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Real Estate Q&A

Buyers Revoked Offer, but Agent Refused to Cancel


QUESTION: After many months of searching for a larger house to buy, we saw one at a Sunday open house we liked. The realty agent persuaded us to make a purchase offer, which we did. But on Monday morning I happened to mention this to a colleague at work, who told me the neighborhood has a bad problem with sewer backups. I checked with the city, which confirmed the problem. Also, I learned the house might not be in the top school district we want.

At 10 a.m., I phoned the Realtor to cancel my offer. She said I can't do that since my offer is valid for 24 hours. About 1:30 p.m., she phoned to tell me the sellers had accepted it. How can we get out of this purchase and get our $1,000 deposit back?

ANSWER: By phoning the realty agent at 10 a.m. to cancel your offer, you revoked it, so the 1:30 p.m. "acceptance" by the sellers was ineffective. It is not possible to accept a revoked offer. The seller's acceptance was, legally, a counteroffer, to sell the home to you on the terms you originally proposed.

Since you don't want the house, you obviously did not accept the seller's counteroffer. Demand your $1,000 refunded. If the agent refuses to return it immediately, take her and the seller to Small Claims Court.

Lease Cancellation Payment Is Taxable

Q: One of my tenants had a two-year lease with about 16 months remaining when she asked to cancel it. I agreed, if she would pay one month's extra rent and forfeit her security deposit, which she did. Is this money taxable to me?

A: Yes. Payment for cancellation of a lease is fully taxable income to the landlord. If this is a commercial lease, the tenant can deduct the extra rent and forfeited deposit as a business expense.

A One-Bedroom House Has Limited Appeal

Q: My wife and I are first-time home buyers. We found a cute one-bedroom house for sale in a decent neighborhood. We have no children and don't plan to have any. Friends tell us a one-bedroom house is a bad investment. Do you agree or disagree?

A: Unless that house can be bought at an incredible bargain, I would pass on it because the resale potential is extremely limited. Few people want to buy a one-bedroom house. Also, many mortgage lenders refuse to finance them.

$400 Was Well-Spent for Home Inspection

Q: I made a home purchase offer, contingent on a professional inspection, that was accepted by the seller. After the inspection, the seller refused to fix the defects that were discovered. My agent told me the sales contract was thereby void.

The next day, I drove by the house and saw people moving in. This tells me the seller and agent were not negotiating in good faith. Do I have any lawsuit grounds against the seller? Can he walk away from this sale? I am out about $400 for the inspection and I took time off from work to be there. Should I demand repayment?

A: Your situation is a classic example of how a professional-inspection contingency clause is supposed to work. Buyers pay the cost of the inspection, so there is no conflict of interest. After the seller refused to pay for repairs, your choice was either to cancel the sale or move in anyway, letting the seller off the hook. I'm presuming there was no contract clause requiring the seller to repair defects.

Yes, the inspection cost you $400, but it was money well spent. There is no requirement that the seller negotiate further. He refused to have the defects repaired, so you could either take the house "as is" or cancel the contract. Forget about repayment of the $400.

Trade Can Prevent Tax--at Least for Now

Q: I am 74, and I own a 44-unit apartment building that a company wants to buy for conversion to luxury condominiums. My problem, if I sell, is that I'd have a huge profit and would owe a large capital-gain tax.

I've been thinking about selling the apartments and acquiring three large houses. which I would then give to my son and two daughters. Can this be done without paying profit tax?

A: The general rule for a tax-deferred exchange is you must trade equal or up in both property value and equity without taking out any unlike-kind taxable "boot," such as cash or net mortgage relief.

Yes, you can make a tax-deferred trade of your apartments for three rental houses that meet this test. But your later gift of those houses to your children might be taxable gifts.

Transferred Owners Needn't Sell at Once

Q: My husband and I recently bought a newly built home. But we might have to move because of his job transfer. The subdivision is still under construction, and it is very possible we will lose money by selling the house now. If we must move to another city, can we lease this house to tenants for a year so we can use that new $250,000-$500,000 tax exemption?

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