Confirming Deeded Ownership
You can’t sell what you don’t own. While that sounds like a simple rule, sellers often do not formally own what they functionally control. It’s imperative that a seller checks their deed before they list property for sale in order to confirm that the property is deeded in their name and their name alone. To illustrate, sometimes a child wrongfully believes that they automatically own property that was in their deceased parent’s estate and do not realize that the Surrogate’s Court first needs to sign off on such transfers of ownership, especially when the child has estranged siblings who are still alive. Failure to discover these issues before a buyer is in the picture will generally kill a deal, because rectifying such issues takes considerable time and buyers don’t like to wait around. So, if a seller’s name is not on the deed or someone else is also on the deed with the seller, the seller should see an attorney immediately and rectify the deed prior to listing the property for sale.
Setting the Listing Price
There is a difference between emotionally wanting to be paid a certain price because you spent that much in costs between buying and fixing the house and your house actually appraising for that price. Be sure to discuss with your broker what comparable homes are selling for on the market, including price per square foot for both structures and acreage. When a home is priced improperly, it can sit on the market for way too long. Also, even if the home does sell at the artificially inflated price, a purchaser who is seeking a mortgage to finance the purchase will be denied in their mortgage application if the house does not appraise at the sale price.
Staging and Active Concealment
While professional staging and photographs are all the rage in Hamptons real estate, one mustn’t ever conceal a defect in the home. To illustrate, if there is mold on the wall, a layer of paint is never the solution. Owners remain liable post-closing for any active concealment of a known defect in their home. Cut the cord after you sell by being forthright about your property’s defects—or better yet, just get those defects fixed.
Proactive Home Inspection
Your buyer will almost certainly get a home inspection of the systems and components of your home, including the heating, cooling, plumbing and electrical system, as well as the structural components. In New York State, home inspectors must be licensed to perform inspections of residential buildings for compensation, and many of their techniques have become standardized across the field. So be prepared to either renegotiate your sales price or to fix items of your home in order to sell. To avoid this headache, a seller can order their own proactive home inspection and then repair the items that will otherwise pop up on the buyer’s home-inspection report. Simple fixes such as cleaning downspouts, repairing flashing and aiming sprinklers properly can avoid unnecessary renegotiation.
In New York State, a broker is permitted to work concurrently for both the seller and buyer on the same deal if both the seller and the buyer waive the conflict of interest. The advantage of waiving the conflict is an increase in demand, where the broker can bring their own client-buyers to the property. The disadvantage is that this increase in demand comes at the expense of undivided loyalty. Sellers must understand that waiving the conflict can help sell their house faster, but as a result they can no longer seek the advice of their broker when strategizing for negotiations.
Budgeting for Transaction Costs
When selling a property, it’s all about what you net post-closing. Be sure to think about professional fees for brokers, attorneys and accountants as well as NYS transfer tax, which is charged at the rate of $2 for each $500 of sales price. Also, don’t forget that the buyer’s title agent will charge you approximately $150 for each lien that is being paid off at closing.
Certificate of Occupancy
If you put in a pool, added an extension or built a deck without a permit or you didn’t get a certificate of occupancy (CO) upon completion, these issues will be brought to the forefront when selling your home. The buyer’s attorney will catch your missing compliance and force you to either obtain a CO or offset the sales price to reflect the lost value in the home from removing the noncompliant item. Also, a frustrated buyer may walk. Don’t bury your head in the sand and hope that no one will notice. Go get the CO before you list the property.
Survey and Boundary Line
Surveys show the boundary lines of the property and the structures thereon. It’s not only possible that you own structures encroaching on your neighbor’s land, but your neighbor may have structures on your land, which your neighbor now may claim to own through adverse possession. To illustrate, if your neighbor’s bulk-heading has encroached onto your land for over 10 years, it’s possible that your neighbor now claims to adversely own your land below the bulk-heading. As a result of this possibility, your buyer’s title insurance company may require an affidavit from your neighbor disavowing these claims of ownership in order to insure your sale.
Avoiding Capital Gains Tax
As a default rule, when you sell appreciated real estate, you owe capital gains tax, which in New York State can be up to approximately 31.5%. Nonetheless, when selling your primary residence, a married couple can avoid up to $500,000 of gain pursuant to IRC §121 if certain conditions are met. Additionally, as to non-primary residences, IRC §1031 offers a tax-deferral option if your real estate is held in the productive use of a trade, business or investment. While vacation homes are generally not permitted in a 1031 Exchange, the IRS offers a safe harbor that permits a vacation home to qualify, which safe harbor is detailed at Rev. Proc. 2008-16.
While sellers are aware who they have a mortgage with, many people don’t realize that a judgment is also a lien on your real property for up to 20 years. To learn if there are judgment liens on your property, the Suffolk County Clerk offers an online records search. Clear those liens before you list your home for sale, because when a judgment creditor cannot be located, you may have to either bond the debt at great cost or instead delay the closing until the creditor can be located—which sometimes never happens, resulting in the need for a lawsuit to discharge the lien.
Andrew M. Lieb, Esq., MPH, is the Managing Attorney of Lieb at Law P.C. and is a contributing writer for Behind the Hedges: Inside Hamptons Real Estate.