With buyer lined up, who needs an agent?
Attorney can do job for less than 6%
By Benny Kass, Sunday, August 17, 2008.DEAR BENNY: I plan to sell my house and have already found a buyer and believe we can come to agreeable terms. Do I need a real estate agent or should I just retain an attorney? --Katherine
DEAR KATHERINE: I know that the real estate industry will send me letters objecting to my response, but because you have already found a buyer, I see no reason to spend 6 percent, 4 percent or even 3 percent of the sales price on a real estate commission. Any real estate attorney can assist you with the negotiations with your potential buyer, and can easily -- and clearly at a much lower cost -- prepare the purchase and sales contract. The attorney can also give you guidance throughout the entire process.
If you did not already have a potential buyer, my answer would be different. There, a real estate agent will be able to help you market and hopefully sell your house.
Talk with a couple of attorneys, and find out exactly what their fee will be. Some lawyers charge on an hourly basis and should be able to provide you with a ballpark estimate of the fee -- assuming of course that no major problems arise. Other attorneys will charge you a fixed fee for the entire process.
DEAR BENNY: I have been considering a 1031 exchange for some time, and I have wondered what happens if the intermediary holding the escrowed funds goes bankrupt. Is the intermediary allowed to commingle my funds with funds of the company? Is my money protected during this bankruptcy, or would I become just another creditor in a bankruptcy action, and have to get in line? How can one ensure one's funds are not lost? Can one buy insurance to guarantee protection against such a risk? I know the intermediary must be bonded, but that won't cover all eventualities. --Bob
DEAR BOB: A portion of your question was recently answered by the Internal Revenue Service. In a letter to Congressman William Delahunt, dated June 6, 2008, the IRS stated that if you cannot complete the exchange transaction within the 180 days that are mandated by Congress, the exchange fails and you will have to pay income tax for the sale of the relinquished property. (IRS Info 2008-0021). Although technically this is not a formal ruling by the IRS, it certainly does reflect their current thinking.
The memo went on to suggest that "if the taxpayer has sustained a loss during the taxable year that insurance does not cover, he or she can deduct the loss from gross income." You have to discuss this with your own financial advisors.
I do not believe that intermediaries have any legal obligation to keep these funds in a separate account. You certainly can require this when you are discussing using the intermediary.
As for insurance, that's a good question, the answer to which I don't know. Ask your insurance agent, and let me have the answer.
DEAR BENNY: I want to buy a home in Nevada and rent it to my sister and one other tenant until I retire in 10 years. Because one of the tenants will be a relative, will the IRS consider this a legitimate rental property with rental property deductions, as long as I have a lease and provide the proof of monthly rent if necessary? Also, is there any reason the IRS needs to know that one of my tenants is a relative? --Bonnie
DEAR BONNIE: I never want to hide anything from the IRS, but I see no reason to tell them that this is your relative. So long as you have a real lease, the tenants are paying a fair market rental, and you report the income and expenses of this venture every year when you file your income tax return, I believe you will be alright.
DEAR BENNY: My father-in-law passed away a couple of years ago. Because of various emotional and financial reasons, my husband and I are just taking or trying to take over the house. It needs a lot of work but we can't apply for any assistance until the house is in our name. How should we go about getting that done? My husband and I also live there now. --A.D.
DEAR A.D.: I assume from your question that neither you nor your husband was on title with your father-in-law. If that's the case, then unless the house was in some kind of trust, your husband will have to file a petition to probate his father's estate. This has to be done in the jurisdiction where your father was domiciled at the time of his death. You should consult an attorney who understands probate law in your state.
DEAR BENNY: I am considering paying off the second trust for my daughter on her house. Is there any tax consequence for either of us? --Anita
DEAR ANITA: If you are not on title with your daughter, the moneys you use to pay off the mortgage will be considered a gift. You have the right to gift your daughter -- tax free to both of you -- up to $12,000 a year, and if you are married, you and your husband can give her up to $24,000 a year.
Any amount above this may impact on your estate, and you should discuss your specific situation with a financial advisor.
If your daughter is currently deducting the interest she pays on that second trust, she obviously will lose that deduction.
Why do you want to pay off the mortgage? Why not give her $12,000 a year and let her use it or start saving for her own retirement?
DEAR BENNY: We own 10 rental properties in South Florida that all require additional cash with the rent to make the payment. Two of the properties are condominium units, and the rest are very nice single-family homes. All are in good condition and in good locations. It is not a good time to sell, but we can no longer keep up the $9,500-per-month deficit. Should we dump them and lose all of our equity, or should we borrow and hang on? --Kathy
DEAR KATHY: While I obviously cannot predict the future, real estate historically is like a roller coaster. There are years when property values and sales slump, while in other years (such as we saw a few years ago) real estate was booming.
Obviously, you can't wait until the market rebounds. But why sell everything? Do you have any equity in any of the properties? If so, why not try selling and use the equity to help make your monthly mortgage payments on the other properties.
You have to "do the numbers" to see if selling only one property will do the trick. You may have to sell a couple so that you will be financially comfortable.
But before you consider selling, can you refinance some or all of the properties and get lower interest rates? In today's economy, lenders are understandably nervous about lending to investors, but it's worth exploring.
I would hate to see you lose all that you have worked for.
DEAR BENNY: I bought a home with my mother as joint tenants in common with right of survivorship several years ago. I have been paying the mortgage. Recently she gave my brother a quitclaim deed for her portion because he has been living with her. Is this legal? The home is in South Carolina. --James
DEAR JAMES: I don't practice law in your state so I can provide you with only a general response.
When property is held as joint tenants with rights of survivorship, either joint tenant has the right to unilaterally sever (break) that tenancy. And this does not have to be approved by the other joint tenant. In fact, the other party does not even have to be given any notice of this.
Now, you and your brother own the property as tenants in common. This means that on the death of one of you, your half of the house will be given pursuant to the terms of your last will and testament -- and probate will most likely be required.
You must make sure that you have a will and that it is current.
DEAR BENNY: In a number of columns over the past few years, people have written in about condo associations implementing monthly renter fees. Recently my condo association has been thinking of doing the same. (I am currently a landlord offsite) Can the board of directors implement such a fee? --Bob
DEAR BOB: The answer will be found in your legal documents -- specifically the condominium declaration and bylaws.
A condominium board of directors has fairly broad power to enact regulations, so long as they are not specifically prohibited in the legal documents. Generally, however, the board has to assess all owners equally, based on their percentage interest in the association.
So I do not believe that your board has the authority to impose such a renter fee. They can, however, charge owners a move-in and move-out fee, so long as it is applied equally across the board to resident and investor owners alike.
If, on the other hand, your association properly amends its legal documents to allow such a surcharge and gets the requisite super-majority vote, then it would be legal.
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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Submitted by RealEstateCafe on August 18, 2008 - 5:16am.
RESPONSE to 1st question:
With buyer lined up, who needs an agent?
Attorney can do job for less than 6%
Katherine,
The scenario you describe is becoming more common in our practice in Greater Boston, although we are usually contacted by the buyer. As a seller, I think you would be wise to hire an attorney AND a real estate agent who is willing to advocate for you or act as a facilitator for the transaction.
Yes, attorneys can prepare legal documents, but there are other steps in the home buying and selling process where you (and the buyer) may want help "a la carte" from a fee-for-service real estate consultant.
Think of buying a used car. Buyers and sellers can find each other without a middle man. Once they do, the buyer asks one or more advisors -- a mechanic, a friend who works on cars -- to test drive the car, assess it's condition, identify repair costs, and negotiate a final price. Only then do they enter into a legally binding sales process.
Attorneys who do this kind of assignment probably recognize the limits of their expertise and may be able to refer you to a local agent who can extend their services at a lower hourly fee.
I recommend that the buyer also have their own agent who can advise as needed. My guess is that buyer and seller may be able to compensate their agents independently at the time of service, include those modest fees in the final sales price, and rebate them at closing. Ask your attorney if that would be legal in your state.
Bill Wendel
The Real Estate Cafe
Serving a menu of money-saving services for "do-it-yourself" homebuyers & FSBOs since 1995
617-661-4046
realestatecafe@gmail.com
http://realestatecafe.blogs.com
Submitted by Lenn Harley on August 18, 2008 - 5:51am.
Not all real estate practitioners will disagree with a seller using the services of an attorney rather than an agent to manage a transaction. A home owner has every right to sell their home without the assistance of a real estate agent.
However, I submit that selling a home and avoiding future problems is a lot more complicated in today's market than the simple transfer of ownership.
Attorneys, with the exception of experienced real estate attorneys, are not always familiar with the matters of required disclosures, inspections, etc.
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on August 18, 2008 - 8:38am.
To Katherine:
Benny is right. For the most part, looking for a competent professional that will help you get the results you want and have your back in the process is paramount.
I always use the example of a heart or brain specialist who may not be a surgeon. A heart specialist who is not a heart surgeon is not likely to offer the same advise or preempt issues that a heart surgeon could.
Similarly, all real estate agents are not equal. Not all real estate agents are Realtors (members of the National Association of Realtor and a state and local board, each with their Code of Ethics to guide their moves and help protect you), and not all Realtors are made equal.
By default, not all lawyers are equal. Find a specialized real estate attorney to better mittigate any issues that may come up.
What do you call a person, who graduated dead last in his law school (or any profession - accounting, doctor, etc) class?
Answer: Lawyer/Attorney
You see, once the degree is obtained, few question how they got it and how competent they are in their field. So choose carefully.
---
To Kathy with 10 South Florida properties: Heed Benny's advice and hang in there if you can.
Remember, luck is when preparation meet opportunity. You've been preparing to improve your retirement income by hopefully creating a lot of passive income during the golden years. Don't blow it on emotions. Do the math and think your way out of your present situation.
You have the opportunity to turn all that real estate into almost anything you want with enough training and sophistication. Keep as many as you can, study the market, study different techniques, consider 1031 exchanges for swaping some or all (remember Monopoly? 4 green houses equal 1 red hotel formula?), of the propeties and above all, never panic, specially not in a down market.
Consult your accountant and see how you can take advantage of the situation come tax season. Consult with a real estate attorney and make sure you're holding these properties in the right title. Just don't give up yet. This too shall pass!
www.MiamiRealEstateKing.com
Certified Distressed Property Expert
Miami-Dade County, Florida.
Submitted by Bernice Ross on August 18, 2008 - 8:50am.
Bernice Ross, CEO RealEstateCoach.com, the place you go to make Real Estate Dough!
Having only an attorney to represent you can be a costly mistake in this market. Appraisals are a huge issue these days, especially with market values declining in so many areas. Will the attorney be there with the comparable sales data and the information necessary to keep the transaction together when the appraisal comes in low? Will the attorney go to the property to do the agent's job of making disclosures? Will the attorney put in a clause that includes mediation plus binding arbitration rather than forcing the buyers and sellers to litigate a dispute? Does the attorney know who the best inspectors are? Will the attorney remember to ask for a Home Warranty to protect both the buyer and the seller after closing? When you're deal falls apart, how much money did you save when you still have to pay attorney fees?
Submitted by Benjamin Dona on August 18, 2008 - 9:37am.
This one made me chuckle to myself. Not because it is not possible for anyone to sell their home without a real estate agent involved, but because of all the liability you open yourself up to when you do so. Having just an attorney handles things for you might seem sound, especially when you find out you have broken the law and are being sued because you missed giving out a proper state required disclosure or your deal falls apart because you did not know any better than to put a properly worded appraisal, inspection or loan contingency into your contract.
Having someone represent you who is trying to wear too many hats at once might not be the wisest choice. Sure it might work some of the time, but if yours is the one time it doesn't, it could wind up costing you a lot more than you would have saved in the long run.
Florida Real Estate | Southwest Florida Blog
Submitted by ed tseng on August 18, 2008 - 10:55am.
Why Benny Avoid to Answer the Second Question When He Gave a Good One to the First? http://www.inman.com/buyers-sellers/columnists/bennykass/with-buyer-line...
Submitted by Richard Greenwood on August 18, 2008 - 11:10am.
If you don't yet have a buyer, there is an abundance of professional assistance to help you find one while managing your selling expenses...
http://BetterHomeSelling.com
Submitted by chis eliopoulos on August 18, 2008 - 11:33am.
Historically attorneys have tried to get a piece of the real estate market.
The sediment always has been "If you want to see a deal fall a part fast? Hire a lawyer".
Lawyers in a way are like doctors you never use them when you are in good health and functioning.
I general lawyers are the parasites of our society as they produce nothing and destroy allot.They are way bellow used car salesman in the food chain.
Submitted by ed tseng on August 18, 2008 - 8:30pm.
To Benny & Chis:
Sorry for the wrong web link. Here is the right one: Why Benny Avoid to Answer the Second Question? http://activerain.com/blogsview/647455/Why-Benny-Avoid-to
I agree with Benny as to the first question, but I am more with chis eliopoulos for the 2nd question.
Submitted by Mollie Wasserman on August 19, 2008 - 4:15am.
Katherine, not all real estate professionals are limited to a one-size-DOESN'T-fit-all package payable only by commission. In 2006 I founded the Accredited Consultant in Real Estate (ACRE®) Course and Coaching Program to train professionals to meet needs like yours. You can now hire a trained consultant by the hour of a flat fee (as well as by commission if that's what you choose)to provide just the services that you want and need with no discounting of quality.
The answer is not attorney versus real estate professional. We do different things. The answer is hiring professionals that can provide quality, transparent choices in the services rendered and how they can be paid for.
Mollie Wasserman
Founder: ACRE®
http://www.TheConsultingTimes.com
Submitted by Frank Brady on August 19, 2008 - 4:04pm.
To Katherine:
Recently, I negotiated a real estate purchase with a willing seller. I then used a Help-U-Sell licensed agent to prepare the contract, arrange the escrow, and handle all the necessary paperwork. This was done for a fixed fee. Despite some unanticipated problems, the transaction went through as planned thanks to the services of the agent. I recommend such an approach.
No real estate attorney was prepared to offer those services at a competitive price.
Frank Brady
Submitted by Brian Enright on August 22, 2008 - 9:27pm.
Benny,
While I do agree that if the seller has found a buyer they don't need an agent, I think you shouldn't assume an attorney would be cheaper. In Texas where you can buy a house for $50,000 it would probably be cheaper to pay an agent 3% than attorneys fees.
If a seller is willing to do the advertising and legwork to find a buyer than they should save something. If that's not the case though, I think 3% is a very reasonable amount to pay me to bring them a qualified buyer and facilitate the transaction.
Brian Enright
Dallas Condos