We understand that selling a home is often a complex, hard-to-understand process. We hope that the following information may assist you in better understanding several of the most significant aspects of home sales.

Clearly, one of the most significant aspects of selling a home involves an accurate determination of the home’s monetary value. Just as in the case of buying a home, there are generally two ways of determining a home’s value – a market value analysis or an appraisal.

In the case of determining a "market value," the typical procedure is to converse regarding the prospective home’s value with your realtor. They will generally be able to use a combination of knowledge, experience, and statistical information to determine the value of your home. The calculations will take into account a broad range of factors, including the value of others homes that have been recently sold in your neighbourhood. This is often the preferred method of setting an appropriate price for a property, particularly if the assessment is made by an experienced relator. Of course, the best case scenario when selling a property is (usually) for the market value to be as high as possible.

With appraisals, the determination of a home’s value is somewhat different. In this case, the process is somewhat more ‘methodical,’ and is conducted by a highly-trained (and typically licensed) professional/expert who is termed an appraiser. As in the case of determining a "market value," a large variety of factors are used by the appraiser to set a value on a home. These include an analysis of the area’s real estate market, proximity to other areas such as schools and commercial districts, home age and condition, home size, and a variety of other elements that may affect a home’s value. Notably, as a professional service, appraisals entail a fee – current prices are approximately $300 on a home valued at $250,000.

Oftentimes, when one meets hard financial times and finds themselves unable to meet their mortgage payments, it is assumed that their only option is foreclosure. Two common alternative options, which can help preserve damage to one’s credit, while still satisfying the lending institution are short sales and deed in lieu of foreclosure. It is the latter option that we are concerned with here.

Essentially, the situation of conceding the deed to a title in lieu of foreclosure is precisely as it sounds. By negotiating with the mortgage lender, it is often acceptable to them if one hands over title of the property, thus avoiding foreclosure proceedings. Although the home is of course lost ‘to the bank,’ it is without the more serious credit report consequences of a foreclosure, and without the additional fees and legal expenses associated with foreclosure.

Notably, deed in lieu of foreclosure options may also be used in a few other circumstances, albeit more rarely. Typically, these situations are limited to times when property must be quickly liquidated; as in, for example, divorce settlements.

In the past, the old Latin maxim caveat emptor – "let the buyer beware" – was the dicta when it came to purchasing a property. Slowly but surely, this situation changed – laws and protocols respecting disclosure have largely flipped the situation into one of "seller beware."

Essentially, disclosure refers to the legal obligation of a home vendor (and typically his or her real estate agent) to disclose a wide range of matters pertaining to the property to prospective buyers, ranging from minimal requirements such as indicating property line disputes or other title encroachments, declaring major damage such as a leaky roof or bad plumbing, or disclosing pest infestations. In some jurisdictions, however, disclosure requirements are far larger; some disclosure forms can even apparently include questions regarding paranormal activity within a home! Also important, and required by law in many cases, are details of insurance claims, typically over the past five years. Your real estate agent can, of course, provide you with additional information on this matter, as it pertains to your specific property.

Although you may sell your home at a certain agreed-to price, that is rarely the end of the situation in terms of the total cost; there are typically a wide variety of additional fees, commonly referred to by the collective term "escrow & closing costs" that also must be paid. It is useful, however, to first understand the concept of escrow itself, to better understand the nature of the fees referred to.

Property Taxes

Property taxes tend to be more a concern to a property buyer than a property seller (the latter of course has no choice but to pay them, for as long as they own a property).

When selling a home, and particularly if market conditions are poor, you may wish to consider what is referred to as ‘seller financing.’ In this scenario, you, as the property owner, act as ‘the bank’ – offering a mortgage represent some (or sometimes even all) of the purchase price of the property, on whatever rates, terms and conditions you and the prospective buyer agree to. Just like in a conventional mortgage, the property acts as security, and monthly payments plus interest are paid by the buyer.

It is commonly assumed that foreclosure is the only option for those who meet bad financial times, and find themselves unable to pay their mortgage. Deed in lieu of foreclosure is not the only alternative option in such a situation – it is often possible to negotiate what is referred to as a short sale with your lender (i.e. a sale of the property at a price that is below that of your mortgage). In this situation, the mortgage lender will accept all proceeds from the sale, and forgive the remaining amount owing. Some may question why a lender would be willing to lose money on such an arrangement – the simple answer is that it’s often a very expensive process to foreclose on a property, and the loss from allowing a short sale may actually be less than what it would cost to take control of the property and sell it once foreclosure has taken place. The benefit to this is that avoiding foreclosure results in a substantially less marred credit report.

Also, short sales may also be used in a few other circumstances, although usually very rarely. For example, in a few situations when property must be rapidly liquidated, a short sale may be appropriate; as in, for example, divorce settlements.

The tax considerations for home sellers are generally much different than those of home buyers. In the case of selling a home, typically the most important tax consideration are capital gains on any profits resulting from a sale. Fortunately, in 1997, there was a significant change in taxation law that allows many individuals in many circumstances to owe zero capital gains taxes. One generally qualifies for this provision if:

• The home they are selling is their primary residence (i.e. they have lived in it for at least two of the last five years – thus, solely investment-purposes properties do not qualify.) 
• The capital gains are less than $250,000 for a single person (or $500,000 if married; but both individuals must pass the two-year residency test cited above) 
• They have not already qualified for the zero capital gains tax exemption at some point within the last two years

Even if you do not qualify for the exemption at all, or your capital gains exceed $250,000 (or $500,000 if you’re married) – all hope is not lost. Many real estate industry tax advisors recommend that individuals take every step possible to increase their home’s basis – i.e. the total amount paid for the house – because any capital gains taxes are charged on profits (i.e. a higher ‘book’ cost = less total profit upon sale). A sometimes surprising variety of home improvements are ‘IRS-friendly,’ in that they can be counted towards the home’s basis (although maintenance-only costs generally do not). Generally – it’s a common sense matter of determining if a given improvement adds to the value of a home, "considerably" prolongs the home’s life, or adapts the home to a new use. Valid basis-increasing improvements, found in IRS Publication 523 (Selling Your Home) include, but are not limited to:

• Additions of bedrooms, bathrooms, decks, garages, porches or patios; 
• Landscaping, paving an unpaved driveway or adding a walkway, building a fence or retaining wall, installing an underground sprinkler system, or adding a pool; 
• Modernizing a kitchen, installing built-in appliances, or purchasing a satellite dish;

Even though many of these items may not lead to immediate tax deductions, it still remains crucially important to retain any and all documentation/receipts pertaining to any type of IRS-valid basis-increasing improvement, even if you don’t think you will be selling the home anytime soon.

One final possibility that may be worth exploration is a like-kind exchange – a way to trade property for something of similar value without reporting a profit, and thus deferring taxes on a gain. Although the rules and complexity of such transactions often make them non-applicable, they may be an option to explore. Your real estate agent can usually provide you with more basic information on these matters, or refer you to reputable professional tax advisors for more situation-specific needs.

Often, one of the most reassuring experiences in any property-related transaction is working with your real estate agent. Experienced Real Estate agents have the dual capability of knowing the industry and the market, and efficiently adapting their style to match yours. They also have the sales skill and negotiating power to ensure your home sells quickly, for the maximum amount possible.

The other major reason for a vendor to hire a real estate agent to have an expert-level, trusted assistant and representative to guide them through all stages of the property sale process. Truly, from aggressively marketing your property, through to answering any questions pertaining to property transactions, an experienced real estate agent will diligently work for you.

If you are seeking a qualified, reputable, reliable real estate agent, we invite you to contact us. We definitely can state that we know the business – we proudly serve our clients, offering each of them over eighty-six years of combined experience in the industry. It is our enduring goal to offer a truly superior realty firm – and we achieve that by constantly remaining focussed on ensuring excellence, and surpassing all our clients’ expectations.

We are also a full-service Real Estate firm; therefore, we can assist you in all aspects of selling property, from homes and condos, through to commercial property and land. We are also widely connected to the international Real Estate market, enabling us to market our clients’ properties not just throughout North America, but also far beyond – spanning the globe to Oceania.