they are saving money if they cut the rate. But, as the volume of home resales slows in most towns, the houses and condominiums listed with reduced commissions usually get shown last to prospective buyers.

DEAR BOB: The deed to our home says, "Va and Sid, husband and wife." How can we correct it to joint tenancy with rights of survivors? -- Virginia C.

DEAR VIRGINIA: Depending on where the property is located, a local real estate lawyer or title company can prepare and record a quitclaim deed from yourselves to yourselves "as joint tenants with right of survivorship." If you live in one of the 24 states allowing tenancy by the entireties between husband and wife, you will probably prefer that title method. Or, if you live in a community-property state allowing it, you might select "as community property with right of survivorship."

The quitclaim deed must include the legal description of your property, the local tax assessor's parcel number (in most states), and the notarized signatures of you and your spouse so it can be recorded with the local recorder of deeds.

DEAR BOB: A few years ago, on the advice of our attorney, my wife and I (now 72 and 75) added the name of our mentally challenged daughter to our free-and-clear home title in joint tenancy with right of survivorship. She lives with us and has been a real blessing. Our other two adult children agree that when we pass on, she should get the house to sell and provide for her care from its equity. The problem is that my wife and I need to increase our income because my pilot's pension was recently cut drastically. We investigated a reverse mortgage and learned that it could solve our income problem. However, we can't qualify because our daughter's name is on the title and she is under 62. Any suggestions? -- Henry R.

DEAR HENRY: My personal opinion is that your attorney gave you bad advice to add your daughter's name to your home title. I know he and you meant well, but it could tie up the property if she isn't capable of understanding. It's like adding a minor child to a title; they can receive title, but they can't convey it.

If your daughter is capable of understanding, she can sign a quitclaim deed to you and your wife, thus removing her name from the title. Then you can qualify for a reverse mortgage and provide for her by amending your wills or living trust.

If she is unable to sign a quitclaim deed, then a court-appointed guardian will be needed to remove her name from the title. A reverse mortgage is ideal for your situation to provide lifetime income as long as you or your wife lives in your residence. Your home equity can provide the income lost from your pension.

DEAR BOB: My father and his brother were left joint ownership of their mother's house in 2002. Dad wants to sell the house and divide the proceeds, but his brother doesn't want to sell. The house has no mortgage. My father has paid for a new roof and other necessary work. There are unpaid property taxes of about $15,500. The house is scheduled for a property tax sale later this year. If my father pays the $15,500 property taxes, can he obtain full ownership? Is there any other way he can obtain full ownership? It would be a shame to lose this house over unpaid property taxes. -- Scott C.

DEAR SCOTT: As a co-owner, if your father pays the $15,500 property taxes to prevent loss of the property at a tax sale, he is entitled to a 50 percent reimbursement from his co-owner brother. Also, he is entitled to receive 50 percent of the roof cost. But your father is not entitled to receive full ownership of the property just for paying the property taxes. However, he can bring a partition lawsuit to force the sale of the property. That is the only legal recourse he has.

Of course, when the property is sold, then your father will receive the 50 percent of the property taxes he paid on behalf of his brother, plus half of the roof cost. For details, your father should consult a local real estate lawyer.

DEAR BOB: You recently had an inquiry from a lady who said her grandmother deeded real estate to her. The deed was signed and notarized but not recorded before the grandmother died. The grandmother's will gave the same property to her son. In previous articles, you said an unrecorded deed might still be valid. Why would there be a possibility in this situation that the son could get the property based on grandmother's will? -- Jerome G.

DEAR JEROME: The legal issue is whether grandmother delivered the deed to her granddaughter conditionally, such as, "Here is my deed, but don't record it until after I die."

The general rule in most states is that such a conditional delivery is void after the grantor dies. If that was the situation, then the son takes title according to grandmother's will.

This is a classic example of why deeds should not be delivered conditionally to a grantee. Another problem could arise if the grandmother changed her mind and sold the property without notice of the unrecorded deed.

DEAR BOB: Is a foreign national who has lived three years in his principal residence -- paying U.S. taxes with a Social Security number but without a green card -- entitled to claim the $250,000 or $500,000 home-sale tax deduction? -- Gloria S.

DEAR GLORIA: Yes. Immigration status doesn't matter as long as the foreign national has held title to the principal residence at least 24 of the 60 months before its sale and has occupied it for that time. Up to $250,000 in sales profits are then tax-free for a single home seller.

If the principal-residence owner is married and the spouse meets the occupancy test but is not on the title, then up to $500,000 in capital gains are tax-free, thanks to Internal Revenue Code 121. A joint tax return must then be filed in the year of the home sale.

DEAR BOB: My wife and I just bought a house for her parents because they couldn't get a mortgage. They live in the house and pay us for the mortgage. We want them to get the tax deductions. But we are concerned about adding them to the title in case they end up in a nursing home or in some other way are forced to use the home's equity. Is there a way for them to get the tax deductions and avoid liability if they are sued? We are considering a contract for deed but are concerned about the tax liability on ourselves. -- Jeff R.

DEAR JEFF: Unless the parents are on the home title or have a contract to buy their principal residence (such as a contract for deed), they are not entitled to claim itemized income-tax deductions for the mortgage interest and property taxes they pay.

DEAR BOB: After I got my divorce and my ex-husband's name has been taken off everything, the title company refuses to take his name off the house. What can I do? -- Kellie W.

DEAR KELLIE: To get your ex-husband's name off the title to real estate, he must sign a quitclaim deed to you. If he refuses to do so, his name remains on the title.

The title company can't do anything without his properly notarized quitclaim deed. Your divorce attorney should have insisted on receiving this important document as part of the divorce proceedings.

DEAR BOB: I live in an 80-year-old house that I have owned for 11 years. While trying to determine why a patch of my lawn was dying, I discovered the home's original underground heating-oil tank. This was not disclosed to me when I bought the house. As best I can determine, the tank has not been used for 35 years. It is empty. I estimate it to be 700 gallons. Should this have been disclosed to me? -- Gary J.

DEAR GARY: If your seller knew of the underground oil storage tank, he or she should have disclosed it to you. However, because you have owned the house 11 years, the statute of limitations expired long ago.

But I doubt that is the cause of the brown patch in your lawn. If there were any oil in the leaking tank, it would seep downward, not upward. Perhaps the soil above the tank was contaminated when the tank was being filled. Maybe simply replacing the soil above the tank will solve the lawn problem.

DEAR BOB: Is it true that when someone inherits real estate -- and it was the deceased's primary residence -- the mortgage will be wiped out at the time of death and the property title passes free and clear of all liens? I heard that if the property was not the deceased's principal residence, then the heir has to pay the debts. -- Rick S.

DEAR RICK: Dream on, my friend! When you inherit real estate, you receive title subject to all existing recorded liens and encumbrances against the property.

That means if you inherit a house that has a first mortgage, a home-equity loan, a mechanics' lien and unpaid property taxes, you must pay all those obligations according to their terms or lose the property by foreclosure or forfeiture.

Real estate inheritances can be wonderful if there is plenty of equity (the difference between the total amount owed and the fair market value of the property). However, if there is little or no equity in the inherited property, you might want to decline that inheritance.

DEAR BOB: We live in a historic set of eight rowhouses next to each other. The rowhouse next door was purchased by a real estate agent who told the seller and the neighbors that he planned to live in the house and rent the back unit (as the previous owner did). Instead, he did not move in. He put seven college students in the house, let the property deteriorate, allowed the gutters to fall off and created an eyesore. He refuses to respond to our phone calls, nor will his real estate brokerage manager reply. What can we do? -- Barrett B.

DEAR BARRETT: The situation you describe is legally a "private nuisance" because it affects a small number of adjoining property owners. If necessary, you and your neighbors can bring a legal action to abate the nuisance.

However, since you've tried being nice, it's time to contact the city code enforcement officer to learn if any ordinances are being violated. Often, a city warning letter will accomplish amazing results. For more details, consult a local real estate lawyer.

DEAR BOB: I need to get an appraisal to prove that my loan-to-value ratio is less than 80 percent so my private mortgage insurance premium can be canceled. I called my mortgage lender, who is affiliated with an appraiser who charges $300. I phoned an appraiser in the yellow pages who wants $325. But I heard that some real estate agents, who are also certified licensed appraisers, would charge less because this is a one-bedroom condominium unit. I don't think I need to spend $300 to remove an expense my lender has been taking from me for the past five years. I have never been late with payments. Is there a less expensive alternative? -- John M.

DEAR JOHN: Don't be a cheapskate. You didn't say how much your monthly PMI premium is, but let's say it is $50. If you pay $300 for a professional appraisal to prove to the lender that you have at least 20 percent equity, you will earn back that $300 from just six months of PMI premium savings.

DEAR BOB: I recently applied online for a home-equity loan, and I realized I was about to become a victim of the lender. The lender wants to charge me a loan origination fee, an appraisal fee, a credit report fee, a processing fee, an underwriting fee, flood certification, a funding fee, $100 escrow settlement fee, $150 title fee, $15 courier fee, $15 wire fee, $75 recording fee, $80 intangible tax, and $235 mortgage tax. What is your evaluation of these charges for a home-equity loan? -- Marydelle P.

DEAR MARYDELLE: Most of those are unnecessary junk fees you should not pay. Virtually every local bank and credit union will eagerly make you a home-equity loan or extend a home-equity credit line without any junk fees if you have a FICO score of 700 or higher. I have obtained many home-equity credit lines over the years from major lenders, such as Chase and Wells Fargo, without paying upfront junk fees such as those you list. The only legitimate home-equity-loan fees on your list are the local mortgage tax, the intangible tax (whatever that is) and the recording fee. The other charges you list should be absorbed or paid by the home-equity lender if it wants your business.

DEAR BOB: I have been an independent mortgage broker for more than 20 years. My business comes from satisfied former borrowers and real estate agents who know I will treat their home buyers right. If I can't arrange a mortgage, I tell the prospect quickly and we part as friends. Often, I know of "secret lenders" who will make mortgage loans not available elsewhere. However, I always reveal the borrower's costs upfront, never imposing any last-minute junk or garbage fees, as some of my dishonest competitors do. Congratulations for exposing those fees, which few others write about. -- Jonathan C.

DEAR JONATHAN: I wish your mortgage brokerage services were available in every city. Why don't you open a nationwide franchise chain, Honest Mortgage Brokerage? It is refreshing to hear from a broker who doesn't trick borrowers at the last minute, when they are most vulnerable.

I frequently recommend experienced mortgage brokers like you who can often arrange "impossible" mortgages for home buyers with unique situations. As long as the fees are disclosed upfront, borrowers can decide whether they want to pay the expenses. What especially irritates borrowers is when their loan charges are far higher than were disclosed on their so-called good faith estimate, which we both know is a joke because there is no enforcement.

DEAR BOB: Thank you for your article some time ago about real estate sales commissions. The home sales market in our town has been slow since January. Our listing agent, a trusted family friend, warned us that sales were slow, so we listed with an asking price about $5,000 below market value. That didn't work.

After two months, she suggested raising our sales commission to 7 percent, with 4 percent going to the selling agent. It worked! Within a week, we had two purchase offers. We accepted the best one and took the other as a backup offer. Our home sale recently closed. Although we paid a higher-than-normal commission, we got an all-cash sale for almost our full asking price. Thanks for that great advice to raise the sales commission. -- Durk H.

DEAR DURK: In your situation, it was more important to get your home sold than to net the highest possible price. Not all home sellers are so motivated. Some home sellers prefer to cut the sales commission by 1 or 2 percent and wait to get their homes sold. Obviously, selling your home was more important than squeezing the last dollar from the sale.

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