There are many compelling reasons to sell your house or other real estate you may own. Maybe you want to move closer to grandkids. Maybe you want to move further away from grandkids. Maybe you need to sell an investment property, so you can put your grandkids through college. Regardless of your motivation, here are things you should do before listing the property for sale:
- Select a Realtor.
- Ask that Realtor what do to before listing the property, because he or she may come up with something in addition to the tips in this column.
- Take care of minor maintenance issues.
- If it is your residence, remove a third of the house’s contents—from furniture to clothing.
- Deep clean the whole house, under every bed, behind every door. No one is comfortable with someone else’s dirt.
- Order inspections: pest and fungus, whole house, septic—you name it. You can provide inspection results to prospective buyers, so any offer they make is based on all available data (and they can’t come back later and use inspection results as a reason to negotiate a lower price).
That was the easy stuff.
Now, if you’re an organized person, the next part won’t be too bad. You should pull out the documents from your original purchase of the property and review them to see if there are disclosures that are still relevant. If the original seller disclosed a leak in the roof and you just replaced the roof, it’s not relevant. On the other hand, the unpermitted garage-to-game-room conversion will still require disclosure.
Next, start making lists: First make a list of work done since you’ve owned the house (like that new roof we just mentioned, any appliances you’ve replaced that are staying with the property, interior and/or exterior paint, and new drip irrigation, for example). Make a copy of your receipts for the buyer. Then, make a list of any vendor or service contracts associated with the property: pool service, burglar alarm system, landscaping, and perhaps heating/air conditioning maintenance agreements. If you have a commercial building with an elevator, it likely has a service contract, too. The buyer may be obligated to continue some of the contracts; other vendor information will simply be a courtesy.
By the way, it can be useful to show utility bills before and after you install new insulation or upgrade windows. Buyers love that stuff!
Depending on the type of property to be sold, you may consider scheduling an appointment with your attorney, accountant or perhaps an estate planner to avoid opening a can of legal worms. Please do this before putting the property up for sale for your own sake, and that of your Realtor and buyer. Among other things, a good tax advisor will help you do the math to avoid a nasty problem called “loan over basis” from capital gains tax.
Each transaction is unique and a good tax accountant will consider all the variables important to your situation. However, unless you have extenuating circumstances, you’ll likely pay about a third of the gains from your sale in taxes. Bear in mind, your gain is calculated without regard to the amount you owe on the property. In very simplistic terms, it is the sales price minus the cost of the sale minus your acquisition cost minus improvements plus depreciation.
Again, notice the amount you owe was not included, so your taxable gain could be $200,000 resulting in a tax liability of $65,000 and the property might only generate $50,000 in cash after sales costs and loan payoff. This is a common problem with investment properties, and one your tax accountant will be familiar with, which is why I say again: talk to your tax accountant when selling real estate.
If you have questions about real estate or property management, please contact me at firstname.lastname@example.org or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.