Q–Are you familiar with the “buyer’s agent” arrangement for home buyers? What is a typical sales commission split between the selling agent and the listing agent? Please explain how a buyer’s agent might function in a “for sale by owner” situation.
A–Your question is especially timely since we are now entering the peak home-buying season. Buyers’ agents exclusively represent home buyers in real estate transactions. Some buyers’ agents insist buyers sign written contracts, which often tie up the buyer for as long as 180 days, while others don’t require a written contract.
Just as you shouldn’t sign a long listing agreement as a seller, don’t sign a long buyer’s agency as a buyer. If the buyer’s agent insists on a contract, I suggest a 30-day maximum term until you get to know the agent. If you sign a longer agreement and the agent turns out to be a dunce, you’re stuck. However, longer terms, such as for six months, are all right as long as the contract includes an unconditional cancellation clause.
An exclusive buyer’s agent represents only the buyer in the home purchase. That means the agent either cannot show homes listed by his or her brokerage firm to the buyer or that, on just those homes, the buyer’s agent becomes a “dual agent” with the listing agent since both work for the same brokerage. Be sure you understand who represents you in the transaction.
A buyer’s agent can also represent a buyer who wants to purchase a “for sale by owner” (called a “fizzbo”) home. Having representation would be a major advantage for you in that situation. Usually, do-it-yourself sellers will agree to pay buyers’ agents half of a customary sales commission. That means you don’t have to pay your buyer’s agent any commission from your pocket. Only if the fizzbo refuses to pay your buyer’s agent any commission would you then be obligated to pay your agent.
If the home you buy is listed by a listing agent, the gross sales commission is usually split 50-50–between the seller’s agent and the buyer’s agent. Most buyers’ agents work for a real estate brokerage and split their sales commissions with the firm. The agent’s share might be as little as 50 percent of the brokerage’s share — to as high as 100 percent in firms that charge each agent monthly desk fees. Listing agents typically split their share of the sales commissions the same way with their brokerage office.
Q–Several years ago we stupidly bought a Florida vacation timeshare. We paid a 20-percent down payment, and the developer financed 80 percent. It seemed like a nice place to vacation. But the place has become very run down, the management is mean and rude, and we don’t want to vacation there any more. We’ve learned many timeshare buyers have defaulted, so there isn’t enough income to keep the place up well.
We have tried to sell our timeshare or give it away to someone who would take over our payments, but nobody who visits the complex wants to get involved. The timeshare manager says if we cut off our monthly payment automatic withdrawal from our checking account, they will report us to the credit bureaus, and our credit will be ruined. It seems our installment contract has been sold to a bank. Can they do this to us?
A–Unfortunately, the answer is yes. Now you know why I constantly recommend against buying vacation timeshares unless you have lots of money that you will never need again. As you discovered, it’s much easier to buy a timeshare than get rid of it.
You signed a promissory note, and if you fail to pay it, the bank can report your default to the credit bureaus, which can adversely affect your credit. Maybe it’s just a threat to keep you paying, but banks usually do report defaults to the credit bureaus if they are currently reporting your on-time monthly payments.
Q–We did an Internal Revenue Code 1031 tax-deferred exchange by selling our rental condo and acquiring a rental house. Now we want to sell another rental condo we own. Can we again do an IRC 1031 tax-deferred exchange by selling that rental condo and putting the sales proceeds into our rental house to pay down its mortgage?
A–No. You already own the rental house, so you cannot make a tax-deferred exchange and use the sales proceeds to pay down the rental house’s mortgage.
If you had planned ahead, you could have made a tax-deferred exchange of your two rental condos for the rental house acquisition. Now it’s too late for that since you already own the rental house. However, you can sell the second rental condo and defer tax by using its sales proceeds to acquire another rental property of equal or greater cost and equity.
Be sure to follow the Starker delayed tax-deferred exchange rules. Please consult your tax adviser.
Q–Our situation is we owned house A and lived in it for eight years. Then we bought some land 14 miles away and built a new house B, where we have lived for 10 years. House A became a rental after we moved out.
Now we want to move back into house A, live there for two or three years, while turning our house B into a rental. Can we do this?
A–Yes. You can move back to your former residence, house A, which is now a rental house. That is a nontaxable event because no sale takes place.
Although you didn’t say it, I think your real question is can you move back into house A for at least two years before selling it and then claim the $250,000 per qualified seller tax exemption?
The answer is yes. However, any rental depreciation you deducted after May 7, 1997, on house A will be “recaptured” and taxed at a 25-percent federal tax rate when you sell it.
For complete details, please consult your tax adviser.
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PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
