Dear Michael: We plan to sell our home in the next year. Then are moving to a continuing-care retirement community. Will we be taxed on our home-sale profit because we are not buying another home?
Answer: No. Whether you purchase a replacement principal residence or not has nothing to do with Internal Revenue Code 121. Enacted by Congress in 1997, it offers up to $250,000 (if single), $500,000 (if married) tax-free sales home profits. To qualify, the seller(s) must have owned and occupied their principal residence a period of two of the five years before the home sale. Occupancy need not be continuous. Nor must the residence at the time of sale. For example, if the seller owned and occupied the home for two years and then rented it to tenants up to three years, the sale qualifies. This tax exemption can be used over and over again without limit. But it cannot be used more frequently than once every 24 months. For a married couple to claim up to $500,000 tax-free sale profits, only one spouse’s name need be on title providing both spouses meet the occupancy test. If title is held in a living trust, IRS regulations clarify the full tax exemption is still valid.
Dear Michael: Who Pays for the Home Appraisal, the Buyer or the Seller?
Answer: The appraisal, or estimate of the value of the home being purchased, is an integral component of virtually all mortgage processes. Appraisal is required in most types of mortgages, without it, buyers unless all-cash cannot obtain a loan. In the vast majority of mortgage situations, the buyer pays for the home appraisal at the time the original loan application is filed. Appraisal fees typically range from $400 to $500. Once financed, the appraisal is performed by a professional appraiser who inspects the home’s size, condition, quality, and function. The appraiser produces a comprehensive report based on the visit and typically considers the sale prices of similar homes in the area to establish a value of the home being appraised. Comparisons of the square footage, physical appearance, amenities, and overall conditions are made. The home’s value can be adjusted up or down based on the prices similar properties are selling for in the neighborhood and the comparisons made by the appraiser. Both the lender and the buyer benefit from the appraisal. The lender learns how much money is too much to lend given the property’s worth; the buyer discovers how much is too much to pay for the home. An appraisal that is lower than the maximum amount the lender is financing will block the issuance of the loan unless the seller lowers the price of the home or the buyer increases the cash down payment. This outcome can re-open negotiations for the home purchase. While appraisals are not error-proof and the numbers may be susceptible to negotiation, an appraisal that is substantially below what a buyer has offered to pay for a home is an indication that the buyer may be paying too much.
Dear Michael: How much will it cost to have a professional stage my home? And is it worth it?
Answer: One of the hottest trends to sell a home today is home staging, and interior decorating technique for making the most of your home’s attributes and making it more attractive for potential buyers. Home staging has been known to boost home sales prices especially for vacant homes and homes that are in dire need of new furniture. Staging will shorten the time a home stays on the market. Staging cost can run up to $5,000 for 3 months. However, according to www.StagedHomes.com, a leader in home staging services, statistics show an average of 3% increase in final sales price on homes that had been staged, versus those who had not. If you’re willing to put up the money up front, you just might find that the benefits from staging your home can greatly outweigh the costs.
Michael Kayem is a Realtor with Re/max Estate Properties serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or e-mail them to him at: homes@agentmichael.com