Selling home to realtor friend discount math problem

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hoops777
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Selling home to realtor friend discount math problem

Post by hoops777 » Sun Jan 07, 2018 11:40 am

My brother is thinking about selling his home in California to a realtor who is the father of his caregiver.The deal would include him staying in the home but that is a long complicated issue being discussed on another thread.
So just going by the numbers please.
House is worth 825 to 850,000.
He bought it for 265,000 about 20 years ago.
He refinanced it about 10 years ago because he needed a large amount of money for something.
He has a 10 year interest only mortgage of 360,000.
He is 72 and single,never married.

So I am trying to figure a fair price that reflects the savings of no commissions being paid along,with his capital gains both state and federal.
If we assume a price of 835,000 sold with a 5 pct commission in a standard transaction,what price would give my brother the same return when all is said and done, if sold to the father?
Thanks
K.I.S.S........so easy to say so difficult to do.

Sandi_k
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Re: Selling home to realtor friend discount math problem

Post by Sandi_k » Sun Jan 07, 2018 12:53 pm

You do realize if he sells he'll have significant capital gains tax to pay, right?

Sale Price: $835k
Purchase Price: $265k

Profit: $570k
Exemption: $250k

Capital Gains due: on $320k - could be as high as 20% of this, or $64,000

hoops777
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Re: Selling home to realtor friend discount math problem

Post by hoops777 » Sun Jan 07, 2018 1:14 pm

Sandi_k wrote:
Sun Jan 07, 2018 12:53 pm
You do realize if he sells he'll have significant capital gains tax to pay, right?

Sale Price: $835k
Purchase Price: $265k

Profit: $570k
Exemption: $250k

Capital Gains due: on $320k - could be as high as 20% of this, or $64,000
Yes I mentioned capital gains in my post.
K.I.S.S........so easy to say so difficult to do.

CppCoder
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Re: Selling home to realtor friend discount math problem

Post by CppCoder » Sun Jan 07, 2018 1:19 pm

I don't understand what you are trying to figure out with the capital gains? If you think $835k with a 5% commission is fair, then 0.95 * $835k = $793.25k with no commission is equivalent. He pays capital gains on the net, regardless, so it's either capital gains on $835 - basis - commission (of 5% = $41.75k) or capital gains on $793.25k - basis - $0 commission. Both are the same number. Am I misunderstanding your question?

hoops777
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Re: Selling home to realtor friend discount math problem

Post by hoops777 » Sun Jan 07, 2018 1:24 pm

I am uncertain about any other costs involved that need to be factored in when you sell a house without commission like this.
K.I.S.S........so easy to say so difficult to do.

JGoneRiding
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Re: Selling home to realtor friend discount math problem

Post by JGoneRiding » Sun Jan 07, 2018 1:57 pm

hoops777 wrote:
Sun Jan 07, 2018 1:24 pm
I am uncertain about any other costs involved that need to be factored in when you sell a house without commission like this.
Most feel it's fair to split the difference. So if the commission price would be x+5% then the none commission would be x+2.5%

Closing costs are separate from price of house. Highly dependent on area as to how much those are and who pays then though traditionally it was the buyer .

Not what you asked but this sounds like a bad deal to all

mouses
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Re: Selling home to realtor friend discount math problem

Post by mouses » Sun Jan 07, 2018 2:04 pm

hoops777 wrote:
Sun Jan 07, 2018 11:40 am
House is worth 825 to 850,000.
He refinanced it about 10 years ago because he needed a large amount of money for something.
He has a 10 year interest only mortgage of 360,000.
Sandi_k wrote:
Sun Jan 07, 2018 12:53 pm
Capital Gains due: on $320k - could be as high as 20% of this, or $64,000
If I understand the numbers correctly, he will net approximately 825000 - 360000 - 64000 - other costs = about $400,000 - other costs. Not what you were asking, but an important number.

I would ask the realtor for a list of items and costs and post it here and people will be able to see if it looks right.

I sold my house in California a couple of decades ago with a real estate attorney but no realtor, and the attorney charged $2000 to $3000 then for the sales contract and guiding me through a giant stack of disclosures legally required.

Someone pays the title company, I don't recall who. The buyer forks out for the inspection.

I am guessing Sandi's number is just federal taxes, there are likely substantial state taxes and perhaps city taxes.

You may want to get a good real estate attorney. Mine was an attorney and had been a realtor.

You aren't asking this and perhaps it was discussed in another thread, but this transaction does make me nervous about the possibility of his losing the right to live in this house.

NotWhoYouThink
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Re: Selling home to realtor friend discount math problem

Post by NotWhoYouThink » Sun Jan 07, 2018 2:14 pm

Have the house independently appraised. It makes me nervous that your prospective buyer knows the market value of the house better than you do. And if your brother ever needs to transition to Medicaid funded care, you'll need to demonstrate that the home sale was not a "gift" to the buyers.

dbr
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Re: Selling home to realtor friend discount math problem

Post by dbr » Sun Jan 07, 2018 2:34 pm

This sounds like trying to make something way too difficult.

If the buyer, who is the realtor, is giving up his commission, then he is giving up his commission. That is all there is to it.

The fair price at which to transact the sale is whatever price would be transacted to the highest bidder on the market in an open sale.

I am not sure what you are really trying to ask here.

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dm200
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Re: Selling home to realtor friend discount math problem

Post by dm200 » Sun Jan 07, 2018 2:45 pm

See the posts on this issue about the PoA and why selling could be a bad idea.

I am not in real estate (never have been), but I vaguely recall there might be some rules about licensed realtors waiving commissions.

chw
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Re: Selling home to realtor friend discount math problem

Post by chw » Sun Jan 07, 2018 2:52 pm

hoops777 wrote:
Sun Jan 07, 2018 11:40 am
My brother is thinking about selling his home in California to a realtor who is the father of his caregiver.The deal would include him staying in the home but that is a long complicated issue being discussed on another thread.
So just going by the numbers please.
House is worth 825 to 850,000.
He bought it for 265,000 about 20 years ago.
He refinanced it about 10 years ago because he needed a large amount of money for something.
He has a 10 year interest only mortgage of 360,000.
He is 72 and single,never married.

So I am trying to figure a fair price that reflects the savings of no commissions being paid along,with his capital gains both state and federal.
If we assume a price of 835,000 sold with a 5 pct commission in a standard transaction,what price would give my brother the same return when all is said and done, if sold to the father?
Thanks
Hoops, at a minimum I would contact a local real estate lawyer to review any sales contract. The lawyer should also be able to advise you on any unexpected charges/fees that are customary/common in that market (it could be at the county/state level). An example would be in MA where I live, home with septic systems are required to be inspected by a state licensed inspector, and if it doesn't pass, to be replaced.

Sandi_k
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Location: SF Bay Area

Re: Selling home to realtor friend discount math problem

Post by Sandi_k » Sun Jan 07, 2018 2:55 pm

Agree to consult with a RE attorney. CA has huge disclosure requirements (lead paint, death in house in last X years, asbestos). It also has required inspections that you might not know about - sewer laterals was a new one when we sold in 2011.

Lastly, the buyer has a RE license - which means they have more expertise and knowledge than you do. Asymmetric information is never a good idea for the person at the less knowledgeable side of the equation....

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CAsage
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Re: Selling home to realtor friend discount math problem

Post by CAsage » Sun Jan 07, 2018 3:01 pm

Realtor friend? That sounds like a MASSIVE conflict of interest. I would not think this counts as an arms-length transaction. Unclear what problem your brother is trying to solve... But the way to get the most money out of a house (and where did you get the price?) is to put it on the market.

At the very least, get some more realtors to give you a sales price - then you could subtract 5%. There are other costs, but they are much smaller (title search, escrow, filing fees, inspections...). You pay capital gains on the sales price, but can subtract all improvements made over 20 years.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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dm200
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Re: Selling home to realtor friend discount math problem

Post by dm200 » Sun Jan 07, 2018 3:07 pm

NotWhoYouThink wrote:
Sun Jan 07, 2018 2:14 pm
Have the house independently appraised. It makes me nervous that your prospective buyer knows the market value of the house better than you do. And if your brother ever needs to transition to Medicaid funded care, you'll need to demonstrate that the home sale was not a "gift" to the buyers.
Yes -

I do not think the seller's tax situation has anything at all to do with the fair market value of the house.

denovo
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Re: Selling home to realtor friend discount math problem

Post by denovo » Sun Jan 07, 2018 3:08 pm

hoops777 wrote:
Sun Jan 07, 2018 11:40 am

If we assume a price of 835,000 sold with a 5 pct commission in a standard transaction,what price would give my brother the same return when all is said and done, if sold to the father?
Thanks
No one pay 5 pct on a 800k house anymore.
"Don't trust everything you read on the Internet"- Abraham Lincoln

hoops777
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Re: Selling home to realtor friend discount math problem

Post by hoops777 » Sun Jan 07, 2018 4:01 pm

Thank you for the replies.
I have contacted a realtor who is the neighborhood expert who actually sold my brother this house and his previous house.He is the one who gave me the price of 825 to 850 with a possibility of more in a multiple offer scenario which is what will happen.The local inventory is very low.
I personally know about 20 realtors that I worked with through my business before I recently retired,but I wanted to get some unbiased boglehead feedback before going there.This forum has a lot of smart,experienced people with nothing to gain so I value the feedback.They have been extremely helpful on my other posting about my brother.
K.I.S.S........so easy to say so difficult to do.

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