DEAR BENNY: How do agents get commission on rental property? –Peter
DEAR PETER: To my knowledge, there is no standard formula to compensate a real estate agent for finding a tenant for you. From my experience, most agents will want a one month’s rent for their commission.
However, this is negotiable. If, for example, you want the agent to manage the property for you (which is usually a good idea so that you won’t be bothered every time the tenant wants a lightbulb changed), the agent may take a percentage of the monthly rent — ranging between 6-10 percent.
You should sign an agreement with the agent before moving forward. That agreement will spell out the terms and conditions of their employment.
Incidentally, neither landlords nor managers should be required to change the lightbulbs.
DEAR BENNY: We own a condo and are in the process of changing property management. The new property management sent us a form to fill out for our condo insurance, policy number, insurance company, policy period, etc. Is it right to give out my policy insurance information to them? I refuse to do this because this is my personal insurance for my protection. It seems the new management said we should have a policy, but when I bought the condo, nothing was said that I must have HO-6 insurance. I need your help. –Luisa
DEAR LUISA: I strongly believe that every condominium-unit owner should have insurance to protect their investment. This is called an HO-6 policy. It covers the unit owner where the master insurance policy leaves off.
For example, if there is a theft in your unit, the master policy will not provide you with any coverage. Additionally, if you (or your predecessor) had made improvements to your unit — such as new floors or an upgraded kitchen — many master policies will refuse coverage for those items, which in the trade are called "betterments." Equally important, should your upstairs neighbor’s washing machine leak, causing damage to your personal belongings (oriental rugs, furniture, art work), the master policy will pick up the cost to repair your ceiling and any walls that were damaged, but will not pay for the loss of those personal items.
But, I see no reason why you have to provide this information to the property manager. All that the manager really needs is a statement that you have such insurance.
However, I disagree that such information would invade your privacy, and unless you really have major problems, I would comply with this request.
DEAR BENNY: My adult child and I plan to sell our home. It has been occupied by both of us for longer than the past three years. If both our names — and no other — are on the deed, can we each claim the $250,000 capital gains deduction? Would we each list one-half the sale amount on our income tax? –Ken
DEAR KEN: Yes, since both of your meet the "ownership and use" test — i.e. you both owned and used the property as your principal residence for two out of the past five years before the sale — (and so long as neither of you have taken the exclusion within the past two years) — you both can exclude up to $250,000 of any gain that you have made on the property. Of course, you can exclude only the portion of gain based on your percentage interest in the property. If you each own half, you can claim the exemption for only half of the gain.
You are not required to report the sale of the property when you file your income tax return. However, if a portion of the gain must be recognized — for example you rented a portion of the house — then you will have to complete Schedule D of the IRS Form 1040. I cannot provide specific advice, so you would be well advised to consult an accountant.
DEAR BENNY: My brother and I own a single-family house that we rent to our sister. The mortgage contains a due-on-sale clause. We would like to sell the house to our sister. She has the income to make the monthly payments, but she can’t qualify for a loan due to bad credit. I was wondering if the due-on-sale clause is enforceable if my brother and I were to sell the house to our sister? (The question is based on your recent comment, "Since this will be a transfer between mother and son, the lender will not be able to object to the transaction.") So, I was wondering if this would also apply to a transfer between brothers and a sister? –Jim
DEAR JIM: Unfortunately, as I read the law, a transfer between siblings is not exempt from the "due-on-sale" clause. You can do one of two things: First, talk with the lender and explain the situation. You have to understand that you and your brother will remain obligated on the loan, should your sister not make all of the monthly mortgage payments. Perhaps the lender will decide that since this is a family transaction it will not assert the due-on-sale clause.
Alternatively, if your parents are alive, you can transfer the property to them (or to one of them) and then the property can be transferred again to your sister. Since these transactions are exempt from the due-on-sale clause, this will work. And in most states, there is no transfer or recordation tax between parents and children — only a nominal recording fee to the county.
Loopholes exist in many laws and there is no crime in being creative. …CONTINUED
DEAR BENNY: My son and I own a house together. I would like to deed my interest to him so he will have total ownership. What is the easiest way of doing this without the use of a lawyer? –Matthew
DEAR MATTHEW: I get this question a lot and always have to qualify my response by stating that if you live in a community-property state (which exist in the Western U.S.), you must consult an attorney first.
However, even if you live in a non-community-property state, there are taxable consequences when you transfer the property to your son.
It is relatively simple to transfer property. Your local recorder of deeds should be able to provide you with the forms (and the costs involved) to accomplish this.
But, do yourself (and your son) a favor and consult a tax adviser before you make that transfer.
DEAR BENNY: Are monthly condo assessments required before purchase? Considering your experience, I was hoping you would be able to shed some light on the subject. –Paul
DEAR PAUL: Absolutely not. You become legally obligated to pay condominium assessments only upon becoming a unit owner. At closing on a new condo unit (also called "escrow") you may be required to pay two months’ additional condo fees as a "start-up" for the new association, but that can take place only when you are an owner.
If you are being asked to pay an assessment before you buy, something is wrong and I would like to get more details about this.
DEAR BENNY: My mother passed away a few months ago and my father has a rather unique property (two homes on one parcel). One was his mother’s home, which he inherited, and the other was built new for my parents. I read somewhere that there is a time period in which my dad can claim the full $500,000 tax credit if he chooses to sell. Please advise. –Arlene
DEAR ARLENE: The specific answer to your question is that for sales completed after 2007, your dad can claim the full up-to-$500,000 exclusion of gain for a sale that takes place within two years from the date of your mother’s death. There are a number of qualifications.
First, he cannot remarry before the property is sold. Second, your parents must both have owned and used (lived in) the house for at least two years prior to the death. And third, your parents must have filed a joint tax return while they both were alive.
From your question, it is not clear that your parents met the "use and ownership" test. Suggest you consult a local tax adviser for specifics on your situation.
NOTE: In a recent column, I was asked if multiple loan applications would impact one’s credit rating. I responded that I did not know the answer. A reader called to my attention to the FICO Web site, which answered this question as follows:
Will my FICO score drop if I apply for new credit? If it does, it probably won’t drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.
Thank you, reader, and I always appreciate hearing from you — good or bad.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.
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