October 26th, 2012 at 7:19 pm
As you will recall, a few months ago we blogged about the 3.8% Medicare Tax included in the Affordable Care Act (“AFA”) passed by Congress. As we told you at that time, this is not a real estate tax, but instead is a tax on the unearned (for example, capital gains) income of certain high income taxpayers. Since this tax will take effect on January 1, 2013 (unless political developments result in the AFA’s repeal), it is now an issue that you should discuss with appropriate sellers. As you know, we are not accountants or tax attorneys and should not give tax advice. However, as real estate licensees we should remind high income sellers that the law will take effect next year and its Medicare tax may make it desirable for them to close a sale prior to the end of 2012. Again, don’t try to explain the details of the law to your clients. Rather, tell them in general terms what it is about and that it will be effective on January 1, and recommend that they talk to their attorney or accountant about its potential impact on them. Of course, if our clients might be impacted by the new law, it could help increase our business in the next two and one-half months. So warn your clients and refer them to an expert. That way, if they sell in 2013 and have an increased tax bill, they will not be able to blame you.
For ease of reference, and to remind you of the law’s basic provisions, below is the information we provided in our earlier post. As always, feel free to contact us with any questions you may have.
1. A “high income” taxpayer is one whose tax filing status is single and who has an adjusted gross income of $200,000 or who files a joint return and has an adjusted gross income of $250,000.
2. “Unearned” income is income that derives from investing a person’s capital, including capital gains, rents, dividends and interest.
With those definitions in mind, NAR explains that the tax is imposed on the lesser of (1) the person’s net investment income; or (2) the excess of their adjusted gross income above the $200,000/$250,000 thresholds. For example, if my filing status is single and my adjusted gross income is $290,000, while my net investment income is $75,000, then the 3.8% is imposed on the $75,000, since that amount is less than the $90,000 excess above the $200,000 threshold. In our case, if part of the investment income is from the sale of real property, than it would contribute to the amount being taxed. But, it is an investment income tax rather than one specifically on real estate.
As always, let us know if you have any questions
October 19th, 2012 at 7:18 pm
As you can imagine, a good percentage of our calls arise from transactions that involve “difficult” people. Whether it is a seller who refuses to repair obvious, inexpensive things, or a buyer who wants the seller to pay for every little, unimportant thing in the house, deals with these people can be very difficult to shepherd through. This becomes especially true when the difficult party is your client who invariably starts to treat you poorly, blame you for everything that goes wrong (including things you had nothing to do with) and ultimately makes even talking to them unpleasant. While your issues with these clients are understandable, the fact that someone is a “jerk” in no way changes your duties or obligations in a transaction. Your client, jerk or not, is still the boss and it continues to be your job to give him the proper advice, take his instructions and help get him what he wants, even if you think it is unreasonable.
For example, it is not all that uncommon for a seller to change their mind at the end of an escrow and do everything they can to make a deal cancel. The seller will start refusing to cooperate with any request of the buyer, will not make any repairs, will not return your phone calls and the like. Of course, in this type of deal, you have already put in 90% of your work and want nothing more than for escrow to close. But, frankly, that doesn’t matter. Your interests are irrelevant and you have to help your client get what he wants, even if it is the opposite of what you want. So, if you seller wants to cancel a deal, you have to tell him if he has the contractual right to do so, let him know what the buyer’s position is, refer him to an attorney but, most importantly, do what he wants (as long as it is not illegal). If he tells you to prepare a cancellation, even if you think he has no right to do so, you still prepare the document after advising him of the risks. The client remains the boss, “jerk’ or otherwise.
Similarly, your buyer may get cold feet after all contingencies have been removed and demand a cancellation. Or there may be a new disclosure, that you don’t think is very important but your client is very concerned with that causes him to want to cancel. In either case, no matter how unreasonable you think the client is, you need to help get the cancellation. Perhaps you need to demand a new TDS from the seller which would create a new cancellation right. If the seller refuses, talk to us and, in the right circumstances, we will have you amend your TDS. Regardless, even though you don’t want a cancellation, and think the client’s concern is overblown, you continue to be his fiduciary and therefore must help him get what he wants. You must act without consideration of your commission and follow the client’s instructions.
So, no matter how difficult your client is, you must always remember that they are the boss. Your job is to advise them of their rights and the risks of each course of action and follow their instructions. While we hope you will normally deal with reasonable people, that will not always be the case. Unfortunately, your client has the right to be a “jerk.” And when he is, as long as he is not asking you to do anything illegal, you are still his fiduciary and must follow his instructions. As unpleasant as this may be, it is what the law requires.
As always, feel free to call us with any questions you may have.
October 12th, 2012 at 7:17 pm
As we have discussed many times in the past, short sales are both a major part of our marketplace and among the most difficult transactions we face. They include an unhappy seller who is getting no money from the sale of his house, as well as an unhappy lender who is being asked to write off a portion of its loan, sometimes in very large amounts. As a result, these deals have many additional rules and requirements that make them hard to close. Unfortunately, those rules often don’t come to light until late in the deal, meaning you have spent months of your life working on a transaction that often cannot close. It is not uncommon that we get calls in the last week of a short sale transaction, asking how to handle a bank requirement that now makes the structure of our deal unacceptable. For example, maybe the buyer agreed to buy some furniture from the seller and the Arms Length Affidavit says they can’t. Or, perhaps the buyer is the agent’s sister, and the Affidavit also says that is unacceptable. At the last minute, with a trustee’s sale on the calendar, these problems are very hard to solve.
So, what can we do to avoid these last minute issues? Well, since we know that your lenders “no-nos” will be listed in their Arms Length Affidavit, get a copy of it as early as possible. By reading the Affidavit up front, you will know specifically what types of things the bank will not allow. You will know how they feel about “related parties” and how broadly that term is defined. That knowledge will tell you whether you can represent a relative. You will also know what the bank says about “other agreements” so that you can tell your client that they can’t sell personal property to the buyer. In short, the Affidavit will give you a road map of what structures you can and cannot use so those issues can be dealt with up front, and will not kill your deal after you have done all your work.
Now, how can you get the Affidavit up front? Well, most of the institutional, large lenders have a web page that includes a link to their forms. Go to that page, and print out the Affidavit at the same time you are gathering the seller’s short sale package. It will help you put that package together and guide the buyer’s agent to properly structure their offers. If the lender you are dealing with does not have the Affidavit on line, ask for a copy the first time you speak to their representative. Ask until you get the form, as early in the deal as possible. By doing so, you will help avoid problems later on and ensure that your deal can close. And, of course, that is our ultimate goal.
As always, please give us a call with any questions you may have
October 4th, 2012 at 7:14 pm
As you know, twice each year CAR releases revised and new documents for our use. The next release will be on November 26 and will include a number of regularly used documents and some very nice changes. Below are some highlights:
1. On the Counter Offer form (Form CO), they have added paragraph 1C as follows: “If checked, Buyer’s deposit will be adjusted in the same proportion as in the original offer.” As you will recall, in the prior versions of this document, only the down payment and loan amount were adjusted in the boilerplate. This change includes the deposit, and would thereby keep it at 3% of the new purchase price if the original offer included a 3% deposit. As the listing agent, you should always check this box.
2. In the Commission Agreement (Form CA), CAR added a line in paragraph 1 setting forth a date by which the subject property must be sold in order for the commission to be earned. This is a good change as it adds clarity to your agreement, but you need to be sure to fill in the blank in every instance. Forgetting to add a date will only add ambiguity to your contract and leave the client with an argument to try and avoid payment.
3. The Receipt for Increased Deposit (Form RID) will now be known as the Increased Deposit/Liquidated Damages Addendum (Form IDA) and now reflects the possibility that an increased deposit may be wired directly to escrow. It also adds a check box next to the Liquidated Damages clause, allowing you to once again acknowledge that the new deposit money is part of the potential liquidated damages.
4. The Contingency for Sale or Purchase of Other Property (Form COP) clarifies the parties’ rights should the buyer’s present home fall out of escrow. Specifically, a sentence was added which provides that if the buyer’s sale escrow cancels after the buyer has removed his COP contingency, only the seller has the option to cancel the agreement. By removing that contingency, the buyer loses her cancellation rights even if the sale of her home doesn’t close.
5. CAR created a Trust Listing Agreement (Form TLA), which is a regular listing agreement except that the signature lines reflect that the property is held in trust. Of course, you should use this form when your seller is a trust.
6. Finally, CAR has separated the clauses from the Purchase Agreement Addendum (Form PAA) to create separate forms that can be used in the appropriate circumstances. For example, there is now a separate Back-Up Offer Addendum (Form BUO), Seller in Possession Addendum (Form SIP), Tenant in Possession Addendum (Form TIP), Court Confirmation Addendum (Form CCA), and others. These new forms are not substantively different from the corresponding clauses in the old PAA, but are easier to use because they are only one page long.
Of course, there are other new or revised forms being released next month. If you want to review them all, go to CAR’s website, car.org, the following link: http://www.car.org/legal/standard-forms/summary-forms-releases-chart/november2012formreleases/
As always, let us know if you have any questions.
September 26th, 2012 at 7:14 pm
We have had a number of complaints recently regarding agent conduct at Open Houses. Specifically, we have received calls from our sellers complaining that our agent has spent time at an open house talking on their cell phones or playing on their computer or IPad. In certain instances, the seller has heard from neighbors or prospective buyers that the agent was rude in responding to questions, or unavailable when they sought information about the property. In most of these situations, the alleged conduct of our agent has resulted in the seller requesting a cancellation of our listing agreement.
Of course, the lesson from these stories is obvious: Stay off your electronic equipment during an Open House. Ignoring for the moment the buyers you can find at an Open House, your seller expects you to be focused on visitors to their property during that time. They believe it is your job to sell those visitors on the property. They expect you to show people around and answer all questions. They expect to you to watch their personal property to ensure that nothing is stolen. In short, they expect that all your attention will be on selling their property and, if it is not, they will be unhappy with you. I know because I hear that unhappiness.
Further, however, an Open House is one of your best opportunities to find new clients. For 20 years, I have been consistently told by managers and agents that they get many clients from holding an Open House. After all, we know that people who come to your Open House are for the most part in the market. They want to buy a property. So, working with and impressing them may result in you getting a new client.
In short, being attentive and professional at your Open Houses is good for multiple reasons. First, it keeps your sellers happy and feeling well represented.
And next, it helps you meet new people and procure new buyers, thereby increasing your income. So make your calls before or after the Open House, and focus on the people who come to visit during it. It will only help your business in the long run.
As always, please contact us with any questions you may have
