Home-sale commissions too high, seller says

DEAR BENNY: I had my home priced under the market price and recently took it away from the brokers so I could lower the price even more. Why? Well, I have a beautiful, wonderfully priced home and did not get any offers.

In this period of downturn in the real estate market, each week we are told, "Price your house under the market value or pull it off the market."

My question is this: Why is it entirely on the homeowners to take a hit when this whole mess was not their fault -- except some got greedy on the price? Homeowners would be less resistant to lowering the price if the real estate brokers would also lower their commission rates. Is it a state law that they cannot lower their fees? We are in this together and we need some incentives from the real estate brokers. --Bob

DEAR BOB: For fear of being criticized again for being too cynical, I have to say that everyone believes his or her house is beautiful and "wonderfully priced." But that's not always the case. We often look at our house through "rose colored" glasses. Perhaps your house is not worth what you think it is -- especially in this down market. And with hundreds (if not thousands) of homes going to foreclosure, many potential buyers are trying to get a better deal on those houses.

You are correct that greed has played a large part of the current real estate mess that we are in -- greed on the part of brokerage firms, mortgage lenders, real estate agents and sellers. But that's the past, and hopefully Congress (and state legislators) will wake up and enact strong safeguards so that these same practices will not happen again.

To answer your specific question, there are no laws restricting real estate brokers and agents from reducing their commissions. In fact, every real estate commission is negotiable. The antitrust laws prohibit price-fixing; real estate commissions are -- and must be -- decided by each company without collusion or cooperation from any other company.

Many real estate brokers anxious for a sale will be happy to reduce their commission; all you have to do is ask. If a broker is unwilling to do so, search around for a company that will give you a break.

However, in today's market, many real estate agents are asking for a bonus if they find a buyer within a certain fixed period of time. Once again, that's negotiable. If you want to sell -- and have an agent work really hard for you -- you might be willing to pay something extra. But again, that's your choice.

DEAR BENNY: My wife and I own our home as joint tenants. My father is willing to purchase a joint-tenancy interest in our home with us to help us pay down our mortgage. If we do this, will there be any immediate tax liability triggered by this action for any of us. Also, if at some time in the future my father wishes to quitclaim his interest in our property back to us, would that trigger any immediate tax liability for any of us? --Richard

DEAR RICHARD: When you sell property -- whether all of it or only a portion -- there will be tax consequences. However, if you and your wife file a joint income tax return, and have owned and lived in the property for at least two years, you can exclude up to $500,000 of the gain you will have made.

But that's only the start of the analysis you should make. Let's say that your father purchases one-quarter of your house. Several years later, if he deeds it back to you (whether by a quitclaim or warranty deed is irrelevant), presumably he will have made a profit. At least, the IRS may think so. And since he would not be eligible for the up-to-$500,000 exclusion of gain, he may have to pay capital gains tax. (I can't determine the exact amount because I don't know his tax bracket.)

I don't like your idea. Here's an alternative suggestion: Your father can act as the banker. He can lend you what banks call a "home equity loan." In effect, he will provide you with a line of credit, which you can tap in any time you need the money. You and your wife will have to sign a promissory note in favor of your father for the full amount, as well as a deed of trust (mortgage). This latter document should be recorded among the land records where the property is located, so that (1) your father will be protected and (2) you will be able to deduct for tax purposes the interest that you pay him.

You must advise your current mortgage lender of your plans, to make sure that this is not prohibited under your present loan.

You will pay your father interest only on the moneys that you actually borrow.

In my opinion, this makes more sense that giving him a portion of your property.

DEAR BENNY: My grandmother in California is about to sell her house for $500K, and let's assume that is a profit of $450,000 over the 1970 purchase price. Her next move is to rent an apartment in an assisted-living facility for $5,000 per month. If she were reinvesting in another house for $200,000, then the $250,000 credit would cover all the exposed gain. However, she needs assisted living. Is there any rationale for applying assisted-living rent against the remaining $200,000 capital gain exposure? --Daniel

DEAR DANIEL: I am not sure that you fully understand how the up-to-$500,000 exclusion of gain works. If you are married and have lived in and owned a house for two out of five years before it is sold, you are entitled to completely exclude up to $500,000 of any gain you have made from the sale. (If you are single or file a separate tax return, you can exclude only up to $250,000 of the gain.)

You do not have to invest the sales proceeds in anything. The tax law gives you the absolute right to keep the money and use it as you see fit.

But effective for tax years 2008 through 2010, any profit above $250,000 will be taxed at the capital gains rate applicable to your grandmother. If, for example, she is in the 10 percent or 15 percent ordinary income tax bracket, she would not have to pay any capital gains tax on any profit up to that tax bracket. I cannot provide you with specific advice, and you (or your grandmother) should discuss these issues with a tax accountant.

DEAR BENNY: What is the titling one would use when one wants to have property titled in the names of two or more parties but in such a way that would allow any of the parties to dispose of the property without requiring the approval, knowledge or co-signature of the other party(s)? --Oliver

DEAR OLIVER: If two or more people own property, they all must sign in order to sell it. However, there are ways to accomplish your objective.

You can put the property in the name of a limited liability company (LLC) and become the managing member of that LLC. However, this approach must be fully disclosed to the other members in a written document which is called an "operating agreement." That document should spell out in clear language that the managing member has the absolute right to sell without the approval or consent of the other LLC members.

Instead of creating an LLC, you could have the other parties sign powers of attorney, authorizing you to sign the deed to a third party. However, you have to check the laws in your state, since there may be time limitations on how long such a power of attorney will last.

If you take title as tenants in common or joint tenants, you can sell your interest without obtaining approval from the other owners. However, not too many people want to buy only a portion of a piece of property.

Finally, whatever procedure you decide to take, you must make absolutely sure that the other owners have been fully informed that you may want to sell the property without their consent. You should have a document in writing explaining all this, signed by all parties. Otherwise, you are subjecting yourself to a lawsuit for fraud and wrongful conversion.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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