‘Idiot’s Guide’ for home buyers disappoints
DEAR BOB: We are considering listing our 48-unit apartment building for sale. So far, we have spoken with two Realtors. We would like to know what sales commission to expect to pay on a $3 million sale. The standard rate for houses in our area is 6 percent commission. One of the Realtors wants a flat commission. The other has some sort of pyramid-style system involving starting out at 10 percent and going down to 3 percent after a certain amount, all combined together. What guidance can you give? –Ellen A.
DEAR ELLEN: You need an apartment sales specialist who only sells commercial and apartment buildings. Stay away from sales agents who specialize in single-family sales.
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Real estate sales commissions are negotiable, especially on $3 million income property sales. According to Real Trends, the average home-sale commission is now 5.1 percent so your commission should be less than that.
Interview at least three or four apartment and commercial property sales specialists who sell apartments in your vicinity. Listen to each agent’s listing presentation, including his/her quoted sales commission rates.
Let each agent “sell” himself or herself to you, not necessarily based on the sales commission rate alone. Check out their references of recent sellers of large properties like yours before selecting the best agent for your situation.
INFORMATION ON STUDENT HOUSING
DEAR BOB: My son is going away to college. We want to buy a two-bedroom condo for him so he can rent out the second bedroom. Do you know of a book or articles about this type of rental? The plan is to sell the condo after he finishes college. Would we get the $250,000 tax exemption just like selling a primary residence? –Edna D.
DEAR EDNA: If your son’s name is on the title, after ownership and occupancy of his primary residence for at least 24 of the 60 months before the condo’s sale, he would be entitled to the Internal Revenue Code 121 exemption up to $250,000. However, you won’t qualify because the condo won’t be your principal residence.
Although I have not yet read it, there is a new book, “Profit by Investing in Student Housing: Cash in on the Campus Housing Shortage,” by Michael H. Zaransky, which should answer your questions. It is available in stock or by special order at local bookstores, public libraries and amazon.com.
IS DEPRECIATION RECAPTURE TAX 25 PERCENT OR 40 PERCENT?
DEAR BOB: I always read your excellent articles. But I think you made a mistake a few weeks ago. You said a seller of a depreciable building, such as an apartment building, must pay a 15 percent federal capital gain tax, but there is a 25 percent “depreciation recapture tax.” That means the seller is actually paying 40 percent on the depreciation that has been deducted so the investor is taxed twice. Or am I missing something? –Patricia H.
DEAR PATRICIA: There’s only one tax on depreciation recapture. Suppose you have deducted $40,000 of depreciation on your apartment building before selling it. Also, suppose your total capital gain on that sale is $100,000.
Of that $100,000 total capital gain, you will have $40,000 “recaptured,” which means taxed at the special 25 percent federal depreciation recapture tax rate. The other $60,000 will be taxed at the maximum 15 percent federal capital gains tax rate. In addition, there may be state capital gains taxes also payable. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his Real Estate Center).
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Copyright 2006 Inman News
The Fifth Edition of “The Complete Idiot’s Guide to Buying and Selling a Home” by Shelley O’Hara and Nancy D. Lewis is just as disappointing as the previous editions. Although the book’s coverage of important home buying and selling topics is very complete, the low real estate experience level of the co-authors becomes painfully obvious as the book drones on.
This is a “formula book” where the writers show little creativity and virtually no personal examples to illustrate the hundreds of topics discussed. After having five editions to correct their omissions and errors, knowledgeable readers will be disappointed with the continuing gaps in essential information home buyers and sellers need to know.
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Many of the statements are confusing or misleading. For example, when discussing home location choices, the authors suggest looking for signs of a “growth spurt” where the resale value of a home is likely to go up.
Then they say: “Finally, older homes often have a better resale value than new builds. That’s because if someone has a choice of a home that’s recently new or building a brand-new home, they are likely to choose the brand-new home.” What the heck does that mean?
The home finance section seems about five years behind the times. It explains the basics of fixed-rate and adjustable-rate mortgages. But it totally fails to even mention the newest types of home loans, such as the so-called “option mortgages” where borrowers have the choice of paying fully amortized payments, interest only, or even below-interest-only monthly payments.
O’Hara and Lewis barely mention FICO (Fair Isaac Corp.) credit scores and why FICO scores are so important to mortgage lenders. The authors don’t even share how readers can check their three credit reports and FICO score before applying for a mortgage. Incidentally, the place to go is www.myfico.com.
The lack of real-world experience of the authors becomes crystal clear in the section about making a purchase offer to buy a home and handling counteroffers. There is virtually no information about negotiation strategies that can be critical to reaching a home-sale contract formation.
Although I gave up keeping track of all the misleading statements and errors, in the chapter about insurance I couldn’t ignore this totally untrue statement: “Many homeowners who live in the San Francisco Bay Area are unable to obtain earthquake insurance, for instance, and some are unable to obtain fire insurance (after the massive losses insurers took during the Oakland Hills fire in 1991). In this case, ask your agent for recommendations on how to insure your property.”
In the same chapter, but on the topic of title insurance, the authors say: “Another type of insurance that is required on all homes is title insurance. This type of insurance is purchased just before the closing and ensures clear and trouble-free ownership.” Not true. Thousands of homes change ownership without title insurance, especially when there is no mortgage and the buyer pays all cash. O’Hara and Lewis also fail to distinguish between mortgage lender’s title insurance and owner’s title insurance policies.
The last 25 percent of the book is about selling your home. These chapters are very superficial, probably an after-thought to make a few more book sales. The topic of home selling is worthy of an entire book because the vital seller subjects are much different than those that are critical to home buyers. Melding home-seller and home-buyer conflicting interests in one book, and doing a good job, is virtually impossible.
Especially weak in the home-sales section is the explanation of how primary-residence sellers can avoid tax on up to $250,000 of capital gains (up to $500,000 for a qualified married couple filing joint tax returns), showing the authors know little or nothing about the tax aspects of home sales.
Chapter topics include “How Much House Can You Afford?” “Buying a Home with an Agent”; “Selecting a Mortgage Lender”; “Deciding Where You Want to Live”; “Defining Your Dream Home”; “Financing 101″; “Applying for a Mortgage”; “Making an Offer on a Home”; “Having the Home Inspected”; “Deciding to Sell Your Home”; “Selling Your Home Yourself”; “Getting the Home Ready for Sale”; “Pricing and Marketing the Home”; and “Dealing with Purchase Offers.”
This should have been a great book for home buyers. Instead, it is incomplete, filled with misleading statements and errors that cast doubt on the balance of the book. The lack of practical real estate experience by the authors is obvious. On my scale of one to 10, this disappointing book rates only a five.
“The Complete Idiot’s Guide to Buying and Selling a Home, Fifth Edition,” By Shelley O’Hara and Nancy D. Lewis (Alpha-Penguin Group, New York), 2006, $19.95; 388 pages; Available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
(For more information on Bob Bruss publications, visit his Real Estate Center).
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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.
Copyright 2006 Inman News
