DEAR BOB: Suppose a prospective home buyer makes a full-price, all-cash purchase offer? Does the seller have to accept? I ask because a friend recently made such an offer and was told by the listing agent the seller wants more than the asking price. Is this legal? – Chuck D.
DEAR CHUCK: Unfortunately for your friend, a home seller does not have to accept a full-price, all-cash, no-contingency purchase offer even at the full asking price specified in the local MLS (multiple listing service) listing.
Purchase Bob Bruss reports online.
The reason is the listing is a contract between the home seller and the listing real estate agent. A prospective buyer is not a party to that contract and cannot enforce it.
However, if a buyer makes a full-price, all-cash, no-contingency purchase offer, which the seller rejects, the listing agent is then entitled to a full sales commission although no sale takes place. But most listing agents won’t sue a seller because word spreads fast in the realty agent community where goodwill is very important.
When a home seller rejects a full-price purchase offer, the asking price might have been intentionally set low by the seller and agent to create a “buyer frenzy” and obtain a sales price above the asking price. In a hot “seller’s market,” it is not unusual for a home to sell well above its low asking price.
Although I think it is dishonest to mislead prospective buyers by setting a low asking price, it is legal to do so and it does not violate the Realtor code of ethics. Listing agents who use this sales technique say they are just trying to get their home sellers the highest sales price.
WHAT IS THE DIFFERENCE BETWEEN A MARKET ANALYSIS AND AN APPRAISAL?
DEAR BOB: What is the difference between a real estate agent’s “market analysis” and an “appraisal?” Which is more accurate? Which should I use when selling my two-family rental property, which I have no idea of its market value? – Allison M.
DEAR ALLISON: A real estate agent’s comparative market analysis (called a CMA) is the agent’s opinion of a property’s market value based on recent sales prices of comparable nearby properties. A CMA shows recent sales prices of similar properties, asking prices of nearby properties currently listed for sale (the competition), and recently expired comparable listings.
But an appraisal is a formal detailed document prepared by a state-licensed appraiser, showing the estimated current market value of a property based on recently closed sales, usually within the last six months.
The CMA and an appraisal both adjust for the pros and cons of the subject property, compared to the recent comparable sales prices.
Which is better? A savvy local realty agent knows market sales price trends, up or down, whereas an appraiser provides an expert market-value opinion based on recent closed sales.
I suggest interviewing at least three successful local realty agents who are interested in listing your two-family rental property for sale. Compare their CMAs. Ask lots of questions. But before listing for not more than 90 days, check each agent’s references of recent sellers. Then list your property for sale with the best agent.
DOES VACATION TIME COUNT AGAINST 24-MONTH OCCUPANCY?
DEAR BOB: In a few years, my husband and I will retire, sell our primary residence and claim that $500,000 principal residence sale tax exemption you often discuss. Then we plan to move full time to a rental property we now own in Florida. Next, we hope to do a lot of traveling, primarily in Europe. After using the Florida home as our primary residence for 24 months, we intend to sell it. How much of the time during the 24 months must we be present in the Florida house to again use the $500,000 principal residence tax break? Suppose we spend two months at a time traveling; will that be deducted from the 24-month period? – Jane W.
DEAR JANE: It sounds like you have a good plan. Vacation time is not deducted from the required 24 out of the last 60 months before principal residence sale requirement of Internal Revenue Code 121.
However, if you rent your home while you are on “vacation” for two months, you can’t count that rental period as principal-residence occupancy time. Or if you live in Europe for a year, that won’t count toward the 24-month principal-residence test either. Keep careful records, especially Florida utility bills, voting registration, auto licenses, bank records, and other residency indications. For details, please consult your tax adviser.
NO WAY TO AVOID TAX ON SALE OF THIS RENTAL CONDO
DEAR BOB: A little over a year ago we bought a golf rental condo, which we recently sold at a profit exceeding $100,000. What is the best way to avoid paying tax on our sale profit? I thought of buying a motor home and renting it until I retire next year. Will this reduce our tax? – Allan S.
DEAR ALLAN: Dream on! You already sold the rental condo. The only way to defer tax on the sale of a rental property is to make a tax-deferred Internal Revenue Code 1031 exchange for another rental property of equal or greater cost and equity.
It’s too late for you to avoid tax on your handsome $100,000 condo sale profit in just 12 months. Be happy the federal capital gain maximum capital gain tax rate is only 15 percent, plus any state tax. For full details, please consult your tax adviser.
SHOULD HEIR WORRY ABOUT RESIDENT’S ADVERSE POSSESSION?
DEAR BOB: A friend of mine is preparing to sell a house that belonged to his mother who recently died at age 100. From reading your column as part of my routine, I know he benefits from the stepped-up basis to market value on the date of her death. However, there is a relative who lives in the basement of the house without paying any rent. Until that resident moves out, my friend won’t be able to sell the inherited house. How much time must he give the resident to move and is there any concern about his obtaining title by adverse possession? – Jason S.
DEAR JASON: There is no need to worry about the guest resident gaining title by adverse possession because the occupancy was permissive, not hostile. Also, the resident didn’t pay the property taxes.
Your friend should have a polite conversation with the resident to give him time to find another place to live. Just to make things official, a written notice to move in 60 (or even 90) days should be handed to the resident. A local real estate attorney can provide further details.
IS HOME SELLER ENTITLED TO REDUCED SALES COMMISSION?
DEAR BOB: Our listing agent allowed us to hold an open house last Sunday. We printed flyers and showed the home all day. We received a purchase offer and negotiated the price with the buyer (who didn’t have an agent, but was ultimately represented by an agent who was at home). The offer is good and we accepted. I asked my listing agent for a “finder’s fee” for obtaining the purchase offer. He refused. Was I operating as a surrogate agent on my agent’s behalf and am I entitled to a reduced commission or a finder’s fee? – Mike B.
DEAR MIKE: If you have a listing contract with your agent, presumably a discount agent if you had to hold your own open house, that agent is entitled to the full sales commission specified in the listing contract. Of course, your listing agent will have to pay part of that commission to the buyer’s agent, according to their agreement.
Unless you hold a real estate license, you were not a “surrogate agent” (called a “sub-agent” in real estate talk).
Because you did all the work of holding the open house and negotiating the sales contract, it’s up to you to negotiate any reduction off the listing agent’s sales commission. No, you cannot claim a “finder’s fee” for locating a buyer on your listed property.
IS TODAY A GOOD TIME TO REFINANCE AN ADJUSTABLE-RATE MORTGAGE?
DEAR BOB: About a year ago, we refinanced with an adjustable-rate mortgage. We have been enjoying a very low interest rate, around 4.5 percent. But our mortgage broker phoned last week to tell us she thinks it’s time we refinance into a fixed rate mortgage at 5.5 percent interest with no fees. Our current mortgage has no prepayment penalty. Do you think we should do so? – Patricia Y.
DEAR PATRICIA: Yes. You have a very good mortgage broker who is looking out for you. Also, she will earn a nice fee for refinancing your mortgage.
Although mortgage interest rates have been rising very slowly, the interest rate trend is definitely not down. If you plan to stay in your home at least five years, refinancing now to a fixed rate mortgage appears to be a very smart decision.
The new Robert Bruss special report, “The 10 Key Questions Condo Sellers Hope Their Buyers Don’t Ask,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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