Inman

Home buyers fall victim to listing agent’s dirty trick

DEAR BOB: I have been reading your column for years and really appreciate your great advice. But last weekend, with the help of my buyer’s agent, I made a full-price purchase offer with no contingencies on a home listed for sale with another agent. One day later, the listing agent informed my buyer’s agent the sellers want to wait 10 days to see other offers. There was nothing in the multiple listing service (MLS) about this. What is going on? I am very upset. If the seller wants an above-asking price, why not just list the home at a higher price? Is this practice legal? Is it ethical? Mine was the only offer at the time – Deborah C.

DEAR DEBORAH: You were a victim of “offer shopping.” It was unethical of the listing agent not to specify the 10-day bid opening date on the MLS listing your buyer’s agent relied upon.

Purchase Bob Bruss reports online.

If your purchase offer had a customary 24-hour expiration, unless the seller accepted your offer within your deadline, your offer technically is revoked by the expiration of 24 hours.

Some listing agents advise their home sellers to set a below-market asking price to create a buyer frenzy. The seller has no legal duty to sell the house for the full asking price, even if you made a full-price, all-cash, no-contingency purchase offer.

It is very unethical for a listing agent to submit a home to the MLS at a price the listing agent knows the seller will never accept. I don’t blame you for being very upset with the listing agent and the seller. Unfortunately, this misleading practice is widespread in hot markets and is not illegal.

SOMETIMES BUYING A “TEAR DOWN” HOUSE IS SMART

DEAR BOB: While the only stupid question is the one left unasked, this might be an exception. Suppose someone buys a house in a good area but, because of its condition, tears the house down and builds a new house on the lot. Does the buyer get to declare a loss on his/her income-tax return? I don’t understand when someone says it is cheaper to buy a teardown house than to buy a vacant lot – David J.

DEAR DAVID: Your question is not stupid. Thousands of home buyers who want to live in a special neighborhood buy run-down houses there, tear them down, and build their dream homes. This happens all over the nation, especially in older upscale neighborhoods.

When an existing house is torn down by the owner, there is no tax deductible loss involved. But the purchase price is added to the cost of additional construction to arrive at the adjusted cost basis.

To illustrate, suppose you buy an older house in a great neighborhood for $400,000. You tear it down and build a new house for $500,000. Therefore, your adjusted cost basis is $900,000. For full details, please consult your tax adviser.

IF C.P.A. DOESN’T UNDERSTAND “STARKER EXCHANGE,” GET A NEW C.P.A.

DEAR BOB: Many times you have referred to a Starker exchange of one rental property for another rental property to avoid capital gain tax. My C.P.A. (certified public accountant) has never heard of a Starker exchange. Such a tax-deferred trade could be very useful to me but now I don’t know where to find more information. Can you help? – Pete W.

DEAR PETE: You need to hire a new CPA because you are not receiving competent tax advice. The term Starker exchange is widely used among real estate investors. It refers to Internal Revenue Code 1031(a)(3).

That tax law allows tax deferral when you sell your property held for investment or use in a trade or business for another such property of equal or greater cost without reducing your mortgage balance.

The reason this technique is called a Starker exchange is it was created by the late T.J. Starker who successfully traded his Oregon timberland tax-deferred for “like kind” property. You can read all about tax-deferred exchanges in my special report, “How the New Tax-Deferred Real Estate Exchange Rules Can Make You Very Wealthy,” 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 download 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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