DEAR BOB: My wife and I are selling our first home. What is the average sales commission? I don’t want to overpay. Can we negotiate the broker’s fee? –Anthony W.

DEAR ANTHONY: Great questions. Before signing a listing to sell your home, please interview at least three successful agents who sell homes in your vicinity.

Purchase Bob Bruss reports online.

Each agent should give you a written comparative market analysis (CMA) showing recent sales prices and photos of comparable nearby homes, current asking prices of neighborhood homes (your competition), and asking prices of recently expired similar homes (usually overpriced).

Don’t be fooled by each agent’s estimate of your home’s market value, based on his or her CMA. Some agents estimate high. That is called “buying the listing.” Other agents estimate low, hoping you won’t interview other agents so they can make a quick, easy sale.

After interviewing three or more agents, suppose you learn 6 percent is the customary local sales commission. It is usually not smart to negotiate the listing commission downward at this point.

However, be sure the listing contract says the buyer’s agent will receive 50 percent of the gross commission. This is extremely important to get your home shown by buyer’s agents through the local multiple listing service (MLS).

The only time to negotiate reducing a sales commission is when an agent produces a purchase offer far below the listing agent’s recommended price. Then you can say, “This is a very disappointing offer. But if you cut your commission by 1 or 2 percent, we can probably accept.”

Also, never sign a listing longer than 90 days, just in case you select a lazy agent. If your listing agent does a great job, but the home is unsold when the listing expires, you can then extend the listing by 30 days.

CAN INVESTOR MOVE FROM HOUSE TO HOUSE TO AVOID SALES TAX?

DEAR BOB: My wife and I own our residence in which we would have a substantial profit upon sale. We are thinking of selling it, claiming the $500,000 tax exemption, and then moving into one of our two rental houses for two years before selling it, claiming the exemption again, and then moving on to our third house and again taking the tax exemption after another two years. Is this feasible? –Bill C.

DEAR BILL: Yes. It seems like you have done some creative tax planning to claim up to $1.5 million in total tax-free profits.

To qualify for the Internal Revenue Code 121 principle residence sale tax exemption up to $500,000 for a married couple filing a joint tax return (up to $250,000 for a single home seller), you and your wife must have owned and occupied your principal residence at least 24 of the 60 months before its sale.

After the first principal residence sale, you can use IRC 121 all over again by moving into the rental house, living there at least 24 months before its sale, and again claiming up to $500,000 principal residence sale tax-free profits. However, when you sell the former rental property, Uncle Sam will tax the amount of depreciation you deducted at the special 25 percent “recapture” tax rate. For full details, please consult your tax adviser.

SHOULD HOMEOWNERS PAY OFF $30,000 HOME LOAN AT 6.75 PERCENT INTEREST?

DEAR BOB: My husband and I have owned our townhome about 12 years. It has a mortgage around $30,000 at 6.75 percent interest. We have aggressively paid it down with extra principal payments each month. There is no prepayment penalty. We will soon receive a large amount of money and could pay off this loan. Would that be wise? My husband earns only about $70,000 per year and I don’t work. We have two elementary-age children. Should we pay off this mortgage? –Andrea D.

DEAR ANDREA: Unless you have other higher interest rate debts, such as credit cards, and if you will still have sufficient cash reserves, paying off your home mortgage can be very wise. The only reason not to do so would be if you would then be short of cash for an emergency or investment opportunity.

After you pay off your home mortgage, I highly recommend you obtain a home equity line of credit at your bank for at least 70 percent of your home’s market value. The interest rate should be the prime rate, or lower.

Your annual cost will be $50 to $75. But there is no interest cost unless you use the money. Personally, I have several equity lines of credit. It is a great feeling to be able to write a check if I have a sudden need for emergency cash.

The new Robert Bruss special report, “How to Get the Best Appraisal of Your House or Condominium,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 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.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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