Are there tips for selling a vacant home?
Yes. Once furniture is removed from the home, you will notice all kinds of imperfections you never paid attention to before – rips in the carpet, holes in the walls, and dinginess. In an empty house, everything stands out. What you see is what potential buyers will also see. So you may need to paint, tear up old carpet, and replace the kitchen floor.
Do I need an attorney to sell a home?
How can I get a quick sale, particularly in a slow market?
Should I sell my home first or wait until I have bought another home?
What are some costs associated with buying a new home?
What are some costs associated with selling my home?
- A real estate commission, if you use an agency to sell. Advertising costs, marketing materials, and other fees if you sell the home yourself.
- Attorney, closing, or other professional fees. Title insurance
- Excise tax for the sale.
- Prorated costs for your share of annual expenses, such as property taxes, homeowner association fees, and fuel tank rentals.
- Any other fees normally paid by sellers in your area, including points, survey, and appraisal fees.
What else should I know?
What should I do to prepare my home for sale?
When is the best time to sell a home?
Are there standard ways to determine how much a home is worth?
How do you determine how much a home is worth?
What about appraised value and market value?
Are agents responsible for disclosing material facts?
They can certainly be held accountable, particularly if they had prior knowledge of a material fact or should have known about it.
For example, if the seller has to use pans to collect water after a heavy rain, it is the agent’s responsibility to question the seller about the integrity of the roof, and then relay this information to potential buyers. However, if the seller deliberately hides a defect from the agent for which the agent had no prior knowledge, then the agent is not accountable.
Experts say agents are not home inspectors, but they are expected to use their best judgment when something appears suspicious.
Do I have to disclose information about my home?
Disclosure could protect you from a lawsuit. Today, home sellers in most states must now fill out a form disclosing material facts about their homes. Material facts are details about the home’s condition or legal status, as well as the age of various components.
If your state does not require a written disclosure, the real estate laws probably require sellers to disclose any known problems with the home they are selling.
What kinds of things are considered material facts?
The following examples include details that would qualify as material facts that must be revealed by sellers about their homes:
- Damage from wood boring insects Mold or mildew in the home
- Leaks in the roof or foundation walls Amount of property taxes paid annually Problems with sewer or septic systems
- Age of shingles and other roof components A buried oil tank
- Details about any individual who claims to have an
- interest in the property
- Information about a structure on the property that overlaps an adjacent property
Some things are not material facts and do not have to be disclosed. They include personal information about the seller and the seller’s reason for moving.
Among those things that may or may not be material facts: whether a death took place in the home or whether a home is considered haunted.
How does the seller determine what rate to provide?
The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction. To get an idea about what to charge, sellers can check with a lender or mortgage broker to determine current rates on mortgage loans, including second mortgages.
Because sellers, unlike conventional lenders, do not charge loan fees or points, seller-financed costs are generally less than those associated with conventional home loans. Interest rates are generally influenced by current Treasury bill and certificate of deposit rates.
Understandably, most sellers are not open to making a loan for a lower return than could be invested at a more profitable rate of return elsewhere. So the interest rates they charge may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.
What are the benefits of seller financing?
Seller financing is a viable option when the seller does not immediately need the entire cash equity they have accumulated in the home. In return for providing financial assistance to the buyer, the seller receives tax benefits, attracts a larger pool of potential buyers, generally completes the sale sooner, and gets good interest earnings.
As for the buyer, seller financing offers less rigid qualification requirements and cost savings by eliminating nearly all loan fees. Fear of default often makes many sellers reluctant to take back a second note or finance the entire purchase. A thorough credit check should help to dispel many of these fears, although the mortgage also allows the seller to foreclose on the property in case of default.
A seller may also require the buyer to carry hazard insurance on the property and include a due-on-sale clause, a provision in the mortgage note that allows the seller to demand full repayment if the borrower sells the property. Other financing, disclosure and repayment-term requirements also will need to be met. It is a good idea to consult an attorney when putting together this kind of transaction.
What is a bridge loan?
It is a short-term bank loan of the equity in the home you are selling. You may take out a bridge loan, or interim financing, to help with a knotty situation: closing on the home you are buying before you close on the property you are selling. This loan basically enables you to have a place to live after the closing on the old home.
The key to a bridge loan is having a qualified buyer and a signed contract. Usually, the lender issuing the mortgage loan on the new home will write the interim financing as a personal note due at settlement on the property being sold. If, however, there is no buyer for the property you have up for sale, most lenders will place a lien on the property, thereby making that bridge loan a kind of second mortgage. Things to consider: interest rates are high, points are high, and there are costs and fees involved on bridge loans. It may be cheaper to borrow from your 401(K). Actually, any secured loan is acceptable to lenders for the down payment. So if you have stocks or bonds or an insurance policy, you can borrow against them as well.
What is seller financing?
Also known as a purchase money mortgage, it is when the seller agrees to “lend” money to the buyer to purchase and close on the seller’s home. Usually sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price.
Seller financing differs from a traditional loan because the seller does not actually give the buyer cash to complete the purchase, as does the lender. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller’s favor.
The seller may take back a second note or finance the entire purchase if he owns the home free and clear. The buyer makes a sizeable down payment and agrees to pay the seller directly every month.
Can a home be sold for less than its mortgage?
Sometimes. But it is a complicated process and a lot will depend on the lender. This process is called a “short sale,” which occurs when a lender agrees to write off the portion of a mortgage that’s higher than the value of a home. But, usually, a buyer must be willing to purchase the property first.
A short sale may be more complicated if the loan has been sold in the secondary market. Then the lender will need permission from Freddie Mac or Fannie Mae, the two major secondary-market players. If the loan was a low down payment mortgage with private mortgage insurance, the lender also will need to involve the mortgage insurance company that insured the low down payment loan.
The short sale can keep the homeowner from landing in bankruptcy or foreclosure. But it is not an easy procedure to approve, and it involves as much, if not more, paperwork than an original mortgage application.
Instead of proving your credit worthiness and financial stability, you must prove you are broke. And any remaining difference between your home’s value and the balance on your mortgage is considered a forgiveness of debt, which usually means it is taxable income.
How long do bankruptcies and foreclosure stay on a credit report?
They can remain on your credit record for seven to 10 years. However, a borrower who has worked hard to reestablish good credit may be shown some leniency by the lender. And the circumstances surrounding the bankruptcy may also influence a lender’s decision. For example, if you went bankrupt because you were laid off from your job, the lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, it is unlikely the lender will readily give you a break.
If faced with foreclosure, what are my options?
Talk with your lender immediately. The lender may be able to arrange a repayment plan or the temporary reduction or suspension of your payment, particularly if your income has dropped substantially or expenses have shot up beyond your control. You also may be able to refinance the debt or extend the term of your mortgage loan. In almost every case, you will likely be able to work out some kind of deal that will avert foreclosure.
If you have mortgage insurance, the insurer may also be interested in helping you. The company can temporarily pay the mortgage until you get back on your feet and are able to repay their “loan.”
If your money problems are long term, the lender may suggest that you sell the property, which will allow you to avoid foreclosure and protect your credit record.
As a last resort, you could consider a deed-in-lieu of foreclosure. This is where you voluntarily “give back” your property to the lender. While this will not save your house, it is not as damaging to your credit rating as a foreclosure. Exhaust all other viable options before making a decision.
What types of foreclosures are there?
There are two types – judicial and non-judicial. A foreclosure that results from a court action is a judicial foreclosure. The mortgage deed or trust does not have a power of sale clause, therefore the lender, trustee or another lien holder must take the borrower to court to recover the unpaid balance of a delinquent debt. By contrast, a non-judicial foreclosure is one in which a foreclosure can be completed outside the court system. Real property can be sold under a power of sale in a mortgage deed or trust that is in default, but the lender is unable to obtain a deficiency judgment.
What is a lease option?
It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not.
Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan.
A lease option also may be a way for the seller to move property in a slow market. Seller advantages include earning above-market rent, retaining all the property income tax deductions during the lease-option period, and attracting tenants who will care for the property as though they owned it.
How does a lease option work?
A landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place – whether, say, six months, or a year or two down the road.
A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease- purchase agreement is in effect.
Before you opt to do a lease option, find out as much as possible about how they work. Talk to real estate agents, read published materials, and, in the end, have an attorney review any paperwork before you and the tenant sign on the dotted line.
Any advice on negotiating?
Be patient, know your home’s worth, adopt a positive attitude, and do not let emotions – anger, pride, greed, or prejudice – get in the way of negotiating the best deal. Your home obviously means a lot to you, but you have already made the decision to move on, so begin to think of your home as “the house” or “the condo,” instead of “my home.”
When reasonable offers come along, take them seriously. You can always counter any offer made by the buyer that comes near your asking price. Do not spoil a good deal over a few hundred dollars.
Can the seller also include contingencies in a contract?
Yes. For example, if you decide to sell your existing home first before buying another one, you can make the sale of your home contingent on finding a replacement home. Some sellers opt for this contingency to avoid a double move, such as moving to a hotel or rental until a new home is found and made available. However, there is one problem with this type of contingency: it can inconvenience the buyer, particularly if his own home is in escrow. He may not be willing to wait for you to move.
This strategy has a better chance of working when the market is relatively strong, your home is a rare find, the price and terms of the transaction are very favorable for the buyer, or the buyer is in no hurry to move.
Do I have to consider contingencies made by the buyer?
You can reject, accept, or counter any offer that is presented to you. Most offers include contingencies, which protect the buyer in case something goes wrong.
The two most common contingencies deal with financing, which makes the sale dependent on the buyer’s ability to obtain a loan commitment from a lender within a stated time period, and an inspection, which allows the buyer to have a professional inspect the property to their satisfaction. There really is no reason not to consider these contingencies because they are quite reasonable and standard.
However, think twice about a contingency that is predicated on you making expensive home repairs, such as a kitchen renovation. Now, if the roof is caving in, that is an entirely different story. You may need to spend money to replace it or lower the asking price of the home.
How do I respond to a low-ball offer?
Let your agent know it is too low to warrant a counteroffer and that you are willing to negotiate but only once a more reasonable offer is made. Ask the agent if the buyer was shown comparable market values of similar homes that have recently sold in your area; and ask if the buyer was ever properly qualified. You do not have to settle for less if you are realistic about your chances of getting more.
Are home selling costs deductible?
If you sell your home and realize a taxable gain even after the exclusion, you can reduce your gain with selling costs. Your gain is defined as your home’s selling price, minus deductible closing costs, minus your basis. The basis is the original purchase price of the home, plus improvements, less any depreciation.
Real estate broker’s commissions, title insurance, legal fees, administrative costs, and inspection fees are all considered to be selling costs.
Are seller-paid points deductible?
For the buyer, yes, but not the seller – even though the seller pays them. Since January 1, 1991, homebuyers have been able to deduct points paid by the seller whereas, previously, they could only deduct the actual points they paid on the home loans themselves.
Can I deduct a loss on the sale of my home?
No. A loss from the sale of personal–use property, such as a home or car, is not deductible. They are considered nondeductible personal losses, and you cannot reduce your tax bill by deducting them the way you would deduct stock and investment losses on your tax returns.
Can I deduct improvements made to my home?
Yes, but only after you have sold it because improvements add to the basis of your home. Remember your gain is defined as your home’s selling price, minus deductible closing costs, minus your basis. The basis is the original purchase price of the home, plus improvements, less any depreciation.
The IRS defines improvements as those items that “add to the value of your home, prolong its useful life, or adapt it to new uses” – such as putting in new plumbing or wiring or adding another bathroom.
How do capital gains work when you sell your home?
If you sell your primary residence, you may be able to exclude up to $250,000 of gain – $500,000 for married couples – from your federal tax return. To claim the exclusion, the IRS says your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale.
You also must not have excluded gain on another home sold during the two years before the current sale. However, special rules apply for members of the armed, uniformed and foreign services and their families in calculating the 5-year period.
If you do not meet the ownership and use tests, you may use a reduced maximum exclusion amount. But only if you sold your home due to health, a change in place of employment, or unforeseen circumstances.
If you can exclude all the gain from the sale of your home, you do not report it on your federal tax return. If you cannot exclude all the gain, or you choose not to, you must use Schedule D of Form 1040, Capital Gains or Losses, to report the total gain and claim the exclusion you qualify for.
What about repairs made to get the home ready for sale?
If you realize a taxable gain after you sell your home, even with an exclusion, you can reduce your gain with selling costs. These selling costs may include items that are otherwise considered to be repairs – such as painting, wallpapering, even planting flowers – if you complete them within 90 days of your home sale and provided they were completed to make the home more saleable.
What if you have more than one home?
For more than one home, you can exclude the gain only from the sale of your main residence. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most often.
