Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, May 7, 2006.
DEAR BOB: Twelve years ago we successfully sold our home “for sale by owner” and saved the real estate sales commission. Now we are trying to sell our townhouse without an agent and are encountering nothing but problems. The additional legal paperwork and required disclosures are amazing. More important, we discovered that even paying a local Realtor to put our listing into the local multiple listing service (MLS) for a $795 fee hasn’t brought results. The local agents aren’t showing our home although it is reasonably priced and we offer a 2 percent broker co-op commission. We had one very serious buyer who came back three times. But she wanted us to reduce our sales price by 6 percent to compensate since we wouldn’t have to pay a sales commission. Any suggestions how we can sell our home and save the sales commission? –Norman V.
DEAR NORMAN: No. As longtime readers know, I do not recommend attempting to sell your home alone without a professional real estate agent. Although I am a real estate broker, unless I sell a rental house to my tenant, I always list it with a local Realtor. There are many reasons.
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Full-time, professional real estate agents know local market values, whether they are rising or falling. By attempting to sell alone, you could be vastly underpricing your home. Or maybe it is overpriced so prospective buyers will stay away.
Most prospective home buyers shy away from “for sale by owner” newspaper classified ads. They fear the seller is “strange” for not listing with a realty agent. There is a good reason more than 80 percent of home sales are handled by real estate agents.
As a do-it-yourself home seller, although you paid $795 to put your listing in the local MLS, that doesn’t mean it will be actively marketed. The MLS is a very powerful marketing tool, but your home also needs exposure on the Internet, such as www.Realtor.com, and other Web sites, which only a pro-active listing agent can provide.
Offering a mere 2 percent sales commission to a buyer’s agent is an insulting joke. Get realistic. In today’s competitive home sales market, you should list with a successful, aggressive real estate agent to get your home sold and to comply with today’s disclosure requirements to prevent future legal problems.
NO EASY WAY TO GET A LIFE TENANT OUT
DEAR BOB: My father died in 1986. He left his house to me, his only child, subject to a life estate for his second wife. My stepmother is now 93 and still living in the house, which is in a horrible state of disrepair. About five years ago, after reading your item about terminating a life estate for “waste,” on my behalf a local real estate attorney brought a lawsuit against her because she let the house deteriorate. However, the sympathetic judge ruled there was not sufficient waste to terminate her life estate. The house (worth around $300,000) is “declining” but in a decent neighborhood, and the life tenant isn’t spending a penny to maintain it. Is there anything I can do? –Ryan R.
DEAR RYAN: Of course you could bring another lawsuit for waste. But there is no guarantee of success.
Another alternative is to offer your stepmother cash to terminate her life estate. Perhaps she would like to move to an assisted-living center where she can receive care and cooked meals in a nice facility. Waving $50,000 or $100,000 cash (theoretically) in front of her might convince her it’s time to move out and terminate her life estate. For more details, please consult a local real estate attorney.
WHY IT IS BETTER TO INHERIT PROPERTY THAN RECEIVE IT AS A GIFT
DEAR BOB: After reading your recent article, I got the impression it is economically better to inherit property than to receive it as a lifetime gift. But both situations are subject to tax. Please expand on this topic. –Al R.
DEAR AL: There are many reasons why it is far better to receive real estate as an inheritance than as a pre-death gift. From the heir’s viewpoint, inheritance is more beneficial than a lifetime gift because the heir receives a new “stepped-up basis” of market value on the date of the decedent’s death. This is a huge tax benefit, especially if the property had been owned many years with a low basis.
When a property is gifted before death, the donee takes over the donor’s often very low adjusted-cost basis. Also, if the net value exceeds $12,000, the donor must file a federal gift tax return. But no federal gift tax will be due if the donor has given away less than $1 million in lifetime non-exempt gifts.
However, if the decedent’s net estate exceeds $2 million, then federal estate tax must be paid by the estate before the heir receives inherited title. Also, in a very few states, there might be an inheritance tax if the heir is not a close relative. For full details, please consult your tax adviser.
PROS AND CONS OF TENANCY-IN-COMMON APARTMENT BUILDINGS
DEAR BOB: I own a four-unit apartment building. I want to sell a 75 percent interest and retain 25 percent. If I sell 25 percent to each of three investors, can they force a sale of the entire building by a partition lawsuit? Or can any of the four co-owners sell their share without the approval of the other investors? Is it possible to allow the investors to occupy a specific apartment in the building? –John E.
DEAR JOHN: The situation you describe is known as a tenancy-in-common (TIC). TICs are widely used to get around local rent control and condominium conversion ordinances.
But the major drawback is there is one mortgage on the entire property. Each TIC co-owner cannot obtain an individual mortgage, as can a condominium buyer. Another problem occurs if a TIC fails to pay their share of the mortgage each month. Then the other owners must pay the deficit or risk losing the property by foreclosure.
Although I don’t recommend TICs for owner-occupied apartment buildings, because of the many potential problems that can arise, they have been successfully used for investment properties where the investors are not owner-occupants.
Yes, it is usually possible to provide in the TIC documents for the tenants-in-common to waive their right to force a partition sale of the property. The TIC documentation can specify a TIC can occupy a specific apartment in the building. For full details, please consult a local real estate attorney who is experienced with TICs.
CAN HOMEOWNER BE FORCED TO JOIN HOMEOWNER’S ASSOCIATION?
DEAR BOB: In 1997 I bought my home. There was no homeowner’s association. A developer bought the vacant lots in the subdivision and formed a homeowner’s association. Now the developer is applying pressure for everyone to join. There is a private road that has been apparently turned over to the association. Is this legal? We are in the process of selling our home and want the new owner to make the decision to join or not? –Zuella P.
DEAR ZUELLA: I have never heard of such a situation where the private road is transferred to the homeowner’s association, unless there was a vote of the affected owners or unless the developer controls a majority of the affected vacant lots.
The best you can do is to disclose the situation to yourbuyer and let him decide if he wants to join the homeowner’s association. Perhaps a local real estate attorney can provide further details.
BE EXTREMELY CAREFUL WHEN BUYING LEASEHOLD CONDO
DEAR BOB: My son was recently transferred to Hawaii. He is considering purchase of a condominium in Honolulu. It is on leasehold land. The inventory of available units seems very limited. We have benefited from your recommendations about IRC 1031 tax-deferred exchanges, living trusts, and tax-free cash from home sales, but have never before encountered leasehold land. Your recommendations? –Bev P.
DEAR BEV: Your smart son is wise to question the purchase of a condo that is on leasehold land. He should carefully investigate the terms of that land lease.
For example, when I was at a Realtor’s convention in Honolulu years ago, we went to inspect a beautiful new high-rise condo building. As an inquiring reporter, I asked about the land lease, its terms, and if there was a renewal option. I learned it was a 40-year land lease with no renewal option. Buying a condo in that building was clearly a very bad deal because as it gets close to the 40th year, the condo loses all its value since the building title then reverts to the land leaseholder.
Several years later, when I visited Honolulu, I inquired about the fate of that building. I discovered the condos did not sell and it is now an apartment rental building. When buying any improvement on leased land, you can’t be too careful.
The new Robert Bruss special report, “Pros and Cons of Fast and Slow House Flipping for Big Profits,” by Robert Bruss, 251 Park Road, Burlingame, Calif., 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.
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