QUESTION: I had my home priced under the market price and recently took it away from the brokers so I could lower the price even more. Why? I have a beautiful, wonderfully priced home and did not get any offers.
Why is it entirely on the homeowners to take a hit when this whole mess was not their fault? Homeowners would be less resistant to lowering the price if the real estate brokers would also lower their commission rates. Is it a state law that they cannot lower their fees?
ANSWER: Perhaps your house is not worth what you think it is. To answer your specific question, there are no laws restricting real estate brokers and agents from reducing their commissions. In fact, every real estate commission is negotiable. The antitrust laws prohibit price-fixing; real estate commissions are – and must be – decided by each company without collusion or cooperation from any other company.
Many real estate brokers anxious for a sale will be happy to reduce their commission. If a broker is unwilling to do so, search around for a company that will give you a break.
However, in today's market, many real estate agents are asking for a bonus if they find a buyer within a certain fixed period of time. Once again, that's negotiable. If you want to sell – and have an agent work really hard for you – you might be willing to pay something extra.
Make room for daddy!
My wife and I own our home as joint tenants. My father is willing to purchase a joint-tenancy interest in our home with us to help us pay down our mortgage. If we do this, will there be any immediate tax liability triggered by this action for any of us? Also, if at some time in the future my father wishes to quitclaim his interest in our property back to us, would that trigger any immediate tax liability for any of us?
When you sell property – whether all of it or only a portion – there will be tax consequences. However, if you and your wife file a joint income tax return, and have owned and lived in the property for at least two years, you can exclude up to $500,000 of the gain you will have made.
But that's only the start of the analysis you should make. Let's say that your father purchases one-quarter of your house. Several years later, if he deeds it back to you (whether by a quitclaim or warranty deed is irrelevant), presumably he will have made a profit. At least, the IRS may think so. And since he would not be eligible for the up-to-$500,000 exclusion of gain, he may have to pay capital gains tax.
I don't like your idea. Here's an alternative suggestion: Your father can act as the banker. He can lend you what banks call a “home equity loan.” In effect, he will provide you with a line of credit, which you can tap into any time you need the money. You and your wife will have to sign a promissory note in favor of your father for the full amount, as well as a deed of trust (mortgage). This latter document should be recorded among the land records where the property is located, so that your father will be protected and you will be able to deduct for tax purposes the interest that you pay him.
You must advise your current mortgage lender of your plans, to make sure that this is not prohibited under your present loan.
You will pay your father interest only on the moneys that you actually borrow.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. Questions for this column can be submitted to benny@inman.com.
