“You used to stand for something, but you’ve sold out, man.”
Everyone’s heard the phrase about their favorite garage band when mainstream access yields excess levels of popularity. In classic days where tape decks came standard in every car and families bought a home for life with no plans to sell it. However, in today’s economy where iTunes and Spotify reign supreme, moving is commonplace and often times expected. Unless you plan to enter the ranks of landlords, the odds are there will be a time where you sell your home. Following you will find insight on common questions and issues in the sale of real estate that will empower you to march to the beat of your own drum and sell out on your own terms.
Before any band makes it big, they retain a savvy agent who knows the business to broker the best deal possible. Likewise, choosing the right agent is the first important consideration in selling your home. While an agent normally receives commission from the seller (six percent of the sale price is industry standard), they also serve as your mouthpiece and primary point of contact for buyers, which is obviously ideal if you’re on tour in another city. Moreover, a seasoned agent can broker a more favorable price on the home and market it to the right buyers, possibly shortening its time on the market. Finally, the agent can also prepare the necessary paperwork upon accepting a buyer’s offer.
If you were a one-man band at the time you bought your home and then got married, don’t be surprised to find that both you and your spouse need to sign a deed conveying the property, as North Carolina law provides a spouse with a marital interest in real property which must be released upon sale. Another important consideration is the seller’s availability to sign the necessary closing paperwork, as the show goes on even when a member of the band checks into rehab. If one or more of the sellers will be unavailable, steps should be taken to gain a power of attorney specific to the sale. Such a document is readily available at just about any law firm as well as the Judge Advocate General’s office for members of our Armed Forces.
Every so often a good band faces a tough crowd and the great ones find a way to win the crowd over by the end of the show. Equally, if your home smells like teen spirit, but enters a tough market, there are concessions other than lowering the price that entice a prospective buyer. Offering to pay for a portion of the buyer’s closing costs (referred to as seller-paid closing costs) is one way to make your home stand out as an American Idol in a sea of similar contestants. A second stage prop is to offer an agent bonus upon sale, which is a concession paid by the seller directly to an agent on closing. If a buyer is on the fence between your home and one of comparable quality, the presence of an agent bonus could tip the scales in your favor without affecting the homes price.
Record deals in the music industry comprehensively address subjects ranging from compensation, types of instruments used, days the band travels right down to what color M&M goes in the tour bus candy jar. If it’s important to the group, then it’s in the contract. The same applies to the sale of your home – if it’s important to you, make sure to include it in the contract to purchase. This ensures all parties have an understanding of what they receive on completing the transaction. If you have a contract and other items must be negotiated between signing and closing, do your best to ensure each item is included in a contract addendum and signed by both the buyers and sellers. Sometimes instances arise where there’s a time crunch or a stubborn lender, requiring the buyer and seller to exchange “POC” funds (industry vernacular for paid outside of closing), but a wise seller keeps such transactions to a minimum.
A rock band who’s sold out always releases a greatest hits album in the twilight of their career, however when you sell your house, the greatest hit for you may be to your wallet. If you realize a profit from selling your home, the IRS may seek recovery of their royalties. Whether selling you home rises to be a taxable event relies on many variables, however two major factors are sale price and the amount of time the seller owned the home.
The power ballad the IRS croons will allow a seller a tax exclusion up to $250,000 from a single person’s sale from federal income and for a married couple this number doubles to $500,000. However, one must listen to the entire eight minute tune, as the seller must qualify for this IRS exclusion by first using the home they sell as a primary residence, and secondly the prospective seller must have lived at the residence for at least two years. Furthermore, there are laws that allow members of the Armed Forces to claim this exclusion regardless of time spent, provided their move results from a permanent change in station. If you qualify, congratulations… take a bow!
If you’re lucky enough to sell a home whose value exceeds the exclusion amounts listed above, the IRS will hit you one more time, taxing the overage at the rate for a long-term capital gain. If you don’t qualify for this exclusion, any profit realized from the sale of the home will either be taxed as a short-term or long-term capital gain, depending on whether the seller owned the home less than or more than a year.
It’s tricky calculating the numbers for the IRS exclusion, as variables include sale price, tax basis of the seller and depreciation claimed on the home. The prudent seller should consult with a seasoned tax attorney if they question the extent to which they qualify for this exclusion. No one wants to miss the big show staying home for an audit.
When the show is over and its time to move on, there’s an interlude between acts that allows the next group to set up while the other leaves. Similarly, once the home is sold the buyer becomes responsible for the power bill, not you. However, standard practice suggests waiting 48 to 72 hours to contact the power company to allow the buyer time to make the switch, especially if the sale takes place at the end of the week.
Once the closing takes place, the encore is to leave your telephone number, email address and if you have it, your new home address with the parties to be accessible for any post-sale questions that may arise and to collect your check. An often overlooked thought is to leave your information with your homeowners’ insurance company and escrow account holder, if your home had an escrow account. Homeowner’s insurance bills annually, so you may be entitled to a pro-ration of the policy and a refund of the unused portion. Likewise, any sums remaining in the escrow account after selling you home must be returned to you. If you follow these simple steps you will be able to sell your home while maintaining your integrity, getting yourself off the highway to hell and climbing the stairway to heaven.
Susan Benoit is a partner with Hutchens Law Firm practicing in the area of real estate