Month: December 2011

Some buyers say ‘water test’ is enough to assess condition

By Barry Stone
Inman News®

DEAR BARRY: When we bought our home, we did not have the septic system professionally inspected. Instead, we ran water at the sinks, bathtub and shower for more than an hour. There were no backups, so we thought everything was OK because our water test exceeded normal use. Recently, the system was serviced, and we learned that the septic tank is substandard and will soon collapse if not replaced. Are the sellers and real estate agent liable for their failure to disclose this condition? –Ryan

DEAR RYAN: The sellers and agent were required to disclose the problem only if they knew about it. It is highly unlikely that the agent knew the condition of a buried tank. The sellers, on the other hand, may or may not have known, depending on whether there was a septic inspection during the time they owned the property.

But regardless of who knew, your agent and the sellers’ agent should have recommended that the septic system be inspected. That would have been normal procedure in the course of the transaction. There was simply no excuse for letting that go by. If you were advised to have a septic inspection but declined to have one, that was a decisive mistake.

It was also a mistake to think that a water test would provide an adequate evaluation of the system. There are many kinds of septic problems that are undetectable by merely running water down the drains. A proper septic inspection involves opening the tank and draining the contents to expose the condition of the interior. The fact that sinks and showers were draining had no bearing on the condition of the tank. A septic tank can be collapsing and still allow water to drain. Someone should have advised you accordingly.

DEAR BARRY: When we bought our house, the home inspector said he suspected a gas leak in the crawlspace under the building. The seller hired a plumbing company to find the leak. According to the plumber’s invoice, all gas lines were checked and no leaks were found. He determined that the house had been vacant for months and the dry drain traps were allowing sewer gases to enter the building. But after we moved in, the gas smell persisted, so we called the gas company. They found a gas leak that was so dangerous we were ordered out of the house immediately. Do we have recourse with the seller or the plumber? –Becky

DEAR BECKY: The sellers apparently acted in good faith. They hired a licensed plumber to repair the gas leak that was discovered by your home inspector. They appear, therefore, to be free of liability. The plumber, however, appears to have been professionally negligent, having failed to discover the gas leak or its source. What we don’t know is how the plumber tested the system for leaks. A common method, after checking all fittings and fixtures, is to turn off the supply valves at all fixtures and then to observe the gas meter to see if the reading changes. Unless the gas leak was intermittent rather than continuous, the plumber should assume some responsibility for the repair costs.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

Real Estate Tax Talk

By Stephen Fishman
Inman News®

Several tax changes will go into effect on Jan. 1, 2012 — some good, some not so good. Here are the most important changes you should know about:

Tax breaks that have been reduced for 2012

Several tax breaks will be reduced, but not eliminated, for 2012.

1. Bonus depreciation: During 2011 taxpayers can deduct in one year 100 percent of the cost of most types of personal property they buy for their businesses and place in service during the year. This amount is scheduled to lower to 50 percent for most types of property placed in service during 2012. However, it is possible that 100 percent bonus depreciation will be extended through 2012.

2. Section 179 expensing: For 2011, the maximum Code Section 179 deduction is $500,000, the highest it has ever been. The maximum Section 179 deduction will be reduced to $139,000 for 2012. Moreover, the 2012 limit will have to be reduced dollar for dollar by any amount by which the cost of Code Section 179 property placed in service during 2012 exceeds $560,000.

3. Employee transportation benefits: For 2011, an employer can provide up to $230 per month in tax-free transportation benefits — this includes transit passes or reimbursement for commuting to work by vanpool. Starting in 2012, the limit will be reduced to $125 per month.

Tax breaks that have been eliminated for 2012

Three widely used tax breaks will be eliminated entirely starting in 2012:

1. State and local sales tax deduction: For 2011, taxpayers can elect to deduct as an itemized deduction on their Schedule A (itemized deductions) state and local sales taxes, instead of state and local income taxes. This deduction is eliminated starting in 2012. This is bad news for taxpayers who live in states with no state income tax.

2. $4,000 education expense deduction: For 2011, taxpayers with modified adjusted gross income of $65,000 or less ($130,000 or less for joint returns) may deduct up to $4,000 of qualified education expenses paid during the year for themselves, their spouses, or their dependents.

Such expenses include tuition and mandatory enrollment fees to attend any accredited public or private institution above the high school level. This deduction is eliminated entirely for 2012.

3. Charitable Contributions: IRA (individual retirement account) owners age 70 1/2 and up can directly transfer up to $100,000, tax free, to eligible charities during 2011. This option, created in 2006, is available for distributions from IRAs regardless of whether the owners itemize their deductions. This provision is eliminated for 2012.

Tax breaks that have been expanded or extended

A couple of tax breaks have been expanded for 2012:

1. Hire a veteran, get a tax credit: If you hire an eligible unemployed veteran for your business during Nov. 22, 2011, through Dec. 31, 2012, you’ll qualify for an expanded work opportunity tax credit. This is a tax credit against income tax of up $5,600 (more for disabled veterans).

2. Reduced Social Security Taxes? During 2011, Social Security taxes are reduced to 10.4 percent up to the annual income ceiling, instead of the normal 12.4 percent. The U.S. Senate passed a two-month extension of the 2 percent reduction, but the House rejected the Senate bill.

However, most people believe that — one way or another — the 2 percent reduction will be extended through the end of 2012.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor,” and “Working with Independent Contractors.” He welcomes your questions for this weekly column.

Decluttering has financial upside

By Dian Hymer
Inman News®

Today’s buyers are looking for turnkey homes. That is, they want to move right in without having to do a lot of work. Buyers with busy lifestyles pay a premium for listings that are in prime condition. Staging can make the difference between a listing selling or not, the time it takes to sell, and the ultimate sale price.

Sellers who are financially strapped often have a hard time accepting that they’ll need to invest in preparing a house for sale even though they may sell for less than they paid. Fix-up costs can mount up; your agent can help you prioritize so that you don’t waste money. It’s important to keep your goal in mind, which is to sell your house in a difficult market.

Recently, a home in Piedmont, Calif., an affluent city neighboring Oakland, came on the market in “as is” condition. It had been lived in for decades without much upgrading. Although located in a desirable area, the listing was vacant, dark and showed poorly. The sellers refused to do any work to improve its appeal.

After months on the market with no significant interest, the sellers pulled the house off the market and made improvements. The wall-to-wall carpet was pulled up to reveal hardwood floors that were then refinished. Painters lightened the interior and a professional stager was hired to bring in furniture, artwork, house plants and accessories. The listing was put back on the market with a fresh look and sold right away.

HOUSE HUNTING TIP: Although listings staged by a good decorator show well and often sell quickly, you don’t need to spend a lot to put your home into shape for marketing. Most homeowners have too many personal possessions in their home from a sale standpoint. Decluttering is something most sellers need to do.

This can generate uncomfortable emotional responses. One seller, who was cleaning out the family home of 50 years, found a packet of love letters his father sent to his mother. Of course, he had to read all of them, which delayed his fix-up schedule.

Consider hiring someone to help you sort, pack, donate and recycle items that you no longer want. You may be able to take a tax deduction for things you donate. Make sure to get a receipt. Your real estate agent should be able to recommend someone who can help you clear your house of clutter if you are overwhelmed by the project.

Your agent, or stager, may ask you to put away collections of art, personal photos, etc. This can be difficult for most sellers because, for them, it’s part of the emotional appeal of their home. Your house won’t look like your home after you’ve removed personal possessions and moved what’s left around to display the house to its best advantage.

That’s the point of the preparation process. You don’t want prospective buyers focusing in on your personal property; you want them to focus on the house. Keep in mind that how you live in your home and how it should look when it goes on the market are not the same.

Some sellers complain that their house looks too stark without all their possessions. Even so, it helps you to detach yourself emotionally from the property. Also, less personal property usually gives homes a more spacious feel. When buyers are looking for the most for their money, bigger is usually better.

To close the deal, a listing should be spotless and inviting. Bring in new house plants to put in strategic locations, like orchids in the bathrooms. In dark spots that need a dash of warmth and color, use bromeliads.

THE CLOSING: If you can’t pull this together yourself, or with the help or your agent, hire a good stager for a consultation or a proposal for full or partial staging.

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”