Q-We are in the process of trying to buy a home. You keep saying it is a
”buyer`s market,” but that isn`t much help because we want to buy a starter home and the competition seems pretty keen from other buyers who also want the inexpensive houses. We are working with two agents. Both are very good, but they encourage us to offer close to the asking price, whereas we favor offering at least 10 percent below the asking price and working up. What is the rule of thumb as to how much below the asking price we should offer?
A-There is no rule of thumb. When buying a home, you might as well forget the seller`s asking price. Some agents call asking prices ”dream prices.”
Before making your first purchase offer, ask the agent to give you a written comparative market analysis (CMA). This is the same form that was given to the seller at the time the asking price was set. The CMA shows recent selling prices for similar nearby homes, as well as the asking prices of neighborhood homes currently listed for sale.
After you have this information, you can add and subtract value for the features and drawbacks of the home you`re considering to arrive at your offer price. You may find the asking price is a bargain. Or it may be vastly inflated above market value. Only after you have all the facts can you determine the amount of your offer.
Incidentally, there is no worse feeling than to have your first offer accepted without any negotiation on the price. That happened to me a few months ago and I have been wondering ever since how much cheaper I could have purchased that house if I had made a lower first offer.
Capital improvements
Q-During 11 years of owning our home, we have added several improvements, such as a patio, second bathroom, air conditioning, new roof, painting and a carport. As we plan to sell our home, how do the costs of these improvements affect our sale profit?
A-Your capital improvement costs should be added to your home`s purchase price. All the items you listed qualify except for painting, which is considered a repair expense and is not a capital improvement.
To illustrate, suppose you paid $50,000 for your home and the improvements (excluding the paint job) cost $10,000. Your adjusted cost basis would then become $60,000. If you sell the home for $150,000 adjusted net price, your sale profit will be $90,000. Of course, you can defer your profit tax by purchasing a replacement principal residence within 24 months before or after the sale that costs at least as much as the $150,000 adjusted sale price in this example. For further details, please consult your tax adviser.
Broker ethics
Q-I am a real estate agent with an ethics question. Recently I was invited to the home of a friend of a previous client. This man, a widower, wants to list his home for sale. He is 54 years old, but will be 55 in March 1992. Since he and his late wife owned the home many years, there is a large profit in the home. I suggested he might want to wait to sell until he is 55. As an alternative, I recommended he lease the house with an option to sell after he becomes 55, so he can use that ”over 55 rule” $125,000 home sale tax exemption you often discuss. But this man insists on selling the house now, because he wants to cut his ties to the community. I agreed to accept the listing, but now I am feeling this may have been unethical. Do you think I did the right thing?
A-Yes. You correctly explained the seller`s tax advantages of waiting to sell until he is over 55. Even though a real estate agent is not legally obligated or trained to give income tax advice, you properly explained the possible benefits of delaying the home sale until the seller turns 55. But the seller chose to ignore your advice and that is his privilege. He may have imperative reasons for selling now, such as illness, or just a desire to move away from a house filled with memories of his late wife.
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Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Robert Bruss will answer inquiries addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
