Home seller should rethink listing with discount broker

Marketing exposure a top concern.
By: Robert J. Bruss: Inman News
DEAR BOB: My wife and I are thinking about listing our $425,000 home for sale with a real estate agency, which charges a $1,995 commission. They will list our home for 30 days. During the 30 days, we can sell the home ourselves or if they sell it, we owe only $1,995. If another broker sells the home during the 30 days, he would write in his sales commission on the offer, subject to our approval. During the 30 days, the listing agency will put a for-sale sign in our yard with an information box with flyers about our home. We would have to show our home to potential buyers if the listing agent isn't available to show it. Our home will not be in the local MLS (multiple listing service) until after 30 days if it doesn't sell by then. This agency claims to be a full-service real estate firm. But their competitors put their listings into the MLS within 24 hours after listing. Do you think we should list with this firm? -Don S.

DEAR DON: According to statistics from the National Association of Realtors, at least half of all home sales involve a listing agent and a buyer's agent. Most of those sales originate through the local MLS, the most powerful sales tool available to real estate agents.

Especially in the current buyer's market for homes, why cut yourself off from half the potential buyers? They won't even know your home is for sale if it isn't shown in the local MLS and on the nationwide www.Realtor.com Web site where many home buyers start their searches.

Don't fool yourself. That is not a full-service real estate broker if you have to show your own home to prospective buyers. How will it be shown while you are at work or perhaps out of town for a few days? If your home isn't in the local MLS, and if it doesn't have a lockbox on the door so MLS member agents can easily show your home, how do you expect it to sell?

A yard sign and a few flyers are not enough to get a home sold for top dollar in today's market. You need a successful listing agent aggressively marketing your home. Before you decide to list with that discount broker, please interview at least three successful realty agents who sell homes in your vicinity. Listen to their listing presentations before selecting the best for your situation. Compare their success records with the discount broker.

HOW TO GET $750,000 TAX-FREE PROFITS FROM HOME SALE

DEAR BOB: My brother Joe lives with our parents. He has been paying his share of the mortgage since they all bought the home about 25 years ago. Title is held in joint tenancy with right of survivorship. Joe's name is on the title. They are thinking of selling the home, which was bought for around $200,000 and is now appraised at $1 million. Is Joe entitled to $250,000 capital gains exemption along with the $500,000 exemption for my parents? I heard they need to change the title to tenants in common. -Jeff G.

DEAR JEFF: No need to change the title. Joint tenancy with right of survivorship is fine as long as all three names are on the title. The happy result is when your parents and your brother sell their principal residence, they will each be entitled to a $250,000 principal residence sale tax exemption for a total of up to $750,000 tax-free capital gains.

That presumes each of the three joint tenant co-owners meet the Internal Revenue Code 121 test requiring ownership and occupancy of their primary residence for at least 24 of the 60 months before its sale. For more details, they should consult their tax adviser.

WHAT INSURANCE DOES MOM NEED FOR CONDO PURCHASE?

DEAR BOB: My mom is thinking of buying a condominium. But the insurance is confusing. Is the condo owner or the homeowner association responsible for insurance? Should she purchase coverage for the complete condo just to be safe? -John M.

DEAR JOHN: Insurance is the easiest part of buying a condo. The homeowner's association must maintain adequate negligence liability and hazard insurance on the common areas, including the structure. But that master policy does not insure the contents of individual condos in the event of a loss, perhaps due to a fire.

Your mom doesn't have to buy any insurance. Her mortgage lender won't require any insurance because condo lenders are protected by the homeowner's association master policy in the event of structural damage.

However, I'm sure your mother is a very smart woman who wants to be adequately protected just in case a loss occurs to the contents of her condo or if she incurs negligence liability.

For just a few hundred dollars per year, she can buy a condominium owner's insurance policy from a major insurance company. The policy will include negligence liability coverage, plus insurance for loss by theft, accidental damage to the contents of her condo, and other individual coverages not included in the association's master policy on the condo complex.

SHOULD INVESTOR TAKE DEPRECIATION DEDUCTION?

DEAR BOB: I own a rental property on which I have been deducting the depreciation tax deduction. But I recently read in your column that when I sell my property I will have to pay a 25 percent depreciation recapture tax rate. I am currently in the 15 percent federal income tax bracket. If I will have to pay the 25 percent depreciation recapture tax when I sell, do you suggest I don't even bother to claim the depreciation deduction since I will have to pay back 10 percent more than I am saving? -Marian M.

DEAR MARIAN: Please don't jump to incorrect conclusions. Owners of depreciable rental property must take the depreciation deduction on their tax returns, even if no tax savings result. Although you are in the low 15 percent income tax bracket, the depreciation deduction probably saves you tax dollars.

If no savings result, the deduction from your rental property can be "suspended" for use in a future tax year, or when you sell the property.

More important, you might never have to pay that 25 percent depreciation recapture tax rate. Perhaps you never sell your depreciable building and you die while still owning it. Then Uncle Sam can't "recapture" and tax that depreciation deduction you enjoyed.

Or you might make an Internal Revenue Code 1031 tax-deferred exchange for another qualifying rental property of equal or greater cost and equity to pyramid your holdings. Again, there won't be any depreciation recapture on such an exchange. In summary, because the tax law requires you to claim the depreciation deduction, enjoy it and hope you never have to pay the recapture tax.

CAN PARENTS CLAIM SQUATTER'S RIGHTS BY ADVERSE POSSESSION?

DEAR BOB: I have a "doozy" of a question for you. My parents took care of my aunt and uncle for many years, paying their expenses such as the mortgage and property taxes. My uncle died about 13 years ago and my parents paid off the mortgage about 10 years ago. They took possession of the property after he died and continue to rent it today. But I just found out they don't have any fire insurance because it terminated when the mortgage was paid off 10 years ago. What is the best way for them to take title? Squatter's rights? Adverse possession? Probate? I know they probably need an attorney but is there any way to avoid that? -LaVon G.

DEAR LaVON: Your parents need a real estate or probate attorney to sort out this mess. If there was no probate proceeding or living-trust distribution after the aunt and uncle died, it is necessary to determine who was entitled to receive the property title. The answer depends if there were written wills or, if not, if the title passes according to the state law of intestate succession to the closest relative.

After that is determined, your parents can assert their claim to title by adverse possession. "Squatter's rights" is just another name for adverse possession.

If the occupancy and possession by your parents has been open, notorious, hostile and continuous, plus payment of property taxes, for the number of years required by state law where the property is located, they might qualify to obtain title by adverse possession.

In the meantime, they need to promptly purchase a fire insurance policy.

CAN LANDLORD DEDUCT WALL REPAIR COST FROM TENANT'S SECURITY DEPOSIT?

DEAR BOB: Can I deduct from my former tenant's security deposit the extra cost of scraping and plastering to repair the damage from removing two-sided Velcro tape put all over the walls? -Janet H.

DEAR JANET: Yes. However, you should hire someone to do that work. If you do it yourself, and if the tenant disputes your deduction in local Small Claims or Housing Court, many courts value the landlord's labor at zero.

But if you pay someone to make the repairs, be sure to obtain a receipt marked "paid" and include a photocopy with your security deposit accounting to your ex-tenant.

The new Robert Bruss special report, "Pros and Cons of Today's Five Best Real Estate Profit Opportunities," 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.