Home Selling Questions

What must we do in order to save on the capital gains (CG) tax? I know there is a $250K (or maybe it's $500K) lifetime deduction on CG.  We have a tenant who wants to buy.  Should we sell it now and purchase another rental prop or can that go into purchasing the land that we'll be building on?
 

If we sell now and purchase again, will the CG from the old house carry over or will there only be the CG for the 3 years we own the new property?  Obviously 3 yr vs. 15 yr CG is a big difference.  If this is the better way to go, what is the min time we must own the new prop to avoid CG on it when we sell it?

We really don't want to move back into the rental house next year unless we absolutely have to.  It was our primary residence until we built where we are now.   The neighborhood has gone down some and obviously being rental prop for so long it will need a lot of fixing up to bring it back to our standard of living.  I'm not sure the expense of rejuvenating will be worth the cost.

A: You cannot save ANY capital gains taxes on your rental property. Tax law currently permits you to take up to $500,000 in capital gains tax free if you've lived in your primary residence for 2 of the past 5 years. You don't qualify. If you're going to purchase another rental property, you can do a 1031 tax free exchange (also known as a starker trust). Your tax advisor should be able to help you here, or a real estate attorney, or your local title/escrow company.

Depending on your tax bracket when you sell, you will probably pay 20 percent tax on your profits. As for your primary residence, you can take the capital gains exclusion when you sell as long as you meet the requirements.

As for financing your retirement home, you should probably sell your rental home first and use those proceeds as a downpayment. You can secure a mortgage on the rest, and then pay it off when you sell your primary residence.

Q: Where can I get advise and information on doing a Lease Purchase option for selling our house.  We have friends that are interested in buying our house and want to do a lease purchase.  We need to ensure that both us as the sellers and they are buyers negotiate a fair and legal deal.  Do you have advise on resources to help us?  We don't really want a real estate agent involved and have to pay commissions, but we would definitely like to make sure its legal and equitable through an real estate attorney or be willingg to pay an "advisory" fee.

A: You don't need an agent, but you should hire a real estate attorney (go to gabar.org for a referral or call the Atlanta Bar Association) to help you do the paperwork and make sure your interests are protected.

I have written about lease/purchases in my book 100 questions Every Home Seller Should Ask (buy it online but make sure you get the current version with the current tax information) or borrow it from your local library. You may be able to find information on my website as well.

Typically, with a lease-purchase, you agree on the price upfront and the buyer pays a nonrefundable option fee. Then, a portion of the rent is credited toward the down payment. When the option expires, the buyer typically has the option to renew the option to purchase for another nonrefundable fee. At any time, the buyer can purchase the property for the previously agreed-upon price.

Q: I am selling my house and will close on Sept 4th. I owned my house for 5 yrs 9 mons.  My question is that what ever profits I made from the sell of my home, Do I have to pay Capital Gains Taxes if I don't reinvest it in the purchase of a new home within a 2 year time frame?  And is there something in writing, maybe a recent law change that would permit me to not pay taxes (period!) whether I reinvest the money or just deposit it in the bank?

A: You will owe no taxes if your profit is less than $250,000 or less than $500,000 if you are married. You don't even have to tell the IRS!

Q: A friend of ours is selling her home but, will be reinvesting the profits in to another home.    She is over the age 55. We would like to know if she will have to pay capital gains tax from the profits on the sale of her home even though it is being reinvested in another property?

A: If she is married, she and her spouse can keep the first $500,000 in profits tax free, as long as she has lived in her home for 24 months. If she is single, she can keep the first $250,000 in profits tax free. If her profits exceed these amounts, she would owe capital gains tax (long-term) on the excess, which maxes out at 20 percent.

Q: I am about to sell my home in PA so I can move back to GA.  On my closing date I will only have lived in the home for 18 months.  I will have about 21,000 in capital gain. I was told by a friend that if I am moving 50 miles or more away from my current home than I am excluded from paying capital gains on the sale of my current home, but I must re-invest in an equal or greater priced house in GA.    Is this true? If so, what is the timeframe in which I must purchase a new home? The truth is I don't want to buy as expensive home as I have now.  If I don't,  will I have to pay some fine or tax on the difference?

A: Your friend is half right. If you move 50 miles or more to take a new job, you can take a proportionate share of your profits tax-free. For example, if you've lived in the house for 2 of the past 5 years, and you're single, you'd be able to take $250,000 tax free in profits when you sell ($500,000 if you're married). Since you'll be there 18 months, or 75% of the required time, you can take 75% of the $250,000 tax free, or up to $187,000 in profits tax free. There is no requirement to rollover your profits into another home. That rollover replacement rule was eliminated several years ago.

Please check with a real estate attorney or tax preparer for details on what kind of state tax you may or may not owe on your profits.

Q: I enjoyed your column and found several useful tips.  We have a home to see on 2.7 acres.  3 years old, many extras - tile, oak trim, custom cabinets, etc.

Any thoughts on who or how I get the right realtor to help us sell it at a fair price.

A: You'd want to find an agent the old fashioned way -- through referrals. See which of your friends or relatives used an agent they liked and with whom they had a good experience.

If you can't get a referral, find out which agent does the most business in your neck of the woods. (Check out the numbers of signs for a particular agent or firm). Visit local open houses to chat with the seller's agent and see how good a job he or she is doing. (Of course, if he or she is talking to you instead of showing the house, you'll have to assume this is how he or she will behave when conducting your open house.) Finally, invite three different agents from three different firms to do a comparative marketing analysis of your property. They should look at comparable sales data and come up with a suggested list price and marketing plan for your property.

I suggest you pick up a copy of my book, 100 Questions Every Home Seller Should Ask so that you understand everything a seller should know to sell successfully.

Q: We purchased a small 2,000 sf home on 2 acres about 7 years ago. Since then, we've subdivided the property (1 acre min here) and built a new larger home next door. We are at odds about whether to sell or rent the home next door. It was a fixer-upper when we purchased it, and there is still some work we have to do to it before we can sell it and make what we'd like to make on it, which will take about $5,000.

We refinanced the first home at the time we subdivided to have this land free and clear for building, and owe $100,000 on that home, monthly payments being $715. We could probably get $160,000 if we completed the work to sell the home. The new home note is for $220,000, with a $1,600 mortgage. We don't have the cash to finish the older home now, so we don't think we should sell it due to that. But will lose the capital gains write-off if we rent it. My husband thinks we can rent it for at least $800 "as is" and at least make the note and complete the remodeling within a year. When a new renter comes along we can up the rent to about $1,200 and keep it as a rental home. Then, use the $700 extra a month to put towards the mortgage on our new existing home we reside in.

This all sounds complicated to me, and I don't know whether it's worth the hassle. Part of me would like to sell the house and put whatever we make on that sell towards paying off debt, mostly incurred while building the new home ourselves (about $20,000),and refinance our home to lower the mortgage. Then, the thought of having some extra income from the rental property sounds lucrative as well. Our current 401K is at $40,000 and we have about 15 years until retirement.

What is the most financially sound thing for us to do?

A: You're experiencing a little short-term pain for what sounds like a fine long-term investment. I think you should rent the home "as is" and ask the renter if he'd like to help with the upgrading. Or, you can wait a year and then do the upgrading yourself after the renter moves out. But I think as a long-term investment you can keep your eye on (because you're so close), it might pay to wait a few years.

Real estate is a fine-long-term investment if you can stomach the repairs and occasional headaches that come along with landlord life. If you're one of those people who's nervous about landlording, decide if you can simply remove yourself psychologically and let your husband manage this investment. If not, then consider renting for a year and then selling for a profit.

Q: My husband and I are considering selling a rental property we have that is approx. 800 miles away from where we live now.  What suggestions would you make on how to go about doing this?  We have a real estate agent that is semi-retired who we pay a monthly maint. fee too who is willing to sell at a discounted percent for us, but we are unsure if this is the right way to go.

A: I think you should talk to a couple of other real estate agents about the property, what's going on in that neighborhood and what you can do to get rid of it at the best possible price.

Also, did you consider selling to your renters? That might be an option. If you're in the position to take back the mortgage, you might even produce a steady stream of income at a higher interest rate than what you'd get in the market.

Finally, be sure to negotiate your listing agreement before you sign it. Limit your listing days to 90 because you can always renew. Also, make sure you understand how the property will be marketed, because you aren't going to be there to check.

Q: One week before closing, our buyer backed out then sent us a letter asking for a three week extension and a $5,000 credit. His reason was that he had to lower the price of the home he is selling. The sale of his home was not a contingency in his purchase of our home. We refused to issue him the credit because we are downsizing and simply didn't have the money to give him. No extension was given either. All of the agents involved pressured us and after 9 days of going back and forth we reached our breaking point and decided the deal was off on our house, as well as on the home we were going to purchase. That contract did have a contingency in it- that our house sell in order for us to buy this home. Two days after we said we were finished, a deal was suddenly struck in which the buyer agreed to adhere to the original contract. This was also two days after the original closing date had passed which the buyer breached. We had already made our decision, hired a lawyer and had set a date for mediation. Are we still required to go through with both deals?

A: It depends on what your contract said. If your contract had specific dates by which the contingencies had to be satisfied (i.e., the date you had to sell your home), then probably not. If your buyer and you agreed not to move ahead, and then at the last minute he came back, your contract probably had been terminated.

You need to seek the advice of a real estate attorney who can look at your documents and give you the proper advice.

Q: Please help. I have 2 parcels of land--both inherited when my father died. One is 5 1/2 acres and the other 6 1/2. On one is a house my Dad actually built with help from friends in the 50's (not super fancy--just functional. On the other is an old wood farm house (in which I live) dating back to the 1910's. It has been bricked over and remodeled inside many times. I am worried about never being able to invest enough time & money to get it up to code.

These two parcels are across the road from each other. And one of the parcels has road frontage on the back side as well. There are many subdivisions on the road that date from the 70's to new construction.

My question: I want to find a developer and sell it all at once. Is this a good idea? I'm afraid that I would be just "throwing away" the value of the houses. Is there a special way to set a price in this situation? Can you offer any thoughts?

A: Your question depends so much on location, and the demand for new housing in your area. When you sell for land value, you have to not think about what value there is, if any, in your home. Creating a subdivision means starting from scratch.

You need to talk with a couple of agents who specialize in land sales to developers in your area. See what kind of money you could get for the parcels and then decide if it's worth it to sell or if you should keep the land for a few more years until the market in your area gets really hot.

Finally, you may wish to speak to a real estate attorney who specializes in land sales and development. I hope this gives you a little bit of guidance. I'll be in Atlanta next week for Managing Your Money. Hope to see you there.

Q: We are going to sell our house ourselves and I have a question about the carpet. Our house is 7 years old we are raising 3 kids, it has very noticeable stains. We don't want to change it ourselves. On the flyer that we're making, should I state that we are offering a carpet allowance? Or should I just wait for the prospective buyers to ask about it when they come to view the house?

Which one of your books should I purchase, to guide us thru the "For Sale by Owner" process?

A: I wouldn't give anything away up front. Try to have your carpet professionally cleaned (or buy some RESOLVE! carpet cleaner -- works wonders and I have 2 little kids, too) and then see how bad it really is. If the carpet is horrible, then consider replacing the parts that are the worst with something inexpensive that looks good. You may be able to increase your sales price by way more than the cost of the carpet.

For example, my sister and her husband just spend about $5,000 to fix up his place. New carpet from Home Depot ($2,000), white paint on the inside and outside of the house, new plastic floor tile (he laid it himself), and me to help dig up and replant the garden.

They were able to net an additional $25,000 in the sales price of the house because it looked pristine.

Pick up a copy of 100 Questions Every Home Seller Should Ask (try to get the version with the new tax information inside -- that's the one www.Amazon.com has, and you can get there from this website,  some information on selling by owner but with all the other important seller information. Also, check out my website for columns on being a FSBO.

Q: I have a home I want to sell and have been offered an unconventional deal by an interested party.  The home will be a fixer upper and my motivation is to sell home as is.

The buyer has proposed that they will purchase the home under what is called "buying subject to existing mortgage".  At closing, the warranty deed transfers to the buyers, but the security deed remains with me so I as the seller would still be legally liable for the loan.

The buyers however, would  take over the mortgage payments and management of the property, insurance , etc.  They plan to fix up the home to prepare for sale.  Would most likely lease with option to buy for 2 yrs and then sell.  At time of sell, the mortgage that I hold would be paid off.

Have you ever heard of this and what do you think?

A: Let's see. You're going to give up control of the property. Then, you're going to actually turn title over the the new buyers. But, you are going to still be legally liable for the mortgage.

I'm guessing that this is the deal and I'm also guessing your mortgage company won't go for it.

Instead, let me propose this: They take a non-refundable lease with an option to buy the property for a year. They pay you something down, say $1,000 or $2,000 which they won't get back. Then, they rent the property from you for 6 months while they fix it up. Their option entitles them to buy the property at a certain price, let's say $100,000. The "Rent" they pay you covers your costs (mortgage, taxes insurance) and they pay utilities. At the end of the year, they can purchase the property for the pick-up price (specified in the original contract to purchase, and the rent and option money becomes their "equity" in the property, part of the down payment.

In the first scenario, you're taking a huge risk and funding them. In the second scenario, you're protected. You maintain ownership of the property and they take the risk.

I'm guessing they won't like the second scenario. So let's propose a third: They simply buy the property outright from you. If they want, and you agree, you can take back the first mortgage and charge them interest.

With any of these scenarios, you'll need an attorney to draw up the documentation and make sure everything gets filed as it should. Good luck. I hope it works out.

Q: Can you tell me if the seller of a home normally pays the closing cost.

A: Sellers normally pay their own closing costs, including the brokerage commission, transfer taxes (where applicable), etc. In fact, there's a list of about 22 different closing fees and costs that the seller might have to pick up in my book, 100 Questions Every Home Seller Should Ask.

If you're asking if the seller must pick up the buyer's closing costs, the answer is no.

Q: My wife and I are about to sell our primary residence in a effort to get closer to work.  We have not been in the house for a full two years so I am looking for info on the capitol gains taxes.  Is if pro-rated, i.e. since we were there for a year and a half we get to exempt $375,000?

Assuming there is no pro-rating, should we wait to sell after the two year window? We are only a couple of months from the two year time.  However we have already bought the other house and would have to carry two notes.

A: Wait to sell if you can. There is no proration until you're moving 50 miles to take a new job.

Work out the difference between the carrying costs of the house and the amount different you'd pay in capital gains taxes. That should tell you what to do.

Q: I am considering selling a home as a FSBO. Can you recommend a guide or book that can walk me through the process so I can evaluate whether or not I want to do this, and that I can use to do it if I decide to? Thanks.

A: I don't know of a book that really explains the FSBO process well. To decide whether or not you want to do this, I'd advise you to read a really good book about home selling first. My book, 100 Questions Every Home Seller Should Ask, is currently being reprinted, but you might find it at your local library. Otherwise, try a dummy book or one written by Robert Irwin.

When you decide to sell on your own, you're essentially doing the jobs of the seller AND the real estate agent. If you're in a hot building, or hot neighborhood, and your property looks great, you shouldn't have too much trouble selling on your own. But if you live in a house that isn't finished, ask too much money for the property, live in a strange neighborhood, etc., then you may want to hire a broker to make the process easier.

I have a few articles on being a FSBO on my website, www.thinkglink.com. I urge you to check them out.

Q: I am 71 and have 2 rentals that help us with our retirement. It is becoming hard for me to keep the properties up. I was thinking of renting with a option to buy  for 10-  12yrs and give them credit of $200.00 per month and they would also be responsible for any maintenance during that time. At the end of that time they would have to obtain a regular mortgage. Either from me or some one else. That way we should not have to pay cap gains tax until we have finalize the deal . The question is , would this be a way of doing this?

A: I wouldn't do a 10-year lease with an option to buy because it's too long a time period. I'd do a 2-year or even 3-year lease with an option and then renew the option. You can still give a larger percent rent credit in exchange for the renters doing the maintenance on the property.

A lot can happen in 2 to 3 years, and you may want to have the cash in a lump sum, if you decide to move or if your circumstances change dramatically due to illness.

Q:  I tried to get you on your show today, but was looking at the home I'm potentially placing an offer on this afternoon.  Here's the scoop.  Beautiful FSBO home in Atlanta.  As part of the deal the seller has verbally stated to me that he would perform specific renovations to house BEFORE closing including:

(1) Creating a deck on the roof of the house with a spiral staircase to the back side of the house
(2) Building several built-in units inside the living room and master bed room for extra storage space
(3)  Making floor to ceiling built in bookcases in an office in the house

The seller is a contractor and I have seen some of his work that he has already put into the house.  It appears to be very tasteful, visually appealing, quality craftsmanship made with good materials.

I would like to know if you have any advice on how to contractually protect myself that the future renovations are up to par when making an offer.  My main concerns are:

- approving designs
- making sure the work is done properly to design specs
- ensuring quality materials and proper wood treatments
- all work would be to code and able to pass inspection after completion

Again, this work would be done in the next few months before closing.  I would greatly appreciate any precautions you might suggest outside of hiring a Real Estate Attorney.

A: You need to put this verbal agreement into writing. You can write it like a letter that both you and the seller sign, and attach it to the written contract. It should be specific about what he's going to do, what materials he's going to use and you should attach a drawing of the improvements, if you can.

As for hiring a real estate attorney, you absolutely should -- even though no one does in Georgia. But you're not working with an agent and you have no one representing your interests. You need to make sure that the seller does indeed own this home, that the appropriate amount of title insurance (to cover you and the lender) is purchased ahead of time, and that you're getting clear title.

You can find a real estate attorney by going to the Georgia Bar Association and requesting a list of attorneys who do residential deals. You might also ask for those who deal with construction contracts.

Q: While trying to sell our home we had two different families interested in it. one family had their agent draw up a contract and present it to us, we made a counter-offer to these people and never heard back from them or their real estate agent. During this same time another couple came and looked at the house and presented us a contract within two days that we agreed with and signed.  We are going to close on the house with the second couple next Friday.  Today we got a registered letter from the first couple stating that they had a lawyer that was going to investigate what we did. They are very upset.  There was never any signed, agreed upon contract, or any earnest money.  Our agent told us not to worry, do they have a case against us and if so why?

A: Real estate contracts must be written to have any legal standing. Since you did not have a contract with these people, they probably don't have any right to challenge your valid contract with the sellers.

But that doesn't mean there aren't hurt feelings. What you should have done was make your counter-offer valid only for 24 or 48 hours. In other words, it would have expired in 24 to 48 hours if they didn't make another counter-offer or accept the terms of your deal. By clearly adding that to the contract, the onus would have been on them to accept or reject your deal quickly.

I am mystified why more real estate agents don't put time limits into their offers and counter-offers. It's just one more level of protection.

These prospective buyers could file a lawsuit, but they won't. What they'll do is assuage their hurt feelings and end up finding a house they like even better than yours.

Q: My wife and I are in the process shopping for our first house. We jumped into the process somewhat quickly. We have been renting for the last few years basically on account of some uncertainty as to where our jobs might lead us. Things in that arena are a bit clearer now, so we feel a strong imperative to stop throwing money away on rent and have a place that's somewhat our own that we can work to improve and beautify.

Anyway, as I said, we lept in fairly quickly and started looking for a home (in the car, on the internet, in the paper). We contacted agents
who were either the listing agents for houses, or buyer agents. We never really committed to working with any of them. We were in touch with them and just asked them to call or email us if something they thought we might like surfaced. We were pretty ignorant about the whole process (about establishing a relationship with a buyer agent, the advantages of this, about the legal responsibilities of the seller agent, etc.).

Finally, I sort of realized that we were stumbling in the dark a bit, and bought a your book, which I feel was a truly worthwhile purchase. It's been very helpful.

My problem and question has to do with dealing with a seller agent. A
house that we are pretty strongly interested in we were shown initially
by the seller agent, without being represented by a buyer agent. Now  we feel somewhat stuck, as, if I understand the process correctly, she sort of has the right to be the one to deal with us now, without us being represented by a buyer broker. So we really have no one to guide us as to whether the price that they are asking for the house in reasonable, what are the normal steps in the negotiating and buying process in our area (Rhode Island). The seller agent seems nice enough, but as you spell out in the book, her legal responsibility is to the seller. I asked her for some comps, and she sent them, but I'm a little hesitant to make my judgement about the value of the house based on them, as she selected these comps, and I'm sure it's possible that she, probably not really consciously, could have chosen ones that would best serve her seller's interests. So, basically, we wish we had representation in this deal. Is it too late to bring in a buyer agent? If it isn't, what would be the best way to broach this subject with the listing agent? If using a buyer agent is out of the question for this house, what would you suggest? A real estate attorney? Also, is there any way we can gain access to local "comps" on our own?

A: You should find a buyer's agent or ask the managing broker in the seller agent's firm to assign you to someone in the office who can represent your interests in the transaction. If the seller's agent gives you a hard time, be prepared to walk away from the deal. After all, half a commission is better than no commission.

Q: I am a private seller and am in the beginning stages of negotiating with two buyers and their bids. One person is going through the agency that I listed my property with, and the other person is someone who was interested in the property before I was contacted by the listing agent who offered her services to me at a later date.

The person who privately contacted me is offering 5,000 more on their
first bid than the other bidder.   Neither is close to the price I want for my property, but I am willing to come down. I want 62,000 for my property, and the bids are for 50,000 and 55,000 respectively.

How should I handle this?  I don't want to loose a sale, but I really want something closer to my 62,000.   My property was listed way  higher (89,000) but I did overprice it since I wasn't desperate to sell.  Now I would really like to sell it but get a good dollar for it. It has been
listed for a year and 8 months.

One of the bids I need to respond to is for noon Saturday (June 2). Can you offer some of your expert advice to this novice?  

A: Unless you excluded the private buyer formally in your listing agreement, you probably owe your agent a commission anyway. So consult with your attorney on the legal ramifications, or be upfront and honest with your agent. If she get a full commission either way, she will be much more likely to help you negotiate a better price.

Q: My wife and I purchased a home in a very nice neighborhood 15 months ago. This is new construction and we have a $114,000 mortgage, with the value being $155,000. We need to refinance the original balloon mortgage soon and I would like to know about using some of our equity to build a deck on the back and replace the carpet in the main floor with wood flooring (i.e. Pergo, Armstrong, etc.).  Is this going to have a reasonable payback when we sell in about 10 – 15 years? Will this increase our home value? I realize that this will increase our home enjoyment, but I am not sure about the money part.

A: You should be able to recoup most of your money, if not all, over the next 10 to 15 years. Wood floors (pergo isn't wood, it's fake wood, but you probably knew that) are very popular with home buyers, as are decks. If you want to know about the return on investment, contact the agent who sold you the house and ask him or her to run some "comps" (recent sales figures of comparable homes in your neighborhood) to see what homes with wood floors and decks are selling for.

Q: I just signed a contract to sell my house for $130,000.  I thought I was doing pretty good considering that the balance on the mortgage is $120,299.

However I am just realizing all of the items I am going to have to pay for at closing.  I am afraid I will not have the money to meet my closing costs. Is there anything I can do?

A: There's very little you can do. You need to sit down and work out your closing costs to see where you are. If you don't have enough to close, you'll have to dip into your own pocket to pay these costs. If you don't have it, then you'll need to talk to the lender about doing short sale (which will negatively impact your credit) or cancel your sale.

I'm sorry I don't have better news.

Q: My wife and I want to sell our home in Oklahoma because I have started a new job out of state.  We have talked to 3 agents and they all use the same standard listing agreement form.  I feel that the listing agreement is heavily biased towards agents and gives the seller few options.  I pointed out the sections I disagreed with and made suggestions as to what terms would be agreeable to our family.  Only one agent seemed willing to accept any changes to the listing agreement that would actually involve adding or removing specific clauses.  The other agents refused to give us any way to end the contract, or take our house off the market under any circumstances.  Another major sticking point was that we would still owe the agent a commission if the buyer backed out of the deal.

If we did make changes to the listing agreement would we need to  have it drawn up from scratch, or just write in the changes on the standard agreement?

Would we be better off taking the listing agreement to a real estate attorney and letting him modify it to our needs?  I've never dealt  directly with lawyers and would not know where to start in finding a good one.

A: Listing agreements are subject to modification. I wouldn't use a broker that stated outright that the agreement can't be changed. Call your local bar association for a referral to a real estate attorney who can help you throughout your deal. As for redrafting the agreement, it isn't necessary. Just scratch out what you don't like and write in the new language. And remember, no listing agreements for longer than 90 days no matter what.

Q: I am in the process of selling approximately $100,000.00 of property. This is several acres of the property I live on now. We are splitting the property and selling part of it.  We owe approx $30,000 on our house. My question is do I have to pay capital gain and if I do can I pay off what I owe and take that money out of the total I get?

A: I don't know the answer to your question. My best educated guess is you will have to pay some part of the capital gain because the $250,000/$500,000 tax free in profits is for the sale of your primary residence. B/c you're keeping the residence, the portion of the land you sell off becomes investment property. The real question is how to divide up the cost of purchase.

Please consult with an account and a real estate attorney to help you do this correctly. Typically, capital gains tax is 10 percent if your income is less than the 28 percent bracket, and 20 percent if you're in the 28 percent bracket or above.

Q: I listen to your real estate advice often on the Clark Howard Show.   We are currently trying to sell our home by owner.  I was wondering what your recommendation would be for a good listing website for by owner home sales.  I saw two listed on your site, www.ByOwnerSales.com and www.Owners.com.  Which of these, if any would be your preferred internet listing source.  We do not want to be locked into a contract or substantial commissions.  Your reply would be greatly appreciated. If it makes any difference on the sites our home is currently advertised for $279,900.00. 

A: www.Owners.com is the original FSBO site, and I think it's fairly well run. But there are other places to go as well. I'd start at Owners and see if it offers what you want and then explore from there.

Q: My husband I and have recently divorced (amicably).  The house we both shared and I currently live in was purchased in 1978.  The mortgage is in his name, but the deed(?) is in both our names.  In the divorce decree, I was granted 100% ownership of the house.

I plan to move this summer to Oregon and I want to sell the house.  How does having my ex-husband's name only on the mortgage affect me selling the house?   What steps should I follow to ensure that the right names are on the right official documents so that I can sell the house?

A: You will need the help of a real estate attorney. Your husband will have to sign off on his rights to the cash from the home. I'm sure the house has been pledged as collateral for the loan, but you'll want to make sure you get the rest of the cash.

Although residential transactions in Georgia usually happen without an attorney, I again advise you to consult with one before you proceed so you know what to do to protect yourself and your asset.

Q: If we make $30,000 on the sale of our home and do not use any (or very little) of it for a down payment on a new home, will we have to pay taxes on the portion that is not used for the purchase on the new home?  I thought I heard you say on the radio that only very large sums were taxed.

A: You can keep up to the first $250,000 (if you're single, $500,000 if you're married) in profits tax free. It doesn't need to be reported. But you must have lived in your home for two of the past five years, and you can only take the exclusion once every 24 months.

Q: In the summer of 2000, my husband and I sold and bought a home.  We reinvested all of the gain on the prior home into our new home.

My husband has recently received a terrific job offer in another city (very unexpected, otherwise we wouldn't have moved in 2000).  We are seriously considering the relocation, especially because it would be back to my husband's home town with lots of friends and relatives.  If we relocated, we would do so probably this Fall, 2001.

My question relates to the taxes on the gain we stand to make by selling our current home.  We have done a number of worthwhile cosmetic repairs to this home and will very likely make 20 - 30K in this short time.  Since we will not have been living in the house for 2 years before we sell it, is it true that we cannot take advantage of the new tax exclusion for profit from the sale of a home?  Will we be required to pay taxes on this profit?  Even though this is an unexpected relocation due to a job change???  If we roll all of the profit from this house into the new house in our new town, do we still have to pay the taxes?  What is the capital gains rate?  We have never had capital gains before . . .

A: If your husband moves more than 50 miles to take another job, you can take a proportionate share of your capital gains tax free. If you stayed 2 years, you could take up to $500,000 tax-free. If you stay 1 year, you can take up to $250,000 tax free.

Double-check with your accountant, but I think you guys will be okay.

Q: I put my home up for sale on 11/29/00 and still have not sold to date. My Realtor placed in multiple listings (internet/paper). I am beginning to wonder if I should give it more time or do something different to attract buyers....not sure exactly what to do because the house is perfectly fine.

My Realtor is very nice and I hate the thought of getting someone else. Will it make a difference if I change Realtors or just be patient. With the interest rates being low, I was hoping it would be easier to sell....PLEASE ADVISE.

What is the average time it takes to sell a home?

p/s: I am only selling because my employer is moving further away from my current residence.

A: I don't know what the average number of listing days is in Atlanta right now, but your agent can tell you. I can tell you that you listed at what is traditionally the slowest time of year: Thanksgiving through Mid-January. With interest rates going down, I wouldn't be surprised if interest in the home picks up.

But if it doesn't, you have to face facts: Either your home is improperly priced given its condition or you need a more aggressive agent.

Tough choices, but you're selling your largest asset. Make sure you do it right.

Q: I've been advertising my home in the paper and I received a call today from an individual who wanted to buy my home as an "investor".  I asked her if she was an agent and she said no.  She wanted to buy my house as a lease with a purchase option.  I don't know anything about this and she said she would be basically selling my house for me.  I'd have a monthly income plus at the end of the period I'd get my asking price plus several thousand more.  Is this a deal or something I might investigate?

A: You can check to see if she is an agent by running her name through the Georgia agency that regulates real estate agents. You can simply call and ask if this person is licensed as an agent or broker in the state.

Here's how a lease option normally works. Someone signs a lease (you're renting the property) and puts down a non-refundable option fee (like $1,000). You credit a portion of the rent each month (anywhere from 0 to 100%) toward the down payment (it's usually a first-time buyer who does this). At the end of the option period, the renter decides whether or not to  buy the home at a prearranged price. If they don't want to pick up the option, they can pay another non-refundable option fee and lease for another period.

If they decide not to buy your property, you keep the option fees and the renter walks away.

That's how it's supposed to work. Only you can determine whether or not this is a legitimate deal.

Q: On September 1, 2000 we moved into our new home in a great school district in Marietta, GA.  This subdivision, as opposed to our last one, does not have a pool.  My 10 and 6 year olds almost live in the pool in the summer months, but we could not find a home in a Swim community in the required area that we wanted that we could afford.  With all that said I would like your opinion on 2 main issues:

1.  Will an in-ground pool in our back yard bring down the resale value of our home?
2.  Is it wise to borrow against the equity in our home to pay for the pool?

A: here are pros and cons to inground pools. There are detailed restrictions on the fencing you must have, and the clearance around the pool. I would check with your local building department on what they require. Then, talk with local real estate agents on how your property's appreciation would be affected by the installation of an inground pool. You will also need to increase your liability insurance just in case anyone in the neighborhood jumps the fence when you're not there and gets injured on your property.

But if you're going to use it, then you should certainly consider installing one.

Q: How do I determine how much to sell my house for if I am selling the home myself?

If I only have 10 percent down payment, should I get a piggyback loan?

A: Selling your home yourself is a huge undertaking. You need to do the job of a seller AND the broker, all at the same time.

Before deciding to sell on your own, you should talk to three brokers from three different firms and ask them to put together a comparative marketing analysis. This CMA will include a suggested list price.

If you want to try marketing your home yourself after you receive your CMAs, fine. But give yourself only a limited amount of time in which to get an offer, say 3 weeks. Then, hire a professional.

If you want to find out how much your home is worth without going through an agent, you can hire an appraiser. The cost will be approximately $300-$400, depending on where you live and how much work the appraiser has to do.

Finally, if you're set on selling yourself, consider using a discount broker, like www.owners.com. For a $499 fee, they will list your home in the local Multiple Listing Service. You will still owe a half commission to the broker who brings the buyer to your door.

Q: Is the type of stucco called hard coat one of these problematic synthetic stucco's?

A: Nope. Hardcoat stucco is like concrete. It's been around for hundreds of years (used in Europe). We're talking about synthetic stucco that's made of acrylic. It's basically plastic.

Q: I've been scouring your site for information on how to find an appraiser for our house and have been unsuccessful.  We live in Roswell, GA and are wanting to sell our current home and buy another, larger one.  To help us determine the amount we can afford for a new home, we want to get the appraisal value for our current home.  Our questions are:

*    How do we go about finding a good appraiser?
*    What questions should we ask the candidate appraiser to determine if we should use him/her?
*    About how much should we expect to pay for an appraisal and on what is the price based?

A: I don't understand why you need an appraisal. If you're going to sell through an agent, have 3 agents come through your home and do a comparative marketing analysis. They will give you a suggested list price based on the sales price of comparable homes in the area.

That's really all you need. I talk about this at length in my book, 100 Questions Every Home Seller Should Ask.

Q: Its common knowledge that renovating a kitchen or bathroom adds value to your home.  When you are finishing a basement is there the same added value to put a kitchen or kitchenette in the basement?  Info on the basement. We have the room in the basement to put in two bathrooms, 1 large bedroom, an office that could be converted to a bedroom and a large playroom that also could be converted to another bedroom.  A large room, 18x25, has a fireplace already built and would be built as a family room.  Area est. to 2200 feet.  My wife are in disagreement on the added value of the second kitchen.

A: The added value differs from place to place. The best thing to do is to consult a local real estate agent (perhaps the agent who sold you the home) and see what she says (or you could ask 2 or three). The idea is to not overbuild for the community. Anything else will be a fine addition.

Q: My parents and I purchased a house together in 1996 before I married. The house is worth $145,000 and we owe $102,000 on the mortgage. I live in the home with my husband and son. We have been paying the complete mortgage, taxes, and repairs since our marriage in 1998. My husband and I have decided to purchase a home together. In fact, we have been pre-qualified for a loan and have signed a purchase agreement for a new construction to be completed in August 2001.

I'm selling my interest in our current home to my parents. My mother wants me to sign a quit claim deed to my parents in exchange for $20,000. The transaction doesn't feel like a true "sale". I'm worried that executing a quit claim is not enough. My concern is that when my husband and I go for final loan approval, we won't qualify for the new home because our current residence shows up on my credit report. As you can imagine, everyone is very sensitive when we discuss this subject. I have a real estate attorney.

Is my concern valid? Is there anyway to remove me from the mortgage without refinancing?

A: DO NOT sign a quit claim deed without having your parents refinance the mortgage to remove you from the note. Should something happen, you will owe the mortgage but have no claim to the property.

Your real estate attorney should know better than to you advise you this way. Perhaps you should seek the advice of alternate counsel.

You absolutely will have trouble qualifying for a new home with this current mortgage on your credit history, unless you have enough annual income to support both.

Have your parents look into refinancing the home. Then, you can give them a proper deed once your name is off the mortgage, and move on with your life.

Q: We are going to sell our house in the spring.  I would like to know whether it is a good idea to go ahead and get a builder to build another house while we are trying to sell or wait till we sell then build a house in a subdivision? Or should we buy a house already built?  Do we wait till we have a contract on our house? Also what questions should I ask the real estate agent when we interview for a real estate
agent.

A: If you're going to have a builder complete a home from scratch for you, it can take 4 months to a year or more. If you buy into a subdivision, it may take only 4 to 6 months. If you buy something already completed, you're more in control of what happens and when. If you want to sell this spring, unless you're willing to move into a rental while your new home is being completed, I'm afraid you don't have as much time as you may have imagined.

You need more help than I can give you in my email. Check out my books, 100 Questions Every Home Seller Should Ask (Available in your local library, if your bookstore is out of stock) and 100 Questions Every First-Time Home Buyer Should Ask (not because you're a first-time buyer but because so many things have changed since you last bought a home).

Q: My husband and I bought our house in the North Cumming, GA area in June 2000 for $214,000.  Right now we are faced with having to move out of state and are concerned we are going to lose our shirt on this house, since we've only been in the house for 6 months.  It's in a growing area, the houses are going pretty fast and the builders are getting ready to start a new phase in our subdivision.  We put a down payment of $13,000 and we have a 30-year/5-ARM loan of 7.5%.  Also, we've put at least $2,000 into the house already with blinds, fans, garage door opener, garbage disposal, built-in microwave, shrubs and grass seed.  We plan to put the house up for sale in early February and hope to be out by early summer, if not sooner.

We don't want to rent but we do have family within 40 minutes who could manage the house if we decided to rent it out, however, we would rather be free and clear of the house rather than rent.

What do you recommend we do...rent or sell?  How much should we sell for (asking and bottom line price)?  Are we going to lose our shirt on this deal?  Should we use an agent or try to sell ourselves?

A: I can't advise you on how much to sell your home for. That depends on the price builders in the area are getting for their new homes. You're in a tough bind (not that you don't know it) and you're going to have to gauge the demand for an almost new house that comes along with a few niceties, like grass and window treatments.

The biggest plus is that someone can "MOVE RIGHT IN", whereas developers and builders may be running behind schedule. My sister moved from Atlanta last year just 4 months after moving into her brand new home. She had her agent work with the developer's agent to send people her way who wanted a new home in that subdivision, but wanted it NOW. And one of those couples actually bought the house within weeks of it being listed.

I suggest you make friends with the agents who work for the developer. Tell them you will pay them a half commission (2.5-3%) if they send buyers your way and one of their buyers actually purchases your home. A half commission is far cheaper than a whole commission, though you will have to hire an attorney or escrow company to help you close.

Q: We are going to sell our house in the spring.  I would like to know whether it is a good idea to go ahead and get a builder to build another house while we are trying to sell or wait till we sell then build a house in a subdivision? Or should we buy a house already built?  Do we wait till we have a contract on our house? Also what questions should I ask the real estate agent when we interview for a real estate agent.

I would appreciate any help in the way I should go about selling my house and buying another house. 

A: I will talk about this on the show today.

Q: We are purchasing a new home from a developer contingent upon the sale of our current residence.  We are about 70 days from expected close of escrow on the new home and we have made deposits of over $3000 toward upgrades on our new home.

On Nov. 22, 2000, we signed an agreement to list our current home with a broker who also represents the developer we are purchasing from.  We felt this broker would be motivated to sell our house to facilitate the purchase of the new home.  Our contract with him expires on March 31, 2001 (escrow on the new home is expected to close March 3, 2001).

Our home has been on the market for over 6 weeks now and we have  had 6 showings.  Our broker has been unable to get any feedback from the other realtors he says.  His plan was to simply place our home on the multiple listing and said other agents would show it.  There is a sign in front of our house with some fliers on it.  He says it is advertised in "Harmon Magazine" and promised me (on 12/22/00) that he would provide me a copy of the ad as well as a copy of the multiple listing -- he has done neither. There is an agent's name on our sign whom we have never met and who, we believe, has never been inside our home.

I have notified the broker immediately whenever the house has been shown. The broker only calls me in response to messages I leave him.  On 12/22/00, I spoke to him about my concerns about no action and time becoming short. We discussed the possibility of lowering the price, but he feels its too soon.  He assured me that things would start happening the beginning of Jan. -- no one has walked through since 12/23/00.

I've asked him what I can do, and he advises patience.  Am I being unreasonable?  What should we do?  My husband and I are considering doing open houses ourselves, listing the open houses in the local paper at our own expense -- but somehow that doesn't really seem like what we should have to do when we do have a broker who claims he wants to see us in the new home.

I would like to hear your comments and suggestions.  We really would like to be able to purchase the new home (and are not anxious to lose over $3000 in deposits!).

A: Have an immediate conversation with the managing broker of your agent's firm. Let him or her know how displeased you are with the service you have been receiving. Your contract to sell your home is with the company, not the individual agent. Try to switch to a more motivated seller.

You've made a few mistakes here: You should have interviewed several agents, and had them do a comparative market analysis of  your home. Your property may be overpriced, or you may just be suffering because the market has slowed somewhat.

Still, interest rates are down and you should get traffic and an offer if the price is right.

I'd move on this tomorrow -- it could take 6 to 10 weeks to close on your current home. Good luck and thanks for listening.

Q: I can't get through to you on Clark's show so here's my question as briefly as possible...I bought 19 acres and plan to build. I purchased the land $2000-$3000 below appraisal so there is equity. I can rent my current home, based on comparisons in the area, for about $400-$500 more than the current loan payment. The home, based on comps, has about $35k -$40k in equity. Question...Is it better to sale the home or rent. I feel as if I need to rent because I need the overage in the payment to help me make the new home payment which will be considerably higher than my current payment. I would also like to use my first home as a way into the rental business, but what do you recommend?

A:

As for entering the rental business, there's more to the cost of owning and maintaining a home than loan payments. There's taxes, insurance, maintenance, upkeep and upgrading that has to go on. Your rental payment must cover these things as well, and as the years go on, provide some profit.

Be sure you can afford to do both and that a lender will agree that you have good enough debt to income ratio to carry both loans. Finally, take out a piece of paper and write down your financial goals. If being a landlord is at the top of the list, I'm sure you'll find a way to make it work.

Q: I enjoyed listening to you in Atlanta over the holidays.  I have a question maybe you can help me with.

I sold a home in California in July of 2000 before moving to the Atlanta
area.  I only owned the home for 15 months.  I made a profit of about $25,000 on the home.  What are the current tax laws pertaining to this situation?

It is my understanding that if you live in the house less than 2 years you have to pay capitol gains tax on the profit. I also have heard that I have 2 years to buy a new home that is equal to or greater in price than the selling price of the one I sold to avoid taxes on this money.

I understand the purpose of the 2 year rule.  It was designed to target
people who were buying and selling real estate for a living and avoiding income tax.  Is there a clause in the law for people who had to move for career purposes?

Can you please help me with the right answer.

A: If you had to move more than 50 miles for your job, you can take a proportionate share of the profit tax free. So if you'd stayed for 24 months, you could have taken up to $250,000 in profits (up to $500,000 if you're married) tax free. Since you sold at 15 months, you can take approximately $150,000 in profits tax free.

Check the IRS rules regarding moving because the same rules apply for capital gains relating to a home sale when you sell to change jobs.

BTW: the 24-month rollover replacement rule no longer exists. You keep the cash tax free whether or not you buy another home.