QUESTION: My wife and I are getting divorced. The problem is our home, in which we have about $50,000 equity. We have agreed to sell it and split our profit equally. In addition to the real estate agent’s sales commission, what other sales costs should we anticipate?
ANSWER: Most home sellers fail to anticipate the closing costs, which will reduce the net cash they will receive. You are wise to anticipate these expenses so you can be realistic about the net sales proceeds. Here are the most-often encountered deductions, in addition to the sales commission, that home sellers should expect:
1--Mortgage loan balance payoff, including any prepayment penalty and interest to the day the sale closes.
2--Legal and escrow fees (which may be split between buyer and seller, or paid entirely by one party).
3--Transfer taxes and recording fees.
4--Proration between buyer and seller of the property taxes, utility fees and mortgage interest if the buyer assumes your existing mortgage.
5--VA mortgage loan fee if your buyer obtains a VA home loan.
6--Title insurance premium (customarily paid by the buyer in some areas).
7--Damage repairs that you agree to pay in the sales contract.
Although your home sale might not have all these expenses, and there could be other incidental fees, these are the most expensive items to anticipate. Your real estate agent should prepare a “seller’s net statement” to more exactly show how much cash you can anticipate receiving.
Buying a Small Motel for Retirement Income
Q: My husband will retire next year, and we are thinking of buying a small “mom and pop” motel that we can run for extra retirement income. We have about $75,000 to invest. What do you think?
A: I think you should reconsider. Buying a motel will mean buying yourself a full-time, 24-hour job. Is that what you really want for your retirement years? Your risk of business failure as a motel owner is far greater than if you invested in income property, such as apartments or single-family rental houses.
Power of Attorney Form Aids Home Sale
Q: We sold our home because of my husband’s job promotion. I was left to sell the home and arrange the move. He began his new job last November. Our home sale is ready to close in two weeks, but it would be a major expense to have my husband fly back here just to sign a few closing papers. Is there any way to avoid this problem?
A: Yes. I am surprised your attorney or escrow holder did not suggest that your husband sign a power of attorney form giving you authority to sign the deed and other papers to get the sale closed. Ask your attorney or title insurance company to prepare the proper form, send it to your husband via Federal Express, have him sign it in front of a notary public, and have him return it via Federal Express. For a few dollars, you can avoid the major expense of your husband flying back to sign a few routine sales papers.
Change Locks When You Buy a Home
Q: In a few weeks we will close the purchase of our first home. The realty agent suggested that we have the locks re-keyed before we move in. A locksmith estimated that it will cost $50 to do this. Do you think we should do so?
A: Yes. Since you have no way of knowing who has keys to your new home, it will be cheap peace-of-mind insurance to have the locks re-keyed.
‘Statement of Identity’ Protects Buyer, Seller
Q: We are selling our home. The title insurance company asked us to fill out a “statement of identity” form. They said this is customary. But it asks questions such as our Social Security numbers, previous residences, any judgments against us and other personal information. We have nothing to hide but were insulted. Is this commonly done?
A: Home buyers and sellers who have common names, such as Jones, Smith, Johnson, Anderson and Wong, are usually asked to fill out a statement of identity form. The purpose is to let the title insurance company researcher check recorded judgments, tax liens and bankruptcy filings to be sure they do not pertain to you.
Since you have a rather common last name it is understandable why you were asked to provide the form. Even with my rather uncommon name, when I bought a property about 15 years ago, I had to prove to the title insurer that a recorded income tax lien against another Robert Bruss did not apply to me.
Mortgage Contingency Time Limit Important
Q: We were very pleased when our realtor brought us an almost full-price purchase offer for our home just 11 days after we listed it for sale. However, our joy may have been premature. The purchase offer contained a mortgage contingency clause so the buyer could get out of the purchase if he can’t obtain a home loan.
The realtor assured us that with a 20% cash down payment, obtaining a mortgage should be no problem. Well, it turns out that the buyer has some problems on his credit report and his ex-wife is suing him. As a result, the buyer hasn’t been able to get a mortgage in three weeks. The realtor admits she should have put a time limit on the mortgage finance contingency, but she forgot, so it is open-ended. But the buyer refuses to give up his contract to buy our house. What should we do?
A: Your situation shows the mess that can develop when a contingency clause in a home purchase contract does not contain a reasonable time limit. When I recently sold a home, the buyer obtained a loan commitment within two weeks and the sale closed within 30 days from the day the contract was signed. Your buyer is overdue to obtain a mortgage commitment.
Since you have already given the buyer three weeks to obtain a mortgage and it appears he will not be able to do so, I would have the realtor put the house back on the market.
By the time a second purchase offer is received from another buyer you should know if the first buyer can obtain a mortgage. To strengthen your position in case litigation develops you or your attorney may want to write to the first buyer, explaining that you have waited a reasonable time for removal of the finance contingency, that you are canceling the contract, and refunding the deposit. Ask your attorney to explain further.
Graceful Exit From a Bad Listing Contract
Q: We foolishly listed our home with a relative who is a part-time realty agent and a full-time schoolteacher. In the six weeks our home has been listed, only four prospects have inspected it, and they were all brought by agents from other brokerages. When we phone our agent, we get her answering machine and she calls us back a day or two later. We asked her to hold weekend open houses and advertise our home but she comes up with vague excuses. How can we get out of this bad listing, which has over four months remaining?
A: I feel very uncomfortable about part-time realty agents who are not fully committed to selling real estate. But I feel worse about your signing a long, six-month listing. If an agent doesn’t feel confident enough to get the home sold within, at most, 90 days, you’re doing business with the wrong agent.
To get out of your listing gracefully, talk to the agent’s broker about transferring the listing to that firm’s best agent. The original agent will then get a referral fee when your home sells.
Is it Too Late to Make a Trade After You Sell?
Q: I sold my commercial building in October at a nice profit of more than $250,000. But shortly after the sale, I got sick when I read your explanation of Starker tax-deferred “delayed” exchanges. Since I still have the sale proceeds in my bank account, how can I make an exchange out of this sale?
A: Sorry, You should have consulted your tax adviser before selling your property. After the sale closed it was too late to convert it into a tax-deferred exchange.
As you know, Internal Revenue Code 1031(a)(3) permits a delayed tax-deferred exchange. This means you can close the sale, have the proceeds held by an intermediary and then have 45 days to designate the property to be acquired to complete the trade, and 180 days to close the acquisition. Ask your tax adviser to explain further.
How to Buy a Home With No Credit Check
Q: I have almost $20,000 saved for the down payment on a small house, townhouse or condo. But about a year ago I got some black marks on my credit report when I was still married and my ex-husband ran up some unpaid credit card debts. We finally paid these bills, the divorce is final, and now I want to buy a home. I tried buying a house but couldn’t get a mortgage because of these credit problems. How can I buy a home without a credit check?
A: Buy a home with an assumable mortgage from VA, FHA, or a private party. No credit check will usually be made. Work with a good realty agent to find a home with financing that doesn’t require a credit report.
Can Home Buyer Hire Own Real Estate Agent?
Q: Over the years my wife and I have bought and sold four homes. Now, due to a job transfer, we will soon buy our fifth home. But the realty agents really work for the seller and nobody represents the buyer. Suppose I work out a deal with a realty agent to represent just us when we buy our home and we would pay our agent half of the customary sales commission. Do you think this is a good idea?
A: No. Your plan has been tried, but it is not very practical. The reason is that your agent will be pushing you to buy a house because until you buy, the agent doesn’t receive a sales commission.
You can sign a “buyer’s broker” agreement with an agent to represent you as a buyer, but when the sale closes, your agent is really receiving half of the listing agent’s sales commission.
As a buyer, your best bet is to go along with the prevailing arrangement where the listing agent represents the seller and the selling agent who finds you a home is a sub-agent of the seller. Yes, you can sign an agreement that the agent who finds you a home is your agent but that is really just a fiction.
‘Budget Mortgage’ Not Held Advisable
Q: We are in the process of buying a home. The mortgage lender asked us if we want a “budget mortgage” so that our monthly payments will include impounds for one-twelfth of the property taxes and fire insurance. We thought that was a good idea, but our friends tell us it is a bad mistake. What do you suggest?
A: Listen to your smart friends. However, if you are obtaining a VA, FHA or PMI (private mortgage insurance) home loan, you will be required to have an escrow impound account for property taxes and insurance.
But conventional mortgages do not require impounds, and I strongly recommend that you pay your property taxes and insurance premiums directly. There are two primary reasons: First, you will receive zero or a very low interest on your impound balance, and second, lenders often make mistakes as to the monthly impound payment required and frequently forget to pay the tax and insurance premium on time.
Title Insurance a Must With Quit Claim Deed
Q: I made a deal with my uncle to buy his house. He and my aunt are getting a divorce, so they want to sell their property and split everything equally. Since there is no realty agent involved, I am not sure I am being treated fairly. My uncle and aunt gave me a notarized quit claim deed in return for my down payment and the mortgage papers. Their attorney prepared the paper work. Do you think everything is all right?
A: No. If you did not receive a title insurance policy on that quit claim deed, you may have title problems if your aunt and uncle had any recorded liens, such as for judgments, income taxes or perhaps unpaid property taxes. Run, don’t walk, to a title insurance company and purchase an owner’s title policy to be certain you own marketable title.
Always Fix Up Home Before Selling It
Q: We realize that our home needs to be painted and fixed up. However, I am 72 and my wife is 67 and neither of us is in good health. We are selling to move closer to our children. The realty agent has offered to have our home fixed up before we put it on the market. Do you think we should do this or is the agent trying to con us?
A: Your real estate agent is doing you a big favor by offering to handle the fix-up of your home before putting it on the market. Painting, cleaning and repairing are the most profitable improvements you can make before the sale. Most home buyers have little imagination as to how nice your home can be after it is fixed up, so it is very important to put your home in the best possible condition before selling it.
Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent to the real estate section, Los Angeles Times, Times Mirror Square, Los Angeles 90053.
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