Sellers Need All the Help an Agent Can Give Them in Today’s Market
QUESTION: We are having trouble selling our home, which has been on the market for almost nine months. The asking price is reasonable, based on an appraisal of our home when we put it up for sale. We tried listing it with a real estate agent, but she was totally incompetent, so we fired her after about 45 days.
Each weekend we hold an open house, which we advertise in the newspaper. Since the location is good, we have lots of lookers, but have not had any offers so far. My wife says we should wait to sell, but I want to get it over with, so we can move by winter. Why doesn’t our home sell?
ANSWER: Your home hasn’t sold because you are doing everything wrong. It sounds like you are just testing the market and are not highly motivated to sell unless you get your price, which is based on a possibly outdated appraisal. By trying to sell your home alone without a professional real estate agent you are at a severe disadvantage.
Your first step should be to take down the “For Sale by Owner” sign. Look at your house critically. Get it into tiptop condition. If it needs fixing up, such as painting, cleaning and repairing, get the work done. New carpets and fresh landscaping also can be very profitable.
The next step is to invite at least three real estate agents who have recently sold homes in your neighborhood to inspect your home and give their listing presentations. Each agent should give you a written “comparative market analysis” form showing recent sales prices of similar nearby homes, asking prices of comparable neighborhood homes now listed for sale (your competition) and the agent’s recommended price for your home.
Ask each agent for the names and phone numbers of their most recent home sellers. Then phone those sellers to inquire if they were in any way unhappy with the agent.
If you are serious about selling your home you need all the help you can get from a professional agent. In the current buyer’s market in most cities you need the powerful multiple listing service to expose your home to as many prospective buyers and other agents as possible. You only have one home to sell, but it’s hard to compete with the local multiple listing service, which has hundreds of homes available and dozens of agent members.
Don’t Use ‘Over-55’ Tax Break if Unneeded
Q: We just sold our condo and are overjoyed at finding a buyer after having it on the market for sale almost six months. Our net profit is about $70,000, including the deferred gain from the sale of our previous residence, which we sold about six years ago. But we are receiving conflicting information on that “over 55 rule” $125,000 tax break. As we are buying a townhouse which costs just a little more than our condo’s sales price, our tax man says we can roll over our profit and not pay any tax on our sales profit. But a friend says we should use the $125,000 exemption now because Congress might take that tax break away. What do you advise?
A: If Congress takes away the “over-55 rule” $125,000 home sale tax exemption every senator and member of congress would have the wrath of the powerful American Assn. of Retired Persons (AARP) to contend with and would surely be defeated at reelection time. This is one of the safest tax breaks and there is no talk of abolishing it.
However, since you are buying a replacement principal residence of equal or greater cost within 24 months before or after the sale of your old residence you are eligible for the “roll-over residence replacement rule,” IRC 1034, which is available to home sellers of any age. Therefore, you can save your once-per-lifetime $125,000 home sale exemption for future use. Your tax adviser wisely suggested that you use this major tax deferral.
Oral Agreement in Sale Unenforceable
Q: We made a $5,000 deposit to buy a home. After some negotiation, we agreed on the price and terms with the seller. We made it clear to our real estate agent that if we can’t afford the mortgage payments we will cancel the sale. She has been unable to get us qualified for a fixed rate mortgage and we don’t want one of those adjustable mortgages, so we want to cancel and get our $5,000 back. But the seller refuses to refund our money. He says there is nothing in our purchase contract about being able to back out. But it was clearly agreed with our agent we could get our money back if we couldn’t get a mortgage. How can we get our refund?
A: The Statute of Frauds requires binding contracts for the sale of real estate to be in writing. If you had an unwritten “side agreement” with the agent it is probably unenforceable because it was oral. Since a mortgage is available (but not on terms you like), and you failed to put a mortgage finance contingency clause in the written contract, you have several legal hurdles to overcome if you sue the seller for a refund. Please consult a real estate attorney for details.
Home Sale Can Provide Tax-Deferred Dollars
Q: We have about $75,000 equity in our home. Due to business debts, we must sell our home to pay off about $50,000 of overdue bills. However, we understand that if we are to avoid paying tax on our home sale profit we must buy a replacement home of equal or greater cost. As we are not eligible for that $125,000 “over 55 rule” exemption, is there any way out of our problem?
A: Yes. The “roll-over residence replacement rule” of Internal Revenue Code 1034 says you must defer your profit tax when selling your principal residence and buying a replacement principal residence of equal or greater cost within 24 months before or after the sale.
Please notice this law says nothing about having to reinvest any cash received from the sale into the replacement home. In other words, you can sell for all cash and, if desired, buy a replacement home for nothing down such as by using a VA mortgage.
Never Let Buyers Move In Before Close
Q: We recently sold our home and moved out.
As the buyers were moving from out of town, and their mortgage would take several weeks to close, they talked us into letting them move into the house before the title was transferred. When the time for closing finally arrived, the buyers were about $5,000 short, so we had to make them a second mortgage loan. In addition, they found numerous little defects in the house which were trivial, but they got us to credit $2,000 for repairs. Our advice? Never let buyers move into a home before the sale is recorded.
A: Thank you for that valuable advice. I fully agree.
FHA Lenders Will Not Strike Mortgage Policy
Q: Please unconfuse me about mortgage insurance. Several times you have written about how to cancel mortgage insurance when the loan-to-value ratio drops below 80%. But when I wrote to my lender about canceling the insurance on my FHA mortgage, I was told the lender’s policy is to never cancel FHA insurance. My loan is 14 years old and there is no need for such insurance, so my premium is a waste of money. What can I do?
A: Sorry, there is nothing you can do to force your FHA lender to cancel your MMI (mutual mortgage insurance) premium. Although I will get nasty letters from FHA officials telling me FHA insurance can be canceled at the lender’s discretion, I have yet to hear of a lender foolish enough to do so. But the good news is when you eventually pay off your FHA mortgage, you will become entitled to a partial refund of the MMI premium you have paid.
Unfortunately, you confused your FHA insurance with PMI (private mortgage insurance) which is required on 90% and 95% conventional mortgages. Depending on the lender, PMI can usually be canceled when the loan balance drops below 80% of the property’s market value. But most lenders require the loan to be at least two years old before dropping the PMI.
Not Using MLS Can Be Breach of Agent’s Duty
Q: We listed our home for sale with a realtor recommended by a friend. I don’t know much about real estate, but I do know the local realtors have a multiple listing service to share information on listings. After several weeks we noticed no agents from other brokerage offices had brought clients to inspect our house. Upon inquiry with our realtor she said her firm usually can sell the listings within its own offices, so there is no need to use the multiple listing service. We thought our house would be in the multiple listing service. What should we do?
A: Shame on your real estate agent for misleading you into thinking your home would be submitted to the local multiple listing service. The MLS is one of the most powerful sales devices real estate agents have and it is shocking your agent isn’t using it to get your home sold.
You should know the reason your agent didn’t put your home into the MLS is the agent and her broker earn a bigger commission if the sale takes place within the listing firm. If you were told the MLS would be used, but it wasn’t, the agent breached her fiduciary duty to you. The matter should be reported to the state real estate commissioner for investigation and possible revocation of the agent’s license.
Let Brokers Settle Their Own Disputes
Q: Several months ago we listed our home for sale with broker A. The listing expired with the home unsold. Then we listed our home with broker B who found us a buyer within a few weeks. We accepted the offer. Then broker A somehow found out who the buyer was. She claims she showed our home to the buyer and is entitled to half of the sales commission. But broker B says broker A is not entitled to any part of the commission, since the first listing expired. Do you think we owe half the sales commission to broker A?
A: Without reading the first listing and studying its “savings clause,” I can’t tell if broker A is entitled to any part of the sales commission. A typical “savings clause” in most listings says the listing broker is entitled to a sales commission if, during the listing term, the broker registered with the seller a prospective buyer who was shown the home during the listing term, unless the home is subsequently listed with another real estate agent.
But smart home sellers stay out of sales commission disputes among real estate agents. This is the nasty side of the realty sales business. Most agents can settle their commission disputes through the arbitration procedure of the local Board of Realtors.
Home Warranty Can’t Compensate All Losses
Q: We are preparing to list our home for sale. One realty agent suggests we pay about $300 for a warranty policy to protect our buyer in case something goes wrong with the house after the sale. But our home is only about three years old and has no serious defects. Do you think we should buy a warranty policy?
A: One-year home warranty policies pay for repairs to the home plumbing, wiring, furnace, water heater and built-in appliances. However, there are many exclusions--such as for the roof, foundation, plumbing outside the home’s perimeter, air conditioning and swimming pool--unless an extra premium is paid.
Home warranty policies are considered sales inducements. They also help protect home sellers and real estate agents against claims from buyers for problems that develop after the sale from covered losses. However, please don’t think these one-year home warranty policies protect buyers from every possible loss.
