Eric Vazquez

The question was "what do you guys think is better?" and the parameters were as stated above, and I will include the 3rd FSBO option because it is a viable option. Assuming a net of approximately $376K, the house will sell at the price established. Nothing else withstanding. Based on this criteria alone, the seller receives his net $376K, and takes the benefit of reducing gain at varying rates per option expressed. Cap gains exemptions aside - I have no way of knowing how long John has held the house or how much he paid - I am not concerned at this point with Cap Gains. This deduction comes after the fact - the house first has to sell at whatever price. As I said earlier - a loss is a loss and a gain is a gain - AND THEN the exemption can come into play.

Based on the facts/criteria alone provided, I stand by my answer. And no, this is not about a FSBO vs Realtor debate. And this is not about the concept that paying more commissions means you will get more advertising. One would hope you get what you pay for but that is not always the case.

You are not a bad example of whether you would have been better off with a Realtor, you are a good example of a Realtor not selling his value and worth and thus you feel the way you do. In the example, the amount of marketing John would have recieved is inconsequential because in the scenarios proposed, the house would sell. This was a question of Realtors being able to sell their value. From what I've heard - not. Some easily said go FSBO. Some easily said go with the cheaper deal (though the house would sell in either scenario regardless). So what then is the value. Again, after-the-fact exemptions aside and based solely on information provided. The option that pays the greater commission is in MHO, the better option. This is not to say this will always be the case. When you get to analyzing your personal position and ALL other tangent factors, the better option may differ. But that was not discussed as a matter of the question posed and therefore, factors I can't base my opinion on. There are truly too many variables that will play into the final numbers and benefits. Again, checking with a CPA on all the specific factors that will affect one's sale and gain/loss is important, if not a necessity - actually before a house goes up for sale. Especially if one is approaching that exemption limit. But that is not what is proposed here. its about selling value - the vlaue of the Realtor. Not just what they will "do" for you but in what other ways, might their consultation and knowledge help you if so.

And no, I'm not a financial adviser, I recommend that people talk to an accountant, however, in so much as real estate is concerned, I try to remain aware of whatever benefits my sellers may benefit from if at all possible.

How much of his knowledge, awareness, AND value did your Realtor sell you that you selected him among many? That is a rhetorical question, it is just something you may wish to ponder for yourself. There is no one absolute way that is right when you factor in all the variables and based only on what was provided ... - Yesterday, 22:38

I'd like to turn this back to John and ask - John, after reviewing the discussions - which option do you feel would be best for you given the criteria provided - and why do you feel that way? - Yesterday, 18:03

Rockinblu real estate commissions are deductible in the sense that they are added to basis and deducted from total gain before calculating Capital Gain. Gain is ANY gain on the property - not to be confused with the Capital Gain exemption. Follow the link and reference the section regarding Selling Costs and Capital Improvements.

Actually, since you were a lucky FSBO who sold and closed, you may wish to review the entire list and then maybe call your accountant to see if he caught every other deduction you may have missed. Calculate the amount you missed, and then let me know if option 1, 2, or 3 (the FSBO option) would have been the best option for you. - Yesterday, 17:56

Lets make it simple. Before you can consider if you have a gain or loss (ordinary income or capital gain) - you have to calculate your gain or loss. That would mean accounting for the basis at the time of sale. As I said, for the purpose of the question originally posed - irrespective of all additional cost and expense beyond the commission, as the commission is added to basis - thereby reducing any potential taxable debt (GAIN) from the sale of the house - option #2 gives the best advantage.

As the question was posed, there was no inference to profit. It was about how much can John get for his house. Did he do improvements that will add to his basis and reduce his "gain"? That information was not provided as a factor to which option was the better option.

Taxable debt (regular income or capital gains) cannot be determined until you have calculated the net gain from the sale of the house - the commission is above the line in this matter as it is a part of the basis calculation and therefore - a reduction in net gain and potential taxable liability. After which, one can determine if it falls within allowable exemptions or not. And to see if it is taxable or not.

In the scenario provided, the commission amount which reduces the potential taxable debt is $24,000. That equates to a $24,000 of additional gain if going the FSBO route, and $8320 more gain if going with option #1.

Once you have determined any gain/loss, you can determine if there is a tax consequence or not - I'd much rather have the money reduce my net gain and therefore reduce my potential tax consequences upfront and not wait until tax time to find out I might owe. Again, a good CPA will be able to help calculate gain or loss - but key here is - it can only be done post sale. When it comes to ones bottom line - there are many other factors aside from just the commission that would affect a personal gain or loss and that is not a part of the question posed. Not inconsequential, just not a parameter provided provided for the question posed. The sale, only within the given parameters - option #2 is still the better option in my opinion. - Yesterday, 12:22

To elaborate on the tax deduction angle, commission add to the basis of the property being sold, which then is deducted from the total sale to determine net gain or loss - regardless of the property type (residence vs investment).

When you sell a property, your basis is calculated to determine the amount of gain or loss as deducted from the total sale value. If you sell for a loss - its a loss and a reduction on your income. If you sell for a gain, remember, that gain is only the amount less the calculated basis. Basis is original purchase price, plus commissions, and other certain cost and fees, and reduces the income liability generated by the sale of property.

With this, it becomes a far more specific accounting issue and a CPA should be consulted. While one may easily be exempt from capital gains tax, income is separate. For the purposes of the question posed, without the minutia of this cost vs that cost and how it fits into a bigger picture, #2 is the best way to go in the clients best interest in my opinion.

As for the strategy that is addressed in that link. It is commission based. The commission would have to be, or agreed to be paid, before it can be reduced in lieu of a charitable donation. As a percentage, the lower the actual commission paid, the lower the basis deduction - and the lower the percentage to charity. At this point, you definitely want to talk to an accountant to determine which is best for you as the seller.

A word of caution regarding charitable donations. As there were some down payment assistance programs which hinged on charitable donations and the mortgage mess in the state it is in, these programs are coming under great scrutiny by the Feds. As an agent, I would exercise caution to be certain that any "rebate" buyer incentive, does not also run afoul of any conflicting regulations - RESPA or other. In a word, I love charitable donations but some of these programs may not be all they are cracked up to be. Use caution. - Yesterday, 10:54

Lets examine the choices first.

Agent #1 will list for $392K @ 4% (1% to list agent, 3% to buyer agent) for a net of $376,320.
Agent #2 will list for $400K @ 6% (3% to list agent, 3% to buyer agent) for a net of $376,000.

From a seller perspective, looking at the bottom line, for an extra whopping $320, why not go with agent #1. However, from an educated seller persepective, choice #2 is the best way to go. The reasons are as folloows.

1-Why would I hire a Realtor who prides his value as low as 1% as compared to the Realtor he hopes to work with as buyer agent (clue: not everyone gets to sell thier own listings or want to as a matter of avoiding potential dual agency issues).
2-To pay 2% more to the agent representing me at the net cost of $320? Deal - providing the services represent the value paid. At $320, its a steal of a deal.
3-Commissions are a deductible expense. Option #2 increases my deductions by $8,320.

Note: This assumes as you did that the home sells for full price. Now to also examine the market - what is the likelyhood that this home will sell at full price? Is it priced THAT WELL? A good qualified Realtor would be able to provide you with appropriate comparables to help you decide on the right price too.

Bottom line - an extra $320 up front in your pocket, or an extra $8,320 in income deductions?

Have fun with your FSBO! (at $376K on a FSBO site, kiss the added deductions goodbye!) - Mon Aug 18 2008, 14:16

Thank you to Options realty for that link to DOJ. I guess the point I failed to clearly make, which this letter does is that there is a clearly defined line between being a customer/client, and acting in the capacity of a agent - licensed or not. As long as the lines are clear, the rebate is applicable in the right circumstance. - Mon Aug 18 2008, 14:03

Wow, after surfing through all this commentary, I'm not sure that your question was ever answered, and any issues surrounding it have been properly addressed either. There were some very good responses and some nto so good. However, with that said, here is my understanding of some issues yoru questions brings up.

As a licensee in NYS I can only tell you my understanding. Practices and legalities can vary greatly by state. In NY, a buyer cannot receive compensation from commissions earned unless three criteria are satisfied.

1- Buyer must hold an active real estate license.
2-Broker receiving commissions to be given to buyer must also be that licensed buyer's supervising broker.
3-Buyer as licensee must "disclose interest" and all parties entering into negotiations must be fully aware.

In NYS only a licensed Broker can collect a commission directly and from there, pay appropriately, any licensee under his supervision for thier portion of the transaction. Anything else can be considered a kickback and is illegal and may violate federal RESPA regulations.

If a non-licensed eller is offering a "cashback bonus" incentive directly to the buyer, that may fall under different legal criteria, that may be ok. But that would have nothing to do with commissions earned and payed to licensees.

I do not know what the legal ramifications of providing a 2/3 commission kickback is on other states and I am not aware of any company that will do that sorry to say. Consider this also, if a seller is willing to give you "2/3's of a 'projected' commission, is that deal being brought together by two independent Realtors? Or really, is it one salesman collecting both sides and therefore, can legitimize "giving away" a portion of what he would have normally given if a 2nd agent was involved? You get what you pay for. At this point, I would probably rather have them knock off that value from the total price and get a reduced mortgage and/or negotiate to have that money counted towards the down payment. Why pay more (mortgage interest) for less money in the end?

(Now to step on the soapbox)
As for the argument that commissions are negotiable - THEY ARE - AS THE LAW STATES. And that is a discussion to be had between agent and broker, and agent and buyer or seller appropriately. The argument raised here earlier is nonesense as it went nowhere near to answering a prospective buyer/seller question. I have to ask - whom do we really serve? Really? Whom?

That and any other discussions, rants, bashing, and flaming really does not serve our community as Realtors and CONSUMER ADVOCATES. Total BS to be frank! That and any other discussion that did not go to answering the question posted here should better have been left out of the discussion.

For those who answered thoughtfully, I applaud you. For those that took it upon themselves to disgrace this space. Ashamed doesn't even come close to how I feel.

(Can't get off this soapbox fast enough - sheesh) - Mon Aug 18 2008, 12:03

Buying a house now or in a few years really depends on your needs. First question to ask yourself is how long do you plan to live in the house? If it is only for a couple of years or for several years - enough to ride the market back into an upswing? I can't say that it is a good market or bad market right now, some areas are feeling a decline, and others are holding steady.

Buying on the short term in a down market may not build you equity and may net you a loss. However, buying on the long term, enough to ride the market back into an upswing, you fare better at building equity over time. If you already own a home too, and need to upsize into something bigger, buying up in a down market may also be a move to consider. As the market turns back, so does your equity postiion.

Of course there would be mortgage factors to consider as well. Possibly discussing your needs with a financial advisor may help you determine if now is the best time for you. I service Orange and Rockland counties, if you would like a more specific evaluation of your area, I would be happy to be of service. - Mon Aug 18 2008, 12:34

To expand a little on Gail's answer. If it were your residence, you would need to live in it for any two of the last five years to qualify for the capital gains exemption of up to $250K for a single person ($500K for married couples). Any taxable gain (income tax separate from capital gains) is usually calculated on yoru basis (purchase price) less any improvements. For investment properties, it is your basis less any repairs. Check with a qualified CPA as it is my understanding, the IRS classifies "repairs" different from "improvements". - Sun Aug 17 2008, 11:58

The issue I find with Zillow is that:

(1) if the property is an actual listing that has been submitted, the reference is the listing value and not an appraised or assessed value. This clearly can be misleading, especially if the property is over priced for it's market area.

(2) The zestimate given for non-listed properties is usually the "fair market value" as determined by the calculation of the assessment and the current equalization rate applicable. In NY this varies by municipality. What occurs is that the "fair market value" is often not indicative of actual market value as determined by comparable sales. These values change with the desirability of individual neighborhoods and can often exceed the "fair market value" in a good market area and wiht favorable conditions

With the current declining market conditions that are being experienced more commonly, one might expect that the zestimate values may exceed the current actual real estate value as the zestimate may be based on an assessment performed in better than current market condition.

Either way, zillow values seem to be behind the curve and current market trends and therefore, misleading and subjective. - Wed Jul 30 2008, 19:29

Zillow Zestimates are speculative. If a property is listed and has been submitted to Zillow, the value will match the list price. If a property has not been submitted as a listing, the Zestimate changes to match the "fair market value" recorded with the local assessor from what I have been able to observe. In some areas, the listing values and "fair market values" can vary greatly. This does not mean that the values are "wrong". Either way, these values have no bearing on appraisal value. The best measure of specific value would be to order and pay for an appraisal. The other option would be to engage the services of a local Realtor to provide you with a Comparative Market Assessment which will give you the preferred range of value that your home should hopefully sell within.

Note, if the property in question is in an area where there have been recent sales, and for the most part, the properties are similar, then Zillow can provide you with a reasonable estimated value. - Wed Jul 23 2008, 21:33