Reader Question: My mother wants to have a home built. She has been advised that she should not sign the purchase agreement before she sells her home to avoid a large tax. She is 85 years old. She was also told to keep all utilities on at old home until sold. Are these points valid? Thank you, Sharon D.
Monty’s Answer: Hello Sharon, and thanks for the question. There is much to consider here. The answers depend upon your mother’s resolve and financial circumstances.
Here is a link to IRS Publication 523 that discusses homeowner exemption rules. I am not a CPA, and the answer depends on her circumstances. Your mother should take tax advice from no one except the person who prepares her annual income tax return.
The question on utility shut-off is dependent on geography, the ability to inspect daily and more. Every home can be winterized with the utilities shut down completely, but factors like the duration, temperature and humidity should be considered. Will the home be shown only in daylight? It is not uncommon to shut off utilities, especially in sub-zero climate when the furnace goes out unnoticed. The home can turn into an ice cube in 24 hours when the plumbing pipes rupture.
It may not matter if the old home sits on the market for a year or two, but it may matter. Here is a link to an article that includes a template demonstrating the answers to the possibilities that can arise when owning two homes. It would seem the impact of owning two homes could be far greater than the impact of the tax liability.
My advice to mom if money is a consideration is to make certain she has all the facts before she pulls the trigger. What is the range of value on the old home? What is the current sales rate in the old home’s price range? Does she have multiple opinions of the value, including how long it will take and estimates on the cost per month to hold the old home?
It is great that your mom is of sound mind and willing to take up the challenge of building a new home at 85. Here is an article about Choosing a Builder from which she may pick up some helpful tips.
Reader Question: We have been in escrow for over 45 days. The owners are telling us we can move are furniture in and clean the carpet. Two weeks ago they were adamant about not letting us do this. The real estate agent thinks by not doing this we are thinking about backing out. This is a second home in the mountains and with snow coming they know we want to move furniture in before the holidays. They have not been very good to deal with so far. We think that they may be trying to trap us into the sale. Any advice will be appreciated. Thanks. Barry and Jean H.
Monty’s Answer: Hello, and thanks for the question. There is not enough information here to answer the question completely. Allow me to ask a few questions:
1. What is the scheduled closing date?
2. What is the holdup for closing? Is your financing holding it up? Is the seller holding it up because of title issues? When is the transaction expected to close?
3. Who drafted the contract? Is the agent that wrote the contract the listing agent or is there a written buyer agency agreement with another agent?
4. How much earnest money is invested?
With those questions answered, I would have some choices for you to make. Lacking that data, I will postulate a situation:
Do not clean the place up, haul in your stuff and then lose the transaction. Consider an attorney to look at the contract and interpret the situation. Look for an attorney familiar with local practices and does not own the title company handling the sale.
The real estate agent seems more worried about their commission than your welfare. Consider a rental agreement that ties into the purchase contract. The agent is representing the seller, which is why you should talk with an attorney.