Editor’s note: Robert Bruss is temporarily away and will return next week. The following column from Bruss’ “Best of” collection first appeared Sunday, June 25, 2006.
DEAR BOB: I own a two-acre lot in an area of mostly one-acre lots. A neighbor wants to buy a half acre from me so he can build what I call a “McMansion.” He needs a larger lot to accommodate the size home he and his wife want to build. We don’t mind because it won’t be close to our house and having a highly valued house next to ours should enhance our home’s market value. However, we don’t know how to value a half-acre lot where there are no lots for sale. Also, what legal steps must be followed to deed a half acre? –Walter H.
DEAR WALTER: I suggest you retain an appraiser and a real estate attorney. If you proceed with the half-acre lot sale, be sure to add your appraisal and legal costs to the sale price of the property.
Purchase Bob Bruss reports online.
As you will discover, subdividing a lot in an urban area usually is not simple. Although you have no objection, the neighbors might protest.
The appraiser can inform you of the market value of a half-acre lot in your neighborhood. But the real estate attorney will be needed to handle the legal details of obtaining subdivision approval from the appropriate local authorities. As you and your neighbor will soon discover, selling half a lot is not easy.
WHAT IS A “STARKER EXCHANGE”?
DEAR BOB: I am a relatively new real estate agent. But I have heard the term “Starker exchange” and am not familiar with it. What does that mean? –Beth W.
DEAR BETH: Internal Revenue Code 1031 authorizes owners of investment and business property, such as apartments, rental houses, warehouses, office buildings and commercial properties, to trade their property for “like kind” properties of equal or greater cost and equity so they can defer the capital gain tax that would be due upon an ordinary sale.
A so-called Starker exchange is authorized under IRC 1031(a)(3), which permits the sale of qualifying property, with the sales proceeds held by a third-party accommodator or intermediary beyond the seller’s “constructive receipt.”
The seller then has up to 45 days after the sale closes to designate a qualifying replacement property of equal or greater cost and equity, plus 180 days to complete the acquisition. For full details, please consult your personal tax adviser.
ARE HUD COUNSELORS TRULY INDEPENDENT?
DEAR BOB: Unknown to me, my 81-year-old mother recently took out a lifetime reverse mortgage. As her daughter, I was totally unaware she was doing this. The reverse mortgage lender sent a so-called “HUD counselor” to her house to spend an hour explaining reverse mortgages. About three months after this occurred, I learned my mother paid almost $6,000 in various up-front loan fees. Considering she is in declining health and will soon have to move to an assisted-living home, I find this outrageous conduct by the reverse mortgage company. Are the HUD counselors sent by a reverse mortgage company truly independent? –Sarah S.
DEAR SARAH: The three nationwide senior-citizen reverse mortgage lenders all require counseling by certified HUD counselors who are supposed to explain to the prospective borrowers the pros and cons of such mortgages.
Of course, nobody can vouch for such counselors being truly independent of the actual reverse mortgage lender. If a counselor discourages prospective borrowers from obtaining reverse mortgages, I’m sure that person won’t be recommended by a reverse mortgage lender again.
If your elderly mother plans to stay in her home at least five years, that $6,000 for various fees is not excessive. Please remember reverse mortgages pay money to the senior-citizen homeowner, without any repayment required until the homeowner either sells the home, vacates for more than 12 months, or dies. More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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.
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