Dear Ask George: My question is twofold: My roommate and I own 50 percent each of a property as tenants in common. I want to get out of the property because my roommate and I do not get along. My roommate does not want to get out of the property at this time. She wants to wait until the home appreciates more in value. I won't wait. From what I've been told, if I want "out", per se, my roommate has two options: purchase the home from me at the current market value, or sell the house outright. Is this correct?

The second question is based off the first. I want to sell the house in the spring time. That would mean we only had the house for approximately 1.5 years, so I believe we're going to have to pay capital gains taxes on the profit. What exactly do you pay on with capital gains taxes? Let's say we purchased the home for $280,000 and we end up selling for $300,000. Do we pay capital gains taxes just on the $20,000 profit? If so, what is the percentage? Also, if the real estate agent charges 6 percent of the sale of the home can we subtract that from the $20,000 profit, leaving us with only a small amount on which to pay capital gains taxes? - Befuddled in Minnesota

Dear Befuddled in Minnesota: As to your first question relating to your co-ownership of the property, I don't see any difference between an outright sale of the property and your roommate's purchasing your 50 percent. According to the WebLocator Internet site dealing with Minnesota residential real estate laws, Joint Tenancy and Tenants In Common are the two most popular methods of co-ownership. The primary difference, however, is that Joint Tenancy provides a Right of Survivorship whereas Tenants In Common does not. If you were to die, for example, your real property interest would pass on to your heirs as part of your estate.

The definition continues by stating that if co-owners cannot agree on the use, sale, or possession of a piece of property -- essentially what exists between you and your roommate, they may have to go to court to resolve the matter in a partition action. In a partition action a joint tenant or tenant in common asks the court to split the property in a fair and just manner. Real property may be difficult to divide and partial interests may be difficult to sell, so a court will usually order that the property be sold and proceeds from the sale distributed to the co-owners in proportion to their interests.

This leads us to your second question involving federal taxation in the form of the capital gains tax. First, I refer you to IRS Publication 523. You and your roommate would not meet the "use test" requiring that you used the home as your main residence for two of the last five years of ownership. However, there is the possibility that you may be able to exclude a portion of the capital gains tax, as follows:

To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use. Longer breaks, such as a one-year sabbatical, do not. You also must not have excluded gain on another home sold during the two years before the current sale.

If you do not meet the ownership and use tests, you may be allowed to use a reduced maximum exclusion amount if you sold your home due to health, a change in place of employment or unforeseen circumstances. Unforeseen circumstances can include divorce or a natural disaster resulting in a casualty to your home, for example.

I advise you and your roommate to consult with a tax professional regarding whether or not you would qualify for any of the capital gains exclusions. If you do not qualify for any of it, and you've owned the property for 366 days or more, you may be taxed at 5, 15, 25 or 28 percent or a combination of rates. These tax levels are known as long-term capital gains and apply to assets that you hold for at least 366 days (more than one year). For assets you've held for less than one year, your gain will most likely be taxed as ordinary income.

However, once again, I urge you both to consult with a tax professional as the ownership of your home is just one of the elements that comprise your total tax picture.

Dear Ask George: I am a real estate agent in Texas. I have a couple of clients who attempted to purchase a home and signed a binding contract with a builder. They subsequently decided that they could not afford the home. Their loan was approved through the builder, but they did not like the payment.

I informed them that they cannot get their earnest money back. They insisted that there are laws which protect them and that they have spoken with an attorney. I am in disagreement with them and their lawyer because they signed this contract knowing the price of the home and now they want their money back. Please advise whether a buyer, who has put earnest money down and entered into a builder contract, can get his or her earnest money back from a builder under any circumstances? – Contentious

Dear Contentious: Oh, boy! The answer to your question is that there are "circumstances" in which a consumer or real estate licensee might "think" a written contract is valid and enforceable but in fact it really is not.

But first, I have some caveats to pass along to you. You don't want to provide your "clients" with any statements that might be construed as legal advice. Practicing law without a license is grounds for suspension or revocation of your Texas real estate license.

Also, when a "client" states that he or she is represented by an attorney, you may disagree with what the attorney says but in Texas -- as well as other states in which you have an agency relationship with a client, you must obey all lawful instructions from your client. For instance, what does the attorney state is the consumer protections afforded your client? For example, were there any inducements offered by the builder that would be construed by a court as Deceptive Trade Practices Act violations?

On the other hand, assuming the contract is both valid and enforceable, one of the keys here is, "What does the contract state in writing?" A significant contract provision is what happens in the event the buyer or the builder breeches the contract.

A buyer's ability to successfully "back-out" or breech a valid, enforceable Texas contract depends upon several factors including, but not limited to, the form upon which the contract was written, special provisions contained in the contract that might allow an otherwise apparent breech, the agent's and/or builder representative's attention to required details (such as Disclosure Notices, etc.), whether the parties actually did what the contract required them to do, and any contingencies enumerated in the contract, to name just a few.

Dear Ask George: How much commission should a real estate broker or the broker's salesperson charge? Where would I find this info? A real estate agent gave me paperwork that stated a 6 percent sales commission applies to the broker but on another page a 3 percent commission goes to the agent. I do not know what a standard contract looks like or what the commissions should be. If I combine the two this equals 9 percent commission. That sounds too high to me. Is this a typical contract? – Bothered

Dear Bothered: Real estate commissions and/or fees are negotiable between the consumers and the real estate firms working with them. This applies whether the firm is functioning in an agency or non-agency capacity. Most state laws, Real Estate Commissions, REALTOR® Associations and Multiple Listing Services avoid limiting or regulating what a real estate firm may charge a consumer.

So, I can only speak with certainty as to what my Houston, Texas based brokerage usually tries to charge for different types of transactions. I cannot speak with any certainty as to what other real estate brokerages charge.

For example, my firm usually tries to charge a total of 6 percent commission to list and sell resale residential real estate, a total of 7 to 10 percent commission to list and sell undeveloped (unimproved) land, and 5 percent to list and sell new construction. I say "tries to charge" because even within my own firm it varies. Nearly every deal is different. Bottom line, a real estate brokerage firm has the authority to negotiate the total monies charged to consumers for the services it provides.

Dear Ask George: Where can I find free lists of foreclosures for southern California? – Pennywise Purchaser

Dear Pennywise Purchaser: You will need to do a little bit of work too. Access your favorite search engine and enter "Free Foreclosure Lists for Southern California" in the search bar. You will find that some of the lists are free, some permit you to take a free look (like a sample), and some actually charge for the information. I suspect, but do not know for sure, that in the majority of cases the "free" foreclosure listings are simply bait to provide you with a minimum of information required to stay out of trouble with CA consumer protection statutes, while tempting you with online pay-for-subscription services that provide "all" the information.

However, file this answer under the "There's a sucker born every minute" category unless you are willing to spend some serious time learning about foreclosures, what to look for, what to avoid, and then also do some research about those who have actually been successful in obtaining properties utilizing this method.

Dear Readers: Mea culpa! I received a number of messages regarding the following statement I made to Very Frustrated in the Realty Times column dated 11/23/04:

However, I've never heard of an investor-owned residential property that only required 10 percent down payment. I suspect that you either told the lender you intended to occupy the dwelling, or you actually did occupy the dwelling before it became an investor-owned rental property.

A Knoxville, Tennessee Realtor, who also owns several residential properties as an investor, writes that he has 95 percent LTV mortgages on all of them with the exception of one for which he obtained a 90 percent LTV loan.

I also heard from Austin-based David Reed, a Texas mortgage banker and a three-year veteran columnist for Realty Times. In addition to a number of salient points Mr. Reed offered regarding PMI, Fannie Mae, Freddie Mac, and a "multitude of investor property loans with less than 20 percent down," he stated:

"I would bet that your reader didn't buy the property as a primary then moved out or told the lender it was a rental when it was not ... it's just that 10 percent -- or less -- down investor loans are much more commonplace than one might imagine. Have a great day!" l