Q-We sold our home to a buyer and his wife who are getting a new VA mortgage. There has been one delay after another. It looks like in another 30 days they will get their loan funded. The problem has been the VA lender wasn’t very experienced and she made several time-delaying mistakes.
However, because the house is vacant, the buyers want to move in now before the sale closes. They will pay us a month’s rent in advance. The Realtor says we shouldn’t do it. What do you advise?
A-Listen to your smart Realtor. Don’t let your buyer move into the house before the sale closes. Too many things can go wrong.
The buyer might not get that VA mortgage, even though it now looks like a sure thing. Worse yet, buyers who move in before the title transfer is recorded are very likely to discover real or imagined defects in the home that they will demand must be fixed before they will complete the purchase. Another complication is your homeowner insurance policy, which is not adequate as a rental insurance policy.
However, if you choose to ignore your Realtor’s wise advice and mine, be sure your buyer-tenant signs an “Occupancy Prior to Close of Sale” rental agreement. It is like a lease but it clarifies that it is the buyer’s duty to maintain the house after moving in. But it is up to the seller to insure the house. Ask a local real estate attorney to prepare such an agreement for you.
Hardship tax break?
Q-We sold our home in December 1991 at a profit of about $45,000. Our plan was to use the sales proceeds to expand my husband’s business and then buy a home within two years to avoid paying tax on our home sale profit. But the business has not done as well as expected and we only have about $15,000 cash for a home down payment, far short of the $45,000. I called the IRS about getting a hardship time extension, but the lady there said she never heard of such a thing. How can we get a 12-month extension for buying our replacement home?
A-You can’t. Internal Revenue Code 1034, the rollover residence replacement rule, says you must defer your profit tax when selling your principal residence if you buy a replacement principal residence of equal or greater cost within 24 months before or after the sale. There is no provision in the law for any hardship time extension.
However, you do not have to reinvest your $45,000 profit or any amount from the home sale into the replacement home. You can still qualify for the tax deferral even if you buy the replacement home within the 24-month deadline for nothing down.
For example, you can buy your qualifying replacement home for nothing down with a VA mortgage. Or, with a FHA home loan you will need only about a 5 percent down payment. PMI (private mortgage insurance) home loans for just 5 or 10 percent down payments are also available. Better yet, buy a home with seller financing or an assumable mortgage.
Work with a creative real estate agent to find and finance your home purchase before December 1993 so you meet that inflexible 24-month replacement deadline.
Room to haggle
Q-I lived in France until I was 18, where we negotiate over just about everything, and I don’t like the American “fixed price” system. I plan to put my home up for sale and, because negotiation over home sales prices is customary in the U.S., I am wondering if I would be out of line setting my asking price 10 percent above what I expect to get for the house?
A-When they’re buying automobiles and real estate are just about the only times Americans negotiate over prices. If you want to get your home sold quickly, be sure your real estate agent first prepares a written comparative market analysis. This form shows recent sales prices of similar nearby homes and asking prices of neighborhood houses (your competition). With your agent’s help, you can then add or subtract for the pros and cons of your home as compared to the others to arrive at the probable sales price.
Since you enjoy negotiation, you might add no more than 5 percent to the probable sales price to allow some “haggle room.”
———-
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. You can address inquiries to Robert Bruss at Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
