Selling my home... Can someone please answer a few simple questions for me?

[Bonobo]

BACKGROUND:
We refinanced a little over a year ago and owe about $140,000 at 5.75% fixed.
We think we can sell the house at between $300,000-310,000, especially since the govt. deals are still in effect until end of April(?)

Questions:
1. Someone made me an offer of $250,000 in cash. What dos this mean? Are there any benefits to accepting a "cash" deal? How does a home-selling transaction usually work? Do you get a check? Then you pay off what you owe on the mortgage? And the real-estate agent? Or does the money dribble in lke an annuity or something? Again, why is cash being offered to me as if it is some kind of added benefit?

2. Tax implications... How are profits from home sales taxed? Are there any kinds of implications of this that I should consider? I understand that in selling a house, I will no longer have those deductions from the interest on the loan, but that's no biggie, I suppose. So if I clear $150,000. how is it taxed?

Well, I told you they were simple questions. I just have no experience and I am here in Japan with no one to ask... Your advice and help is really appreciated.

[EFerrari]

1. The answers to your questions very much depend on the real estate law

where your house is located. I could tell you something about this county, for example, but the practices in Southern CA are different.

Most of the time people offer cash because the deal closes sooner. But depending how much you make from the sale of the house, you could be looking at a big capital gains bill and in that case, there are other options you'd need to consider.

I'd find a real estate agent you trust and also a tax person because you don't want to lose money on this deal that you could have saved.

[Bonobo]

4. Thanks!

The house is in Western Mass.

I have a real estate agent, and he is trustworthy enough, I suppose. But he will take 5% too. As for the cash deal, I see. So it is just because people like the smell of cash, I guess. But how does it work normally? DO you just get a check from a bank? Like a cashiers check or something? Is it quick?

[EFerrari]

7. If it's cash, it's quicker. Here, the whole thing takes place at a title company

as jeff says. They receive the money, they issue checks to the mortgage holder and to who ever else has a claim (like the agent's commission) and they issue a check to you.

I don't know about Western Mass. Here, 30 days is pretty quick.

[Bonobo]

11. Thank you Eferrari!

One of my fave posters!

[EFerrari]

14. Oh, you're welcome!

I hope it goes smoothly for you. :hi:

[lumberjack_jeff]

2. The benefit of "all cash" is no contingencies.

Most offers will be "subject to financing" and if the financing fails, there's no deal and you return the earnest money.

Yes, you pay off your existing mortgage with the proceeds. Usually the transaction takes place at the title company.

*last I checked* for most people, profits from the sale of your primary residence are tax free.

[Bonobo]

6. Thanks! I got it!

1997 tax payer relief act. Yup, for couples filing jointly, up to $500,00 profit is tax-free so you are right. Gracias.

[DURHAM D]

3. The benefit to a cash deal is that you can close faster.

Are you in a hurry? Also, they buyer is not waiting to see if they qualify for the loan. There have been a lot of delays in closing because the buyer's lender can't get the deal (money) together.

I believe that the attorney (or whoever handles the closing) will distribute to your lender the pay-off amount and the remainder to you after the agent's fees and other expenses have been deducted.

As for taxes - if you are single the first $250,000 of profit is not taxed.

[Bonobo]

10. Thank you very much.nt

[DURHAM D]

15. If you are going to accept the cash offer -

you might ask your agent to push for a very quick closing - like 10 or 15 days.

Is your agent also the buyer's agent?

JFTR - 5% is a low commission amount.

[ohheckyeah]

5. Here's some info on taxes on capital gains:

What's the best tax break available to Jane and John Q. Public? If they're homeowners, it's selling their house.

Homeowners already know the many tax breaks that Uncle Sam offers, most notably mortgage interest and property tax deductions. Well, he also has good tax news for home sellers: Most of them won't owe the Internal Revenue Service a single dime.

When you sell your primary residence, you can make up to $250,000 in profit if you're a single owner, twice that if you're married, and not owe any capital gains taxes.

"Most people are not going to have a tax obligation unless their gain is huge," says Bob Trinz, a senior tax analyst at RIA, which provides tax information and software to tax professionals.

Some sellers are surprised by this break, especially if they've been in their homes for a while. That's because before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older had one other option. They could take a once-in-a-lifetime tax exemption of up to $125,000 in profits. And in all instances, there was tax paperwork (Form 2119) to fill out to show that you followed the rules.

But when the Taxpayer Relief Act of 1997 became law, the home-sale tax burden eased for millions of residential taxpayers. The rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts.
http://www.bankrate.com/finance/real-estate/capital-gains-home-sale-tax-break-a-boon-for-owners-1.aspx

[Bonobo]

9. Awesome!

Thank you so much for the help.

[ohheckyeah]

22. You're welcome. And good luck! n/t

[abbeyco]

8. A few things I know...

1. If you've been in the house 5 years or more, you will likely not incur cap gains tax, but check with an advisor to be sure.
2. Cash deals tend to close faster and with less hassle - no mortgage company involved; all of the title and insurance stuff is still applicable.
3. Seller generally pays the fees of the realtors - yours and the buyers.

If you're represented by a realtor, have them give you all the info on being a seller. If you don't have representation, then I'd recommend contacting the real estate commission - or equivalent - in your home state for assistance.

Last resort, see if this site is helpful:
http://portal.hud.gov/portal/page/portal/HUD/topics/selling_a_home

Good luck - hope it all works out for the best!

[cally]

12. I assume you have an agent

if not, then you need one. Don't accept a cash offer unless you are sure that makes sense financially. It sounds like you might lose money if you accept this offer unless the value of your house really is $250,000. The check goes to the mortgage company and then you get paid. We got our proceeds at closing in California.

Finally, I highly recommend reading something like real estate for dummies or another book like that. I suspect California has some consumer information online on selling a home.

[Bonobo]

13. Good advice, thank you! nt

[EFerrari]

17. And by "don't accept a cash offer", that means

do not say "yes" in an email or in any form of writing unless you are certain you mean "yes"! Think of it as if you were going to have to go to court and what the paper trail will look like to a judge.

Chances are, this will not happen. But it's a lot easier to do it right up front than to have to mend booboos.

[Bonobo]

18. Gotcha. I won't be accepting it. nt

[Hassin Bin Sober]

16. A cash deal may be more desirable in this market due to the difficulty in obtaining financing.

A cash buyer would have no appraisal or qualification problems. Furthermore, a cash offer is much more difficult to weasel out of by exercising the "mortgage contingency" clause that is often exercised (with the collusion of the lender) by buyers with buyer's remorse.

Instead of asking to see a "pre-approval" letter from the lender you may want to see proof of funds AND a substantial deposit/escrow check in the form of certified funds.

Keep in mind the "cash" buyer may include other escape clauses in the form of, say, a home inspection contingency. In other words, the buyer can STILL piss back-wards by saying "I'm not satisfied with the home inspection"

Keep in mind a "cash offer" buyer may, in fact, be obtaining some sort of financing if not a conventional mortgage. I've advised strong clients to write cash offers when I had already secured firm financing commitments from my underwriters. The "cash" offer was used as a negotiating tool when in bidding situations up against other buyers presenting "financing contingency" offers. The only difference was my clients did not write in a contingency for financing thereby putting their ernest money at risk should something catastrophic happen prior to closing - loss of a job etcetera. I would most likely never do this today.

As far as the mechanics of accepting and closing a cash deal on your sale - There really isn't any difference as far as you are concerned. The buyer shows up with certified bank check or a wire to the title company's or attorney's account. I am assuming you are closing in a title company or atty office. All funds will go through THEIR hands and checks will be disbursed to you at closing from an escrow account. The title company will make the pay-off to your mortgage company - this is required because the title company will be insuring a clean and unencumbered title to the new buyer.


Re taxes. Generally $250k ($500k joint married filing jointly)is sheltered from income tax if you have lived in the home as a principal residence for 2 out of the last 5 years. Definitely consult a tax accountant.

[Bonobo]

19. Very informative! Thank you so much for your time and help! nt

[Hassin Bin Sober]

21. I believe Mass. is an attorney state.

IIRC, you will need to have an attorney at closing. It's been a while since I did a deal in Mass. (I'm a lender) and the rule may have been only because my clients were closing with a mortgage. But I'm pretty sure the rule is for all real estate transactions. Mass. has a strong attorney lobby and they don't want the title companies cutting in on their action by shuffling all the papers or "practicing law without a license" as they call it. I mention this because, in some states, the title company does all the paperwork at closing.

I always advise my clients to obtain an attorney anyway. It's not a murder trial so you don't have to retain Johnny Cochran or some other high paid mouthpiece. Attorneys here in Chicago charge about 500-600 bucks to do a closing. Your attorney will work with his/her affiliated title company to do a title search and issue a clear tile and INSURED title to the new buyer. The attorney also acts as an insurance agent and gets a cut of all the policies issued at closing (IIRC, about 40%). You will be required to purchase an "Owner's" policy insuring clean title to the new owner of the property. If the buyer were to obtain a mortgage, they would have to purchase their lender a "Mortgage" policy which is mostly a duplicate of the owner's policy but it protects the lender against claims that could affect their lien etc.

[Warpy]

20. A cash deal means you don't have to wait for a bank to approve

a mortgage. In this market, it can be a distinct advantage since banks are a lot pickier about who they give mortgages to and deals have fallen through all over the place. If you can afford to wait for someone who is willing to pay market value, do so. This guy is trying to get the place for a bargain basement price so he can flip it some time in the future.

If you buy another house, your capital gains on this one are not taxed. Also, you're exempt if your capital gains are less than $250,000, double if you're married. http://www.bankrate.com/finance/real-estate/capital-gains-home-sale-tax-break-a-boon-for-owners-1.aspx

The balance of your mortgage is due the bank at the time of sale, and is usually taken care of during the closing process. If you have a US bank account, your profit after the closing costs and mortgage payoff can be deposited there or you can arrange to have it wired to your bank in Japan.

Your best bet is to use a real estate agent here in the US to sell the house. A good agent will give you advice on pricing, screen the offers, and represent you at closing. You might also consider hiring a lawyer to represent your interest in the deal since it is so long distance. I know the real estate agent is worth the commission in a long distance sale.

Selling a house long distance is no picnic and requires a lot of faxing and overnight mail. I sold one in Florida when I was in NM. It can be done, however.