Ask Realty Times

Written by Posted On Thursday, 22 November 2007 16:00

Question: My home has been on the market since June. Although, we have had three open houses one additional time. The contract is up December 7th, and I was thinking about taking the house off the market until maybe January or February, then signing with another broker

But if I wait, is the housing market predicted to be worst?

My broker has already had me drop my price three times and is looking for another price drop. I hesitate to do this because I have doubts about the marketing efforts to date and recent comps show my house is within the sold ranges. What should I do?

Answer: No one knows how the market will fare tomorrow much less in a few months. As stockbrokers remind us, past trends do not guarantee future results. Moreover, what is true in one community may well be different in another.

When you listed the property your broker presented you with a marketing plan. Your first step should be to sit down with the broker and review that plan. What was done, what needs to be done, what should be changed.

Rather than a price reduction, why not change your offer: Provide a "seller contribution" so a buyer can purchase the property with little or no cash required for closing. A lower price, by itself, is useless if a buyer has few dollars for settlement.

Question: I have an opportunity to purchase a condo with a married couple, in a different city. They will own half, and I will own half. We are each putting an equal deposit down, and have similar goals (i.e. renting it for a few years, and then selling it after 5 years). The couple will live in the condo for the last two years we own it, because of an employment situation in another city. They already own a house, and I do not. We will have separate mortgages at the same bank, and will be on title together. I know they intend to claim the rental income, and then live in the house themselves before we sell it. I do not know which residence they will designate as their principal one.

My first question is, how long do I have to live there with them before we sell it, to make it my principal residence (assuming I have claimed rental income on the property)? Second, if I do not claim rental income at all, can I designate it my principal residence and only live there for a few months? Third, will my taxes be impacted by their actions?

Answer: You can only claim something as a principal residence if you actually live there. You must live in the residence for two of the past five years to earn the residential capital gains write-off.

"To exclude gain," says the IRS , "a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The ownership and use periods need not be concurrent. 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, but longer breaks, such as a one-year sabbatical, do not. The taxpayer also must not have excluded gain on another home sold during the two years before the current sale."

When the co-owners move in you will remain a non-resident co-owner and they will be obligated to pay rent to you for the percentage of the property represented by your ownership. Essentially you will have an equity-sharing deal when they move in -- but you will not be an owner-occupant.

Please go no further with this until you have spoken with a CPA or enrolled agent.

Question: What's the difference between repairs and improvements?

Answer: In terms of investment real estate there are important differences for tax purposes.

The IRS says "you can deduct the cost of repairs to your rental property. You cannot deduct the cost of improvements. You recover the cost of improvements by taking depreciation.

The IRS says investment property owners should "separate the costs of repairs and improvements, and keep accurate records. You will need to know the cost of improvements when you sell or depreciate your property.

"Repairs. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs.

"If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement.

"Improvements. An improvement adds to the value of property, prolongs its useful life, or adapts it to new uses."

Also, says the IRS, "if you make an improvement to property, the cost of the improvement must be capitalized. The capitalized cost can generally be depreciated as if the improvement were separate property."

For specifics, speak with a CPA or enrolled agent and see IRS Publication 527, Residential Rental Property

Question: I was going to buy a condo recently and had a walk through in the beginning to tell the seller all the items that needed to be fixed to make the unit livable (which included major carpentry, painting and other work). I even conceded to them items that could be done after I had moved in. A few weeks passed and they failed to deliver the property by closing.

A day after, they said I could come down for a walk through, however less than 50% of the work was completed. I sent them a notice of termination in writing. They called me up and asked if we could salvage the deal. At that point I told them if they could get me in writing an estimate of when they could complete the property (all the original items on the list) and cover my expenses from their failure to deliver by the first closing, I would consider continuing with the transaction. They said they would comply, but never did. After a week, I sent them a second notice to cancel.

They called back and said the unit was complete and livable and that they were going to "hold me to the contract". Now they wont refund my escrow deposit and they haven't sent me a notice to arbitrate or anything. I am wondering how strong a case I have and what my options are at this point to get my money back, if any?

Answer: As a buyer it is your job to nail down concessions in writing. Walking through a home and giving sellers a dream list of requests won't work. What will work is a specific, written list of repair requirements which are part of the purchase offer and which must be completed 24 hours before closing -- that way you can see if the work was done. If the work is not done you then have grounds to demand that the closing agent set up an escrow account with the seller's money to complete any work on the list which has not been finished.

Did you have assistance from a skilled buyer broker? That is what you needed -- and generally that's what every purchaser needs.

Did the agreement provide for a specific date to settle the property? Did the sellers meet that deadline? What does your agreement say about damages and remedies?

As to what will happen in your situation, you now need to have a local real estate attorney review your sale agreement to see what it actually says.

Question: My spouse and I made an offer on a condo in October of 2006. The contract stipulates the closing would occur on or about November 30, 2006. The real estate broker told us the closing would likely occur in early December 2006. The condo was near completion (or so we were told) when we made the offer, and the seller is the initial buyer (it was to be a "concurrent" closing). To make a long story short, there have been numerous closing dates set and each one delayed. In August I decided enough was enough, and hired an attorney. We informed the seller if another delay was encountered, we would demand the deposit back. Another delay occurred, and we have now demanded the seller return the deposit. The seller has not responded. What are my options?

Answer:Your only realistic option is to have your attorney sue for the return of your money.

Question: How long does it take to get a variance to maintain a garage conversion to living space? It has been over a year since closing and this is still pending.

Answer: Have you followed up to see that all paperwork has been provided? Contact the local office that handles such issues and speak with them. A letter to your local delegate or council person might help if you get no response.

Question: Do you know of anyone currently buying property in Costa Rica with a self-directed IRA with checkbook control, utilizing their LLC to do so?

Answer: No.

However, in a very brief question you have outlined a series of issues which need to be addressed before you can go further. A short list might include such issues as:

What are the rules? Does Costa Rica allow foreigners to own real estate in their own name? Many countries do not allow non-citizens to directly own property or have extensive restrictions. Have you reviewed your possible investment with your pension advisor? For instance, is there some quirky requirement that investments must be in the US?

Does an LLC provide liability protection outside the US?

As a place to start, contact the commercial attache at the embassy of Costa Rica in Washington.


Have a real estate question? Send your inquiry to Ask Realty Times . Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here . For past columns, please press Ask Realty Times .

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.

Rate this item
(0 votes)

Agent Resource

Limited time offer - 50% off - click here

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.