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REAL ESTATE Q&A

Untangling 'exclusive' listing lingo

August 05, 2007|Robert J. Bruss | Inman News

Question: What is involved when you give a real estate agent an "exclusive" listing? Will the property go on the Multiple Listing Service? Can another realty agency show your house and bring a purchase offer?

Answer: There are two main types of exclusive listings.

One is called an "exclusive agency listing." That means if the home seller finds a buyer without an agent's help, a sales commission need not be paid to the listing agent. However, if the listing or a buyer's agent locates an acceptable purchaser, then the seller owes a commission. Because an exclusive agency listing agent lacks full control over the property sale, most agents refuse to accept such a listing.

The other type is the "exclusive right to sell listing." That means the listing agent earns the sales commission regardless of whether the seller, the listing agent, a buyer's agent or someone else produces a buyer. This type is strongly favored by realty agents because it gives them maximum control and maximum incentive.

When signing any listing contract, be sure it provides for maximum market exposure in the MLS and on the Internet.

A word of warning, however: Don't sign up for an "office exclusive listing," which means the property will be marketed only by agents in the listing agent's brokerage firm.

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Time to shut gate on encroachment

Question: I have a bit of property line drama with my neighbor. She took down the fence between our lots and is pushing her yard about 18 inches onto my lot with a new lawn and gate. Before she completes the new gate, what should I do to prevent her from gaining an easement with my implied consent?

Answer: Run, don't walk, to a real estate attorney's office.

If you allow the neighbor to continue building the gate on your property, she could gain the right to a permanent encroachment. You might not care, but when you eventually sell your home, your buyers probably will care.

The attorney will probably recommend that you obtain a court injunction immediately to stop construction of the gate.

Don't sit on your legal rights. If you do nothing and watch the construction proceeding, knowing it is an encroachment, the neighbor might use the legal defense of "laches." That means an unreasonable delay in enforcing your legal rights when you could have acted promptly.

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Time frame OK for tax-free gains

Question: My wife and I are both 85. We acquired our house five years ago in an Internal Revenue Code 1031 tax-deferred exchange. It was our third exchange in a series, so our cost basis is very low. We rented out the house for about three years and then took it over as our home two years ago. We planned to eventually sell the house and claim the $500,000 exemption to offset the capital gains tax we will owe on the 1031 deferred gains. However, I read in IRS Publication 17 that you cannot claim the exclusion if you acquired your home in a like-kind exchange. Is there any legal way to get around this?

Answer: Yes. As you know, Internal Revenue Code 121 allows principal-residence sellers to qualify for up to $250,000 in tax-free capital gains (up to $500,000 for a qualified married couple). To qualify, you must own and occupy the primary home at least 24 of the last 60 months before its sale. You and your wife appear to qualify. Only one spouse's name need be on the title.

Effective Oct. 22, 2004, IRC 121 was amended to require a principal residence acquired in an IRC 1031 tax-deferred exchange to be held for at least five years to qualify for the tax-free capital gains. But only 24 months of owner-occupancy is required.

This tax law change was enacted to prevent investors from trading an investment property for a residential property, converting it to the owner's principal residence, and quickly qualifying for up to $500,000 in tax-free sales profits after only 24 months.

Now, such a transaction requires at least five years of ownership, including at least 24 months of owner-occupancy. However, the depreciation you deducted will be taxed at the special 25% federal recapture tax rate.

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Letters and comments to Robert J. Bruss may be sent to 251 Park Road, Burlingame, CA 94010. Bruss suggests consulting an attorney or tax advisor before making important real estate decisions.

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