Realtor vs. auction: Which will get seller top dollar?

Owners want to sell home 'as is' with no contingencies


By Ilyce R. Glink
Inman News

Q: My sister and I recently inherited our mother's home in California. It is an old house with all the value in the location. We want to sell it "as is" with no contingencies.

Developers have built on both sides of the property and sold those properties for between $1.5 million and $2.5 million. We are thinking about selling the home at an auction versus listing with a real estate agent.

What's your recommendation? And what would the tax ramifications be?

A: You have a valuable property on your hands. Whether you decide to sell at an auction or by using a real estate agent will be up to you. But certainly you should investigate further to determine whether you might get a higher price by using an auction or a real estate agent. If you're thinking you'll net out more by using an auction over an agent, you might be surprised by the outcome. Auctions aren't cheap.

But there are some reasons to use an auction. Depending on the type of property and its location, the auction route can be quick and yield good results. But you really need to make that determination after you talk to various knowledgeable real estate agents who really know and work in the area where the home is located, as well as talking to the most experienced auction houses that have dealt with properties like yours.

Keep in mind that auction house sales often have high transaction costs. Those costs can be greater than what some real estate brokers charge. Then again, what if it takes six months to a year to sell the property with a broker? A quick sale at auction with higher costs might be better than getting the same price for the home but having to pay the costs to own the home for an extra year.

The first thing to do is consult with several local real estate agents to get their take on the real estate market in that area. You might even want to investigate how quickly new construction homes are selling in that area. If the market is still rolling along where your mom's home is located, you might even be able to call local builders and to see if they have any interest in buying your mom's property.

Now let's talk about taxes. If you recently inherited the property, the value for federal income tax purposes will generally be the price you sell it for. Therefore, you should not have to pay any federal income taxes on the sale of the property.

If you inherited the property a couple of years ago and are just now selling it, you'll have to pay federal income taxes on the difference between the value of the property at the time your mother died and the price you get from the sale of the home, less expenses and other costs.

Don't forget about state estate taxes. Depending on the state in which you live, you may owe state estate taxes even if your mom's estate isn't at the threshold for federal estate taxes. You'll probably want to hire a real estate attorney to help with the sale. For details about state and federal estate taxes, talk to an estate attorney or your tax preparer.

Q: I read your answer to a recent question about inheritance taxes. You might want to point out that some states tax estates in full or at levels less than the federal level. Maryland happens to tax estates over $1 million.

A: Thanks for pointing out that as the federal estate tax exemption has grown larger, many states have opted out of tying their estate taxes to the federal level. This can create some expensive headaches for people whose assets may be below the federal level and above their own state level.

It also helps explain why some people are flocking to states that have no state taxes, such as Florida and Nevada.

If you have a large amount of assets -- even if your primary asset is real estate worth in excess of $1 million -- please talk to an estate attorney about your state laws and what you need to do to reduce any estate taxes that may be owed.

Q: I signed a contract to buy a house. We were supposed to close within 30 days.

Unfortunately, the seller did not turn on the gas so that the furnace could be tested. So, the closing date has already passed. Now the seller wants to rent the house out and not sell the house at all to me.

We asked that the gas be turned on so that the furnace could be tested because this was an issue in our inspection. My real estate agent then put in the extension line for settlement "TBD" but with no date. Can the seller just walk away from the deal?

A: If there was no firm date for you to buy the home, there may not have been a true contract agreed to. Depending on where you live, the back and forth of the contract documents may have ended up with you and the seller never agreeing to the terms of a contract. If there was no agreement, there was no contract and the seller is free to sell the home or rent it to someone other than you.

If you signed a contract and the contract was binding, then the question is what notice was given to the seller regarding the home inspection. If the notice given to the seller was that you did not approve of the inspection to the home due to the gas being off, that notice might have been construed as your disapproval of the condition of the property. If you disapproved the condition, the contract would have died at that time.

So, the first thing you need to determine is whether there was a valid contract for the purchase of the home. Then you need to know whether the notice to the seller regarding the gas and furnace also included language that could have terminated the contract. Lastly, you would have to know what your rights and remedies are under the contract if it is still valid.

You failed to buy the home, and the seller did not turn on the gas for you to test the furnace. You probably were not assisted in this process by an attorney and if you want to force the seller to sell you the home, you'll have to hire an attorney to review the paperwork and, perhaps, sue the seller to force the sale.

On the other hand, if you get your deposit money back from the seller, you may ultimately decide that the best course of action is to find another home to buy.

For more guidance, you should discuss your problem with a real estate attorney in your area.

Go to www.LagretRealEstate.com