DEAR BOB: I liked your suggestion a few weeks ago to get a home sold in a slow buyer’s market by increasing the sales commission to 7 percent with 4 percent going to the buyer’s agent who produces an acceptable buyer. However, when I told my listing agent I wanted to increase the commission to get my property sold, she said, “My broker will not allow it. He says it’s not fair.” Is this legal? Or am I stuck with my listing agent and her broker for another 60 days until my listing contract expires? –Pat C.
DEAR PAT: I am shocked. That is the first time I have ever heard a real estate broker refuse to raise the sales commission. As you know, that suggestion to raise the buyer’s agent commission received positive responses from several property sellers and agents in this column.
Purchase Bob Bruss reports online.
Variations include offering buyer’s agents incentives such as the home seller’s car, a Hawaiian vacation, and various other special incentives to get a property sold, especially in a buyer’s market. Increasing the sales commission going to the buyer’s agent is just a variation of incentives that have been used for years to get homes sold in a slow market.
I suggest you phone the broker and discuss (1) why your listing hasn’t sold and (2) why the broker opposes raising the sales commission to 4 percent, which goes to the buyer’s agent. That is a great incentive to get buyer’s agents, through the local MLS (multiple listing service), to show and sell your property to their prospects.
Maybe the listing broker misunderstood and thought you wanted to cut the commission to 4 percent. Unless his response is satisfactory why his firm hasn’t sold your property and why he refuses to raise the commission to the buyer’s agent, ask him to cancel the listing so you can switch to a more effective listing agent.
SAME “STEPPED-UP BASIS” RESULT FOR LIVING TRUST AND A WILL
DEAR BOB: You recently answered a question about passing a property title to an heir by a revocable living trust. Does the living-trust heir receive the house at the decedent’s presumably low cost basis, thereby incurring a larger gain on sale than if title simply passed by probate to the heir by a will? –Deana K.
DEAR DEANA: The same “stepped-up basis” rule applies to the heir, whether title to the inherited property passes by probate of a will or without probate court costs and delays via the deceased’s revocable living trust.
The two primary living-trust advantages over a will are (1) avoidance of probate court costs and delays and (2) if the property owner becomes disabled, perhaps with Alzheimer’s disease or a severe stroke, then the successor trustee takes over management of the living trust assets without necessity for a court-appointed conservator.
Whether title passes through probate by a will, or without probate via a living trust, the heir receives the property title with a new “stepped-up basis” to market value on the date of the decedent’s death. More details are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.
CAN LIFE TENANT OBTAIN A REVERSE MORTGAGE?
DEAR BOB: My stepmother has a life estate in her house, which goes to my husband after her death. Is it possible for her to get a reverse mortgage? If so, what happens after her death regarding the reverse mortgage? –Sheila H.
DEAR SHEILA: To obtain a senior-citizen reverse mortgage, the homeowner must be 62 or older and hold fee simple absolute title. A life estate does not qualify.
When a homeowner with a reverse mortgage dies, the mortgage “matures” and the principal plus interest become due. To pay off a reverse mortgage after the homeowner’s death, the heir can either sell the property or, if he desires to keep the property, refinance to pay off the reverse mortgage balance.
TWO HOME EQUITY LOANS VERY UNLIKELY
DEAR BOB: I co-own a property with someone who is not my spouse. She now wants to take out a home equity line of credit (HELOC) to pay down her credit card debts. But we currently have an $80,000 HELOC. Can she get another line of credit secured by the property? – Ernie F.
DEAR ERNIE: I am not aware of any HELOC lender who will make a loan to one co-owner but not require the signature of the other co-owner. If you both already have an $80,000 HELOC secured by the property, no lender is likely to make a second HELOC secured by the same property.
ADD FIANCE TO HOME TITLE TO MAKE HER PAYMENTS TAX DEDUCTIBLE
DEAR BOB: Is there any way to add my fiance to my current mortgage without having to refinance? I was recently laid off my job and my fiance is making the mortgage payments. She has a much larger tax bite taken from her salary. I would like to add her to my mortgage. Would she then be eligible to take the mortgage interest and property tax deductions? –Mike T.
DEAR MIKE: To claim the itemized tax deductions, your fiance must hold title to the property and be legally obligated to make the mortgage and property tax payments she pays
If you are 100 percent certain you will get married and you will both live happily ever after together, then add her name to your title by a quitclaim deed.
After her name is on the title, when she makes the mortgage and property tax payments, although her name does not need to be on the mortgage obligation, she can deduct the interest and taxes she actually pays. She can then have her employer adjust her withholding exemptions. For more details, she should consult her tax adviser.
IS THIS A GOOD TIME TO BUILD A CUSTOM HOME?
DEAR BOB: Is this a good time to build a custom home? Or should we wait for the cost of materials to decrease? We understand there are houses on the market that are reasonably priced –Johnny B.
DEAR JOHNNY: Don’t expect the cost of building materials to decrease anytime soon. Building a custom home and buying a lot is usually far more expensive than buying one already constructed. In most areas, home builders are now offering fantastic bargains and buyer incentives due to excess inventory.
PAINTING PERSONAL RESIDENCE IS NOT TAX DEDUCTIBLE
DEAR BOB: I recently moved into a house I rented to tenants for 10 years. During that time, my tenant would not allow me to repaint because of the inconvenience to him. After the tenant moved out, I had the house painted and repaired by professionals. My accountant says I cannot deduct these expenses although I would have gladly painted the property during the tenant’s occupancy. Can I deduct these costs? –Shirley P.
DEAR SHIRLEY: Unfortunately, your tax adviser is correct. Painting and repairing a rental property is a tax-deductible expense on Schedule E of your tax returns where you also report the rental income.
However, because the purpose of the painting and repairing was to make the house suitable for your personal occupancy, then the cost is a non-deductible personal expense.
SELLING DEPRECIATED PROPERTY AT A LOSS IS VERY RARE
DEAR BOB: If I sell my rental property at a loss, can I avoid that 25 percent depreciation recapture tax or do I have to pay it regardless of the loss? –Bill K.
DEAR BILL: Selling a rental property at a loss on which you have deducted depreciation is extremely rare. That means you would be selling below your depreciated book value.
For example, suppose you bought a rental house for $100,000 and deducted $25,000 total depreciation during the years you owned it. That means its depreciated book value is now $75,000.
To sell at a loss, you would be selling below the $75,000 book value in this example. In such a situation, you have no capital gain and no depreciation recapture tax.
However, let’s say you sell this property for $90,000. Although selling below your $100,000 purchase price, you have a $15,000 capital gain ($90,000 minus $75,000), which is taxed as depreciation recapture. For details, please consult your tax adviser.
The new Robert Bruss special report, “How to Sell Your Home for Top Dollar in a Buyer’s Market,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet 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).
