If you have visited the house several times, you will get an idea of the activity simply be the number of realtor business cards left. ( This is not always a good indicator since most realtors collect these cards regularly) Then to your chagrin you find that there are several other offers being made on the house!. Price is the first criteria looked at by the seller. However, it is not always the overriding factor. The seller then looks at financial ability, inspection and other contingency costs, settlement time and other miscellaneous factors 1. Price: In a competitive market offering a low price believing that the seller will counter does not always work because the seller may chose to negotiate with the other offeror and you will not have a chance to go any higher. Thus in a competitive market it is this realtor's position to offer the best price that you can. This can be slightly under full price, full price, or even over full price. Remember the difference of a few thousand dollars on a contract amounts to just pennies a day over the live of a conventional 30 year mortgage. 2. The inspection: Once the contract is ratified this is the next most important point in the contract negotiation were there is real hard dollars to be considered and where the contract can easily fall apart. My philosophy as a buyer's agent is " don't sweat the small stuff." I would be concerned about the roof or any structural, or mechanical problems, but cosmetic things that a handyman can take care of in a day or two I would not worry about. Another way of putting it, is to trade retail value for wholesale dollars. If you can find something that is costly to the other person but easy for you to take care of, you have a major negotiating point. In other words indicate strongly in your offer the extent that you will hold the seller to in the inspection contingency. This acts as a major psychological lift to the seller who probably has spent a fair amount of money, time and aggravation to get the house in shape. Normally by contract ratification time the seller wants as little to do as possible. It is also a good practice to have a full or partial inspection prior to the offer. The very first offer I made in the industry was on a house in Bethesda which had two other offers. My offer was the lowest but we won the house. It was all based on the fact that I convinced the seller that my buyers were sophisticated and would not worry about the small stuff. The sellers were leaving the area and did not want to be bothered with repairs. The inspection report contingency removal contained only one item for which we got a $500 credit. We were $3000 lower in price but the seller got peace of mind. 3. Financing contingency: The seller's concerns are that the house is going to be taken off the market and the deal will fall through because of financing. I can only say from my boy scout days: Be prepared..... be prepared....... be prepared. Have a clear financial statement, a strong pre-approval letter or better yet a loan commitment from the lender and a significant good faith deposit. Given two comparable offers you can anticipate which one will get the most consideration. No matter how good an offer is, financing is critical and can be a deal breaker. 4. Settlement date. This is incredibly important. The more flexible you are, the better, and may be absolutely critical. I know that this was a major factor in one recent sale. The seller had over ninety days before they could move, the buyers were in an apartment on a month to month lease and could be flexible. This was worth a considerable amount to the sellers We got the house at about 3% under the comparable.) I always ask my buyers to appear and to be as cooperative as possible and negotiate only what is absolutely important to them. 5. Contract presentation. If at all possible be there at the time of contract presentation! Remember once all parties sign, the contract is ratified It is a binding legal contract. Thus if there are counters and there needs to be negotiations, decisions can be made instantaneously avoiding next morning second guessing . 6. Be prepared: Have all your team in order, the home inspector, the termite inspector, the mortgage lender, and settlement attorney. It is most impressive and demonstrates a level of seriousness that is hard to match. Ask yourself are you more afraid of leaving money on the table or of losing the house. Finally make sure your offer is complete with all the proper forms and signatures in the right place. This gives the seller a sense of confidence that he is dealing with a professional. It also eliminates the possibility of putting the buyer in an awkward negotiating posture. With all proper forms signed your contract is not voidable and you have the home you want. The best deal is getting the house at a fair price, terms and conditions. In most cases the listing and selling realtors can work objectively to make the contract work to best interest for all parties once an agreement in principal is reached. For us realtors, finding the house is only part of the job, negotiating the contract is a big part, and holding it together until settlement is equally important. |
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Gain from the Sale of a Principal Residence Richard S. Chisholm, JD, CPA Attorney-at-Law Beginning with the sale of homes occurring after May 6, 1997, a single taxpayer may exclude up to $250,000 of gain from the sale of a principal residence and taxpayers filing jointly with a spouse may exclude up to $500,000 of gain. Requirements for Individual Taxpayers: Individuals must have owned and used the home as a principal residence for at least two (2) of the last five (5) years. However, the two (2) years of occupancy need not be consecutive. In addition, the exclusion applies to only one sale every two (2) years (although sales occurring prior to May 7, 1997 are not included). Requirements for Married Taxpayers: Married taxpayers must file a joint return for the year of sale, either or both spouses must have owned the home for two (2) of the last five (5) years, and both spouses must have used the residence as their principal residence for two (2) of the last five (5) years. Neither spouse may have sold a home within the two (2) preceding years, however, sales occurring prior to May 7, 1997 are not included. What if you Don't Satisfy the Above Requirements? The law currently provides that taxpayers who do not satisfy the above requirements due to changes in employment, health, or other unforeseen circumstances may still qualify for a partial exclusion. Currently, some question exists regarding the mechanics of calculating the partial exclusion, however, it is clearly Congress' intent that taxpayers receive a pro-rata portion of the exclusion. Example. Assume a couple was forced to move because of a change in employment after only eighteen months of residence in their new home. Congress intended for that couple to be able to exclude as much as $375,000 of gain [$500,000 x (18 months/24 months)]. A Break for Elderly or Ill Taxpayers. Congress has provided an exception to the standard eligibility requirements for taxpayers who become physically or mentally unable to care for themselves. As long as those taxpayers have owned and used a home as their principal residence for at least one (1) of the last five (5) years, and are currently residing in any licensed facility, including a nursing home, for treatment of their condition, then the period of time a person resides in such a facility is "tacked on" to their personal use of the property. This should enable many elderly or infirm individuals to qualify for the new exclusion. Traps for the Unwary Taxpayer The above requirements for taking the $250,000/$500,000 exclusion appear fairly easy to satisfy, especially when compared to the complex basis and gain deferral calculations required under prior law. However, as with almost any tax law, plenty of potential traps exist for the unwary taxpayer. The remainder of this section discusses some of the more common traps. Divorced and Separated Spouses: The new law contains a special rule allowing certain taxpayers who are divorced or separated with their ex-spouse residing in the family home to consider the family home as their principal residence for purposes of calculating the use and ownership requirements. However, the ex-spouse's occupancy of the home must occur as the result of a legally-binding divorce or separation agreement. Consequently, individuals who simply move out of their home without the benefit of such an agreement may not treat the home as their principal residence. Previous Gains from the Sale of Principal Residences: Although the new law provides generous exclusion amounts, taxpayers who have previously bought and sold several homes for gains which they deferred when buying their current residence should be extra-careful in calculating their potential gain on the sale of the current home. Any previously deferred gains are also counted against the exclusion amounts. Example: Assume that Mr. Smith had previously sold several homes and deferred at total of $175,000 in gains. When he bought his current home for $475,000, his actual tax basis was $300,000 ($475,000 - $175,000). Consequently, when he sells his current home for $600,000 (after selling expenses), he actually realizes a gain for income tax purposes of $300,000 ($600,000 - $300,000), and not the $125,000 he may have expected ($600,000 - $475,000). As a result, taxpayers contemplating the sale of a home should review their old income tax returns to be sure they know their actual tax basis in their current home.
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