DEAR BOB: Now I know why you constantly nag home sellers to interview at least three successful agents, check their references of previous sellers, and then list for 90 days with the best one. We didn’t do that and it cost us dearly. My wife’s real estate broker friend just purchased a so-called discount brokerage franchise so she wanted to help her by giving her our home listing. We liked the idea of a reduced commission rate. But we didn’t realize the pitfalls. Stupidly, we overpriced our home based on the broker’s recommendation. As a result, few other agents showed our house although it was in the MLS (multiple listing service). We received no offers after two months although we reduced our asking price. But we foolishly signed a six-month listing and now the lazy broker won’t let us cancel although she has only advertised our home twice. She says the market is slowing down, but we notice lots of “sold” signs on nearby homes. Other agents won’t even talk to us while our home is listed with another firm. What should we do? – Stan W.
DEAR STAN: I hate to say, “I told you so.” But now you know why I “nag” home sellers to interview at least three agents who sell nearby homes, check their references of recent sellers, and then list for 90 days with the best agent. That’s plenty of time for a sharp agent to sell most homes.
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If you had done that, instead of listing with your wife’s friend, you wouldn’t be in your situation with a long listing that the broker refuses to cancel despite her lack of “due diligence.”
As for the sales commission rate, you should be aware commissions are negotiable. Especially on expensive homes, many agents reduce their commissions to get the listings without cutting their services.
But, as I’ve pointed out here before and you discovered, many buyer agents won’t show listings where they will receive a reduced commission share compared to other listings. If you had interviewed three or more agents, you would have learned this possible pitfall.
Because time is money when selling a home, I suggest you talk with your listing broker to get her either to cancel the listing or expend more effort to get your home sold.
DON’T EXPECT LENDER TO BE SOFT ON DEFAULTING BORROWER
DEAR BOB: I own a townhouse and fell behind on my mortgage payments to the private-party lender who sold me my home about three years ago. The reason I couldn’t make my payments was I became ill, lost my job, had family problems and only recently was able to find work. Meanwhile, the lender (a very wealthy woman) foreclosed on my townhouse and there was nothing I could do to save it from foreclosure sale. I was forced to move out. Should I have filed bankruptcy to save my home? – Audrey T.
DEAR AUDREY: When you realized you couldn’t make the mortgage payments, you could have sold the townhouse to receive all or most of your equity rather than losing it by foreclosure. Instead, it sounds like you did nothing (although I realize you were not in good health at the time).
Just because your mortgage lender was a wealthy private party is no reason to expect her to be soft on you because of your personal situation. Personally, every time a tenant or borrower didn’t pay me, when I gave them extra time they took advantage of me. Most lenders and landlords have learned that harsh lesson.
If you filed Chapter 13 bankruptcy, that only delays foreclosure unless you make up the missing payments as promised. Chapter 7 bankruptcy entitles the secured mortgage lender to foreclose and be paid the mortgage balance. I suggest you stop blaming yourself and, now that you are working again, start over and buy another home as soon as possible.
IF YOU NEED CASH, DON’T HESITATE TO SELL VACANT LAND
DEAR BOB: As an avid reader, I clip and save most of your articles. But I’ve never seen a question like mine. In the early 1960s, I bought a small piece of vacant land in a borough of New York City. Over the years, the value increased greatly. I am now retired with very little income. Proceeds of a sale would greatly help toward my living expenses. But the taxes would be so huge I am just about resolved to leave the property in my will to my children and let them deal with it after I die. What are the tax rules for the sale of such land? – Jenny W.
DEAR JENNY: There are no special tax breaks applicable to your situation. Since you owned the property well over the 12-month minimum for long-term capital gains, your federal tax rate will be a 15 percent maximum. In additional, New York will also claim a capital gain tax.
If you die while still owning the property, your heirs will receive it at a new stepped-up basis of market value on the date of your death. Then they can sell the land virtually tax-free.
But why should they enjoy your wealth while you starve? Because you now need the sales proceeds to enjoy retirement, don’t let the modest capital gain taxes stop you from selling your vacant land. Nobody enjoys paying taxes, but long-term capital gains taxes are the lowest rates available. For full details, please consult your tax adviser.
IS 80-20 FINANCING GOOD FOR HOME BUYERS?
DEAR BOB: Our son and daughter-in-law have been told by their real estate agent about 80-20 mortgage financing. Is this a good thing for young adults and how does it work? – Janet S.
DEAR JANET: Yes, 80-20 home mortgage financing is a “good deal” for home buyers. The primary reason is it saves the dreaded PMI (private mortgage insurance) premium, which is required by lenders for 100 percent mortgage financing.
An 80-20 mortgage means a zero-cash down payment, a first mortgage for 80 percent of the home purchase price, and a 20 percent second mortgage for the balance. Both mortgages are usually made or arranged by the same lender.
There are variations, such as 80-10-10, with an 80 percent first mortgage, 10 percent second mortgage and either a 10 percent cash down payment or the seller carries back a 10 percent third mortgage.
NO SPECIAL TAX BREAK FOR SALE OF A “SUMMER HOME”
DEAR BOB: I know about the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 that you often discuss. But I am selling my summer home where I only spend about four months each year. Four months annually does not add up to the required 24 out of last 60 months before sale to qualify for IRC 121. I’ve owned my summer home for 16 years. Will I have to pay capital gains tax on my sale profit? – Mary M.
DEAR MARY: Yes. There are no special tax breaks available for the sale of a part-time home such as your “summer home.” But the 15 percent maximum federal capital gain tax rate, plus any applicable state tax, is quite reasonable. For full details, please consult your tax adviser.
HOW MUCH CAN SENIOR CITIZENS GET ON A REVERSE MORTGAGE?
DEAR BOB: My wife, age 82, and I, age 75, own our modest, free-and-clear home worth around $100,000. It needs some repairs, such as a new roof. What is the most we can get on a reverse mortgage? – Bobby B.
DEAR BOBBY: When a house is co-owned by two owners over 62, reverse-mortgage eligibility is based on the age of the youngest co-owner. As a very general rule, you can usually borrow a percentage of your home’s market value based on your age minus 5 percent. In your situation, that means you can borrow up to 70 percent.
If you need more money, you could quit claim the house to your older wife and then probably receive up to about 77 percent of its value.
The reverse-mortgage amount can be any combination of a lump sum (such as for that new roof), a credit line (except in Texas due to state law), or monthly lifetime income based on the age of the youngest homeowner. More details are in my brand-new special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” 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 delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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