It’s perfect. It has four bedrooms for you and your little ones and extra space for that home office you’ve always wanted. The dog can romp in the fenced-in back yard and there’s extra space in the garage for you to hang your beer sign collection. You have to have it. You call your real estate agent and tell her to make an offer now before someone else can snag it. You find yourself on pins and needles waiting to hear back. Can your agent work magic? Will it be yours?
Though wonderful and life-changing, purchasing a home is the largest transaction into which most people ever enter. Real estate agents act as knowledgeable liaisons in facilitating this matter. However, what happens when the process of purchasing your dream home halts because your agent finds themselves in a quandary over disturbing information about your very piece of real property heaven?
For example, a realtor recently came to our office with issues a buyer was having with purchasing a house with a large and undocumented addition. The fact pattern was essentially as follows:
What does the realtor do knowing that an undocumented addition exists? As realtors, the agent is stuck regarding the new property disclosure—this addition appears to not have been correctly permitted. Buyers are concerned about full disclosure and being protected in the future should they want to sell the house. Do they, as buyers, go on the word of the sellers? What should real estate agents do in situations like these?
After discussing this issue with fellow real property practitioners, the following advice was found most pertinent and is offered to realtors, sellers, and home buyers. (Though this answer refers to the above-mentioned fact pattern, it may be more broadly construed in similar undocumented addition situations.):
“Realtors need to stay on top of the standards of practice published or endorsed by the Real Estate Commission with respect to their due diligence requirements concerning the sewage system for this house. If the realtors do not do their due diligence and fail to disclose the facts to the buyers, then there should be a claim for negligence for not performing their due diligence (and maybe advertising the house as a 4-bedroom house when the sewage system would not support a 4-bedroom house). Additionally, if the realtors do not disclose these facts to the buyers, the sellers and the realtors may be liable for an unfair and deceptive trade practices claim.
If a new permit for a 4-bedroom house is issued by the health department, and if the sewage system is built or modified so that it is passes a compliance inspection by the health department inspector (get it in writing and a copy of the permit with annotations of passing the inspection thereon if usually made by that office) for a 4-bedroom house, then the realtors, the closing attorney, and the seller should be alright with respect to how to handle the sewage system. However, proper written disclosures and releases should be secured from the buyers for the realtors and closing attorney. A written guarantee on the soundness of the new sewage construction and the compliance of the old addition may be required from the seller to the buyers, if feasible.
With respect to the building addition, buyers should have an engineer inspect the addition at the sellers’ expense and certify that it complied with the building code at the time of construction and that it is structurally sound. Additionally, have the Inspection Office issue a letter (based upon the engineer’s certification and conclusion) that even if a building permit were not secured when the addition was built, the Inspections Department confirms that the addition was and is in compliance with all building codes, ordinances, and regulatory requirements.“[i]
Though this process may seem cumbersome and cause more work for all parties involved, it will be worth it to get the home you desire. These safeguards are necessary to protect sellers, buyers, realtors, and attorneys. Thus, after proper inspections and full disclosures, your real estate agent will have properly fulfilled their duties and you, as the homebuyer, can feel more secure about finally acquiring your dream house. Now, kick back in your large garage, bask in the glow of your favorite neon beverage sign, and enjoy your new home.
Mr. Craig loves his backyard shed—it is filled to the brim with his rusty, antique farming equipment, after all. Mrs. Violet cherishes her houseful of ceramic owls. But, Mr. Craig and Mrs. Violet are getting older and would like some extra cash on hand to add to or further maintain their beloved domiciles. So, they, like many of their fellow Baby Boomer brethren, begin to wonder how to best utilize the equity in their primary residences as they continue to age. This wonder is often supplemented by peoples’ desires to remain in their residences as long as possible, perhaps while also being able to make some improvements, add an addition, or meet rising daily expenses. Many seniors have heard bits and pieces regarding the possibility of employing a reverse mortgage for their properties, so they ask: What is a reverse mortgage and will it work for me (and my ceramic owls)?
A reverse mortgage allows homeowners to utilize the equity they have built in their homes over years of making mortgage payments. So, a lender provides a loan to homeowners of retirement age that allows them to utilize a share of their home’s equity, thereby allowing the homeowner to receive the mortgage principal in either a large lump sum payment, in monthly installments over an agreed-upon period of time, or as a line of credit. A reverse mortgage in effect pays you, as the homeowner, while you are able to best use your home’s equity. Then, when your home is sold, you decease, or you no longer use it as a primary residence, the reverse mortgage loan is repaid, with all proceeds above the amount owed passing to either a spouse or your estate, therefore leaving no debt for your heirs.
Due to advances in medicine, science, and technology, older homeowners are a vastly growing number. However, is a reverse mortgage right for Mr. Craig’s, Mrs. Violet’s, or your own situation? There are several points to consider, as a recent article on ReverseMortgageDaily.com points out. This group must remain vigilant when determining if a reverse mortgage would work best for them. This includes being observant to interest rates, borrower treatment, and lender stipulations in a fluctuating housing market. Seniors must also consider a myriad of options when deciding on the benefit of doing a reverse mortgage so as to age in their home. These include noting the dollar amount of their home’s current equity and its surrounding area—is the area safe? Can the home be maintained with relative ease? Does its location enable quick access to public and healthcare facilities? If so, a reverse mortgage may be a good idea.
Thus, if older homeowners do their homework, they may find aging in place via a reverse mortgage to be a viable option. These homeowners can then pay for daily expenses or even build that addition they have always wanted. After all, Mr. Craig’s farming equipment and Mrs. Violet’s owls look forward to aging in their places as well.
The Internal Revenue Service has some important information to share with individuals who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.
1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home (there are limited exceptions).
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. You may use Form 8822, Change of Address, to notify the IRS of your address change.