Selling a House
If you're selling a home, you need to time the sale properly, price the home accurately and understand the laws (such as disclosure requirements) that cover house transactions. Here's some information to get you started.

Timing a House Sale and Setting the Price
Before you sell your house, you must prepare the property and set the right price.
What are the best and worst times to sell a house?

Too many people sell their house at the wrong time or are in too much of a hurry. Basically, you want to sell when there's the largest potential pool of buyers -- causing prices to go up -- something that occurs in the following situations:

Your area is considered especially attractive -- because of the schools, low crime rate, weather, proximity to a major city or other factors such as employment opportunities.

Mortgage interest rates are low.
The economic climate of your region is healthy and people feel confident about the future.

There's a jump in house buying activity, as often occurs in the spring.

Of course, if you have to move immediately -- because of financial reasons, a divorce, a job move or imperative health concern -- and you don't have any of the advantages listed above -- you may have to settle for a lower price, or help the buyer with financing, in order to make a quick sale.

What's the best way to price a house for sale?

The key thing is determining how much your property is actually worth on the market -- called "appraising" a house's value. The most important factors that determine a house's value are recent sales prices of similar properties in the neighborhood ("comps").

Real estate agents have access to local sales data and can give you a good estimate of what your house should sell for. Many real estate agents will offer this service free, in hopes that you will list your house with them.

To get a ballpark figure on your own, use web sites such as www.domania.com. By entering your address, you'll be able to pull up sales prices for recently sold homes of the same size as yours in your neighborhood. See Comparing Sales Prices Online in Real Estate Offers and Contracts for information on private companies that offer useful comparable sales data.

Other options include hiring a professional real estate appraiser and visiting public record offices, such as county clerk or recorder's office. Finally, asking prices of houses still on the market can also provide guidance. However, you'll need to adjust these prices for local market conditions. In some areas, asking prices are typically 10% or more over the market -- while in others, houses may be underpriced in order to fuel a bidding war. To find out asking prices, go to open houses, check newspaper real estate classified ads and search the Internet. See Househunting Online for details.

Do You Need a Real Estate Agent to Sell Your House?
You may not need a real estate agent to sell your home. These frequently asked questions will help you decide.

Is it possible to sell a house without a real estate broker or agent?

Usually, yes. This is called a FSBO (pronounced "fizzbo") -- For Sale By Owner. You must, however, be aware of the legal rules that govern real estate transfers in your state, such as who must sign the papers, who can conduct the actual transaction and what to do if and when "encumbrances" arise which slow down the transfer of ownership. You also need to be aware of any state-mandated disclosures as to the physical condition of your house. (See Seller Disclosures.) Check with your state department of real estate for advice on FSBOs, including the involvement of attorneys and other professionals in the house transaction. (See State Real Estate Departments and Commissions.)

If you want to go it alone, be sure you have the time, energy and ability to handle all the details -- from setting a realistic price to negotiating offers and closing the deal. Also, be aware that FSBOs are usually more feasible in hot or sellers' markets where there's more competition for homes, or when you're not in a hurry to sell.

If you're interested in listing your house online, check out sites such as www.owners.com, the largest national FSBO web site. To find local FSBOs, see www.fsboguide.com. If you live in a major metropolitan area, check to see which newspapers put their real estate classifieds online. (See Househunting Online.)

Is there some middle ground when a seller can use a broker on a more limited (and less expensive) basis?

You might consider doing most of the work yourself -- such as showing the house -- and using a real estate broker's help with such crucial tasks as:

setting the price of your house
advertising your home in the local multiple listing service (MLS) of homes for sale in the area (a database managed by local boards of Realtors), or handling some of the more complicated paperwork when the house closes.

If so, you may be able to negotiate a reduction off of the typical 5% to 7% commission brokers charge, or you may be able to find a real estate agent who charges by the hour for specified services, such as reviewing the sales contract. "Discount" real estate services are available from franchise operations such as Help-U-Sell (www.helpusell.com) as well as other independent real estate companies and individual brokers.

Holding an Open House Without a Real Estate Agent

If you're a FSBO and selling your home on your own, you'll be doing your own advertising and marketing. In addition to setting appointments with prospective buyers, you may want to hold an open house. Here's how to make it successful:

If your children are small, have them visit a friend or relative during open house times. Children may be underfoot or demand attention when you're trying to conduct business with a potential buyer. In addition, children may blurt something out that you'd rather a prospective buyer not hear.

Anticipate buyers' questions and practical needs and have your answers ready.
For example:

Estimate the walking or driving time to the nearby commute train or bus, even if you don't use public transportation. Get fare rates and schedules and have them at the ready.

Go through your home with a view toward its potential -- for example, adding a room in the basement, remodeling the bathroom to add a stall shower, enclosing the porch, or whatever might strike a buyer's fancy -- without representing the feasibility or cost of improvements.

Understand your legal obligation to disclose material facts about the property. (See Seller Disclosures.)

Be on time.
If your open house is scheduled to start at 2:00 p.m., have your Open House signs in position by 1:45. Why? Because people will probably start arriving as soon as they see the first sign or as soon as the appointed hour strikes, whichever comes first. You don't want to keep your public waiting.

Preparing A House for Sale
Before showing your house to prospective buyers, you'll want to make your house look as attractive as possible -- it may mean the difference of several thousand dollars in your pocket. Sweep the sidewalk; mow the lawn; put some potted flowers on the front steps; clean windows; fix chipped or flaking paint. Clean and tidy up all rooms; be sure the house smells good -- hide the kitty litter box and bake some cookies. Check for loose steps, slick areas or unsafe fixtures, and deal with everything that might cause injury to a prospective buyer. Take care of real eyesores, such as a cracked window or overgrown front yard. Don't overlook small, but obvious problems, such as a leaking faucet or loose door knob. Look for ways to improve the look of your house without spending much money -- a new shower curtain and towels might really spruce up the look of your bathroom. Reducing clutter will make the rooms and closets look bigger. Consider storing some items temporarily in a rental storage facility if your house appears cluttered.
Have a sign-in sheet ready to accompany your property fact sheets.
Remember, you are exchanging facts with your visitors. If they have the right to enter your house and learn things about it, you have a right to know who they are. A sign-in sheet will also help you evaluate the effectiveness of your advertising.

Ask visitors to provide the following information on a sign-up sheet:

name, address, phone number, and how they learned about the house.

Be prepared for "nosy nerds," or "nosy neighbors."
These are not quite the same as "lookie-lous" who just go looking at houses for the fun of it when they have no intention of making a purchase. "Nosy nerds" only look at houses in their immediate neighborhood, in order to pat themselves on the back or console themselves concerning their own homes -- even though they have no intention of selling in the near future. The only way to respond to these folks is to be polite but not waste much time on them. One way to defuse the "nosy nerd" bomb is to invite neighbors to your open house by means of a card which you can put in mailboxes of neighbors within a block or two of your house.

Be prepared to talk with potential buyers.
Here are a few tips:

Talk about neutral subjects, such as family and neighborhood. Be pleasant, and do a lot of active listening, drawing the buyers out as to their needs and preferences -- entertaining at home, which means maximizing the living-dining area; doing lots of cooking, which means a serviceable, bright and cheery kitchen and the like. These conversations can help you frame a subtle sales pitch geared toward the buyer's interests and practical needs -- for example, if the potential buyer mentions that he took a recent bicycle trip, mention the nearby bike paths. If he says that bread is his favorite food, point out that three bakeries are in the area.

Don't volunteer personal information that may be used against you in negotiating a sales price or contract. For example, don't tell prospective buyers that you're incredibly anxious to sell because you're starting a new job out of state soon.

Don't go overboard praising your house or its amenities. Too much praise may seem phony and be used against you when negotiating contract terms. At the same time, keep your disagreements about personal taste to yourself.

Be cordial, but don't overwhelm prospective purchasers with energy or enthusiasm. Many people look at hundreds of homes; others check out houses as a hobby and don't ever really plan to buy one. If one person doesn't seem clearly interested, concentrate on someone who does.

Learn to look at your house as if you were buying it. Think about:

probable down payment, closing costs and monthly costs of ownership, including taxes, insurance and utility costs, neighborhood conveniences and services (school district, parks, shopping, transportation and the like), and local zoning ordinances, including restrictions about adding on to a house.

Listen carefully. You can learn a lot about questions and comments you hear over and over. For example, if prospective buyers seem intent on verifying district boundaries of local schools, they obviously have or are planning to have children. Not only should you talk about the school district, but mention other child-related attractions, such as a nearby park or day care center, light traffic on the streets, other children in the neighborhood or whatever else.

Above all, to sell your own house you must keep your sense of humor. Many buyers look at houses the way they look at used cars -- they search for, and pounce on, every major and minor flaw. Apparently, they believe that emphasizing the negative will get the seller to accept a low offer. Often, however, this "exaggerate the flaws" approach does just the opposite because it makes the seller mad. Try not to take negative comments personally. Just remember, people who don't want to buy your house are not rejecting you. They probably want a larger yard or more bedrooms or just don't want an all-electric kitchen. Finally, don't take it to heart if the buyers don't fall in love with your home; remember, there's another buyer out there for your house, and the perfect match is yet to be made.

Required Disclosures When Selling Real Estate
What you need to tell potential home buyers about your property. Required Disclosures When Selling Real Estate
What you need to tell potential home buyers about your property.

When selling your home, you may be obligated to disclose problems that could affect the property's value or desirability. In most states, it is illegal to fraudulently conceal major physical defects in your property such as a basement that floods in heavy rains. And states are increasingly requiring sellers to take a pro-active role by making written disclosures on the condition of the property.

California's Stringent Disclosure Requirements
California sellers must fill out and give the buyers a disclosure form listing a broad range of defects -- such as a leaky roof, deaths that occurred within three years on the property, neighborhood nuisances such as a dog that barks every night and more. In addition, California sellers must disclose potential hazards from floods, earthquakes, fires, environmental hazards and other problems in a Natural Hazard Disclosure Statement. California sellers must also alert buyers to the availability of a database maintained by law enforcement authorities on the location of registered sex offenders.

Generally, you are responsible for disclosing only information within your personal knowledge -- in other words, you don't usually need to hire inspectors to turn up problems you never had an inkling existed. However, some states' laws identify certain problems that are your responsibility to search for, whether you see signs of the problem or not. In these cases, or where you could have seen a particular defect but turned a blind eye, you could ultimately end up in court, compensating the buyer for the costs of your failure to speak up sooner.

While it's not usually required, many sellers hire a general contractor to inspect the property. (See House Inspections.) The results will help you determine what needs repair or replacement and will assist you with preparing any required disclosures. An inspection report is also useful in pricing your house and negotiating with prospective buyers.

If you have even the faintest question about whether or not to disclose something to potential buyers, avoid the potential for liability and tell all. Full disclosure of any property defects will help increase the buyer's confidence that you're dealing fairly. And it will protect you from legal problems later, such as buyers who want out of the deal or who claim damages suffered because you carelessly or intentionally withheld information about your property.

And remember, just because you disclose a problem doesn't mean you must repair or correct it. The disclosed item can become a point of negotiation between you and your buyer.

Most states' laws mandate that disclosures be on special forms the seller must sign and date. Be sure the buyer acknowledges receipt of the disclosures by signing and dating the form as well. If your state doesn't require a specific disclosure form, be sure the buyer otherwise affirms receipt of your disclosures -- in writing.
Check with your real estate broker or attorney or your state department of real estate for disclosures required in your state. Also, check with your city planning department for information on local ordinances and disclosures that affect your sale. Finally, be aware that real estate brokers are increasingly requiring that sellers complete disclosure forms, regardless of whether or not it's legally required.

Sellers Must Disclose Lead-Based Paint and Hazards
If you are selling a house built before 1978, you must comply with the Residential Lead-Based Paint Hazard Reduction Act of 1992 (U. S. Code §4852d), also known as Title X. You must:

disclose all known lead-based paint and hazards in the house
give buyers a pamphlet prepared by the U.S. Environmental Protection Agency (EPA) called Protect Your Family from Lead in Your Home.

include certain warning language in the contract as well as signed statements from all parties verifying that all requirements were completed
keep signed acknowledgments for three years as proof of compliance, and
give buyers a ten-day opportunity to test the house for lead.

If you fail to comply with Title X requirements, the buyer can sue you for triple the amount of damages actually suffered.

For more information on lead hazards, prevention and disclosures, contact the National Lead Information Center -- by phone at 800-424-LEAD, or check their web site at www.epa.gov/lead/nlic.htm

Tax Breaks for Selling Your Home: Read the Fine Print
If you sell your home, you may exclude up to $250,000 of your capital gain from tax -- or up to $500,000 for married couples.
Tax Breaks for Selling Your Home: Read the Fine Print
If you sell your home, you may exclude up to $250,000 of your capital gain from tax -- or up to $500,000 for married couples.

The 1997 Taxpayer Relief Act contained a big break for homeowners. If you sell your home, you may exclude up to $250,000 of your capital gain from tax. For married couples filing jointly, the exclusion is $500,000.

The law applies to sales after May 6, 1997. To claim the whole exclusion, you must have owned and lived in your residence an aggregate of at least two of five years before the sale (this rule is called the "ownership" and "use" test). You can claim the exclusion once every two years.

If You Don't Meet the Use Test
Even if you haven't lived in your home a total of two years out of the last five, you are still eligible for a partial exclusion of capital gains if you sold because of a change in employment, health or unforeseen circumstances. You get a portion of the exclusion, based on the portion of the two-year period you lived there. To calculate it, take the number of months you lived there before the sale and divide it by 24.

For example, if an unmarried taxpayer lives in her home for 12 months, and then sells it for a $100,000 profit, the entire amount would be excluded. Because she lived in the house half of the two-year period, she could claim half of the exclusion, or $125,000. (12/24 x $250,000 = $125,000.) That's enough to exclude her entire $100,000 gain.

Nursing Home Stays
For people living in a nursing home, the ownership and use test is lowered to one out of five years before entering the facility. And time spent in the nursing home still counts toward ownership time and use of the residence. For example, if you lived in a house for a year, and then spent the next five in a nursing home before selling the home, the full $250,000 exclusion would be available.

Marriage and Divorce
Married couples filing jointly may exclude up to $500,000 in gain, provided:

either spouse owned the residence
both spouses meet the use test, and
neither spouse has sold a residence within the last two years.
If each member of a married couple owns and occupies a separate residence and files jointly, each may exclude up to $250,000 in gain. Also, if it's a new marriage and one spouse sold a residence within two years before the marriage, the other spouse may exclude up to $250,000 in gain on a residence owned before the marriage.

A new marriage may also double the tax break in some circumstances. Suppose a single man sold his principal residence on October 1, 2001, for a $500,000 profit. He and his girlfriend have been living in the house for two years, so they both satisfy the use test. If they get married by midnight December 31, 2001, they can file a joint return for 2001 and exclude the entire $500,000 of profit.

Divorced taxpayers may tack on the ownership and use of their residence by their former spouse. For example, say that upon divorce, the wife is allowed to live in the husband's residence until she sells it. He has owned the residence for 18 months. Once the sale occurs, the couple will split the profits 50-50. If the wife sells the home nine months later, she may tack on her ex-husband's ownership to meet the two-year ownership test. Also, the husband may tack on his ex-wife's continued use of the residence to meet the two-year use test. Each one is entitled to exclude $250,000 of profits from the sale. Widowed taxpayers may also tack on the ownership and use by their deceased spouse.

Home Offices: A Tax Drawback
The exclusion does not apply to depreciation allowable on residences after May 6, 1997. If you are in a high tax bracket and plan to live in your home a long time, taking depreciation deductions for a home office is quite valuable right now. But if not, you might want to reconsider using a portion of your home as an office, because all depreciation deductions you take will be taxed at 25% when you sell the house. Example: A married couple sells a home with an adjusted basis (purchase price plus capital improvements) of $100,000 for $600,000. Over the years, they had taken $50,000 in depreciation deductions for a home office.

Taxable gain:
Sales Price: -$600,000
Adjusted Basis -$100,000
Taxable gain = $500,000
Of that gain, $450,000 is tax-free under the new law; the $50,000 taken as depreciation deductions is subject to 25% capital gains tax.

Splitting Up Big Gains
If you expect huge gains from selling a house -- more than can be excluded from tax under the new rule -- you should consider ways to divide ownership of the house.

For example, say a couple owns their residence together with their adult son (perhaps because they have given him a share). If he meets the ownership and use tests as to one-third of the property, the son may sell his share for a $250,000 gain without incurring a tax. His parents could simultaneously sell their share for $500,000 without tax, sheltering the entire $750,000 gain.

Tax Law Information
For more information on current tax laws involving real estate transactions, contact the IRS at 800-829-1040 or check their web site at www.irs.gov. Ask for IRS Publication 523 "Selling Your Home," Form 2119, "Sale of Your Home," and the general instructions for this form. You must file Form 2119 with your tax return.