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Avoid Making Costly Mistakes When Selling Home

April 29, 1990|ROBERT J. BRUSS | Bruss is a San Francisco-area lawyer, author and real estate broker.

Spring is the best time of the year to sell your home. It is the most active season of the year for home sales. If you are thinking of selling, perhaps because of retirement, job transfer, birth, death, divorce, unemployment, move up to a bigger home, move down to a smaller home or a move to a better neighborhood, this is the time to take action--when buyers come out of their winter hibernation.

But please be careful. Thousands of profit dollars can be lost with one costly mistake. Since your home has probably been your best investment, don't throw your profits away. Here are some suggestions on how to get the most from your home sale:

--Get your home into tiptop condition. Most home buyers have little or no imagination. Although your home may be in the best location in town, if it isn't in near-perfect condition, prospective buyers will either refuse to make a purchase offer or they will "low ball" with a very low bid.

Painting, cleaning, landscaping, carpeting and repairing are the most profitable improvements to raise your home's market value and increase its salability. If your home needs this type of work, don't even think of selling until the job is completed.

A few hundred or even a few thousand dollars spent on these cosmetic improvements should produce at least $2 increased sales price for each $1 spent. Incidentally, painting is by far the most profitable improvement, so don't hesitate to completely paint your home, inside and outside, before putting it up for sale.

--Don't be confused by the home sale fix-up tax rule. In an effort to encourage home sellers to fix up their residences, some real estate agents incorrectly tell their sellers home fix-up costs are tax-deductible. This is not true.

However, Internal Revenue Code 1034(b), the principal residence sale fix-up rule, says if you incur fix-up costs to prepare your home for sale within 90 days before the sale date, and you pay these costs within 30 days after the sale closing, then you can subtract these expenses from the gross sales price.

But this tax break results in income tax savings only if you buy a less expensive replacement principal residence. If you buy a more expensive replacement home, your profit tax is deferred anyway.

To illustrate, suppose your home sells for $150,000 and you pay a $9,000 real estate sales commission plus $5,000 on home sale fix-up costs for painting, cleaning and repairing. These fix-up costs normally have no tax significance. However, since you are selling your home, these $14,000 sales costs give you a $136,000 adjusted sales price. If you buy a less expensive replacement home costing $100,000, then up to $36,000 of your sale profit is taxable. Had you not spent the $5,000 on home sale fix-up costs, then up to $41,000 of your sale profit would have been taxable.

--Determine the market value of your home. Although your home may be in tiptop "red ribbon deal" condition, you aren't ready to sell it until you know its market value. You could hire a professional appraiser who, for a cost of $200 to $300, perhaps more, will evaluate your home and give you a written appraisal of its value based on recent comparable nearby home sales prices.

Or you can invite three or more local real estate agents to give you their "listing presentations," which will include written "comparative market analysis" forms showing each agent's estimated market value for your home.

But don't sign a listing agreement until you check out each agent's references of previous home sellers. Ask "Were you in any way unhappy with this agent and would you list your home for sale again with the same agent?"

Also ask each agent for the name of their E & O (errors and omissions) insurance company. If the agent doesn't have E & O coverage, perhaps you should list your home with another agent who carries this important insurance.

--Decide if you really need a real estate agent. According to a survey by the National Assn. of Realtors, more than 80% of home sellers use a real estate agent. However, of those sellers who sell without an agent, only 25% said they would again sell without an agent.

Do-it-yourself sellers usually discover they earn every penny they think they are saving on the sales commission. Advertising the home, holding weekend open houses, answering phone calls from unqualified buyers, helping arrange buyer financing and getting the sale closed are not easy tasks.

Another do-it-yourself difficulty is negotiating with buyers who expect to share in any sales commission saving. Finally, a do-it-yourself seller has only one home for sale to compete with the hundreds of homes available to buyers whose agents use the local multiple listing service. The result is most "for sale by owner" sellers are not successful and eventually list their home with a professional realty agent.

--Protect yourself when selling your home. Today's homes are expensive, and buyers expect near-perfect residences. If a serious defect appears soon after purchase, buyers don't hesitate to sue the seller and the realty agent. To avoid this problem, sellers should disclose in writing all known defects of the residence. If the seller fails to disclose these defects, the buyer can either rescind the sale or recover monetary damages.

To take advantage of the best time of year to sell your home, get it into top condition, price it correctly, hire the best real estate agent and be sure to fully disclose any known defects in the home. These are the techniques successful home sellers use to maximize their profit and minimize their home sale problems.

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