Decoding details of buyer's, seller's markets

Conditions change as quickly as the seasons
By: Robert J. Bruss: Inman News
DEAR BOB: My wife and I are eager to buy our first home, either a modest house or perhaps a condo. I received a large year-end sales bonus from my employer, which we will use as a down payment. Recently I listened to a radio talk show where the real estate guest talked about a "buyer's market" and a "seller's market." What does that mean? -Ramon R.

DEAR RAMON: Congratulations on earning that handsome sales bonus and wisely investing it as the down payment on your first home. You must be one heck of a salesperson to earn such a large sales bonus.

A real estate "buyer's market" means there are more houses and condos listed for sale in the community than there are qualified buyers. That means the few prospective buyers are in the driver's seat and can negotiate tough with home sellers.

In most communities, there is an annual "buyer's market" between Thanksgiving and New Year's Day, sometimes extending to Super Bowl Sunday. Experienced real estate sales agents will tell you this is a great time to be a home buyer because there are usually more home sellers and motivated buyers.

However, a real estate "seller's market" means there are more qualified prospective home buyers than there are home sellers. Most communities have experienced a home seller's market for the last few years, primarily due to abnormally low mortgage interest rates that qualified more buyers than usual.

Today, as mortgage interest rates slowly rise, in most communities we are experiencing a balanced market with enough homes listed for sale to satisfy buyer demand. As the spring home-buying season approaches, expect more home buyers to come out of their winter hibernation, possibly resulting in a seller's market in some areas.

As a home buyer, today is a great time for you and your wife to begin your home quest. Don't be in a hurry to purchase, but when you see a home you want to own, don't hesitate to make a written purchase offer. As the old saying goes, "don't steal in slow motion."

SHOULD "FOR SALE BY OWNER" FSBO PAY A 3 PERCENT SALES COMMISSION?

DEAR BOB: My husband and I don't have much equity in our home because home prices have not gone up much in our little town. But we need to sell our home since we have a great opportunity to take over my dad's business in Florida. We started advertising our home for sale "by owner" in the newspaper classifieds and have received a very good response from buyers. However, several agents offered to find buyers if we will pay a 3 percent sales commission to the buyer's agent. Is this a good idea? -Alice E.

DEAR ALICE: Yes. Paying a buyer's agent a 3 percent sales commission to get your home sold is a bargain. The reason is that the agent will do most of the work necessary to get your home successfully sold, such as preparing a purchase offer, arranging the inspections, and providing you with the necessary paperwork, including the seller disclosure forms.

ULTIMATE TAX SHELTER OF ALL

DEAR BOB: My wife and I have been very fortunate with our real estate investments. We started out with our single-family house and converted it to a rental after we bought a larger house for our growing family. Then we made a tax-deferred exchange of our rental house for a small commercial building. After a few years, we had an opportunity to trade that building for a warehouse, which is rented to a major company on a 20-year lease. We hope that building will provide our retirement income. However, what happens when we die? Our living trusts specify the warehouse will go to our living children at that time (many years in the future it is hoped). Will this arrangement saddle our kids with a huge tax obligation for all the depreciation deductions we have enjoyed? -Ron R.

DEAR RON: No. You have discovered the ultimate tax shelter of all. It is called death.

After you and your wife pass on, leaving that warehouse to your adult children, they will receive it with a new "stepped-up basis" of its market value on the date of death of the last co-owner.

Uncle Sam will be so overwhelmed by your passing he will forgive any recaptured depreciation tax you would owe if you sell that warehouse before death. For more details, please consult your tax adviser.

The new Robert Bruss special report, "Foreclosure and Distress Property Profit Secrets," 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 PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.