Have You Owned Your Home a Long Time? Here Are Some Tips for Avoiding Capital Gains Tax

If you bought your primary residence back in the 1960s or 1970s, there’s a good chance that you’ll be pushing the limits of the capital gains tax exemption when it comes time to sell.

There is an exemption of capital gains tax of $250,000 (single) or $500,000 (married) for a home that was your principal residence for at least two of the five years preceding the sale. If you bought your house for, say, $30,000, in the 1960s, it’s quite possible that it’s worth 10 or 20 times that amount now, resulting in the possibility of capital gains taxation.

If one of a married couple moves out, the $500,000 exemption is preserved by the other spouse as long as the absent spouse is still alive, providing the couple sells the house within 3 years of both moving out.

Do not add your heirs to the title of your home as a “joint tenant” with right of survivorship.  That’s because your heirs inherit your original purchase price as their cost basis, whereas if they inherit the property through your will, the basis for them is stepped up to the fair market value of the home at the time of the inheritance, which will help them avoid capital gains tax when they sell it.

I am not a tax advisor, and am only recounting what I have been told by tax and estate-planning professionals. Consult your own tax professional before acting on anything I have written here.

Seniors: Learn What You Need to Know About Real Estate

Last month’s column was about the risk seniors face of being scammed or conned out of their homes.

Let’s face it — seniors need to be careful and knowledgeable about real estate as they age. There are issues of downsizing as well as inheritance. And you need to know how real estate works, how to choose the best Realtor and know that he or she is working in your best interest.

At Golden Real Estate we have two agents who have earned the Seniors Real Estate Specialist (SRES) designation as a result of special training on a multitude of issues facing seniors. One of them is David Dlugasch, shown at right during his PowerPoint presentation to a group of seniors. The other is Kristi Brunel.  If you belong to a senior group that welcomes outside speakers, please consider calling David at 303-908-4835 or Kristi at 303-525-2520 and arranging for a live presentation.  You may learn something that could help you in the future.

Sustainability Series Session #1: The Many Facets of Insulating a Home

This Thursday, January 17th, is the first of Golden Real Estate’s 6-part Sustainability Series. The topic this week is home insulation. Allow me to introduce the presenters and to share some of what I myself have learned from insulating my own homes and office, and from 17 years of selling homes and being active in the sustainability arena.

We have two great presenters at this month’s session. One is Steve Stevens, whose passion since retiring from Bell Labs has been the conversion of an energy-wasting 1970s brick ranch into a showpiece of sustainability through solar power, energy efficiency and super insulation. In addition to having insulation blown into his attic and walls, he had layers of poly-iso and structural insulated panels added to his exterior walls.  Then he went so far as to dig out and expose his home’s foundation walls so poly-iso insulation could be applied to them. He also constructed “air locks” on all entrances, and built a greenhouse on his south-facing exposure — both extremely effective insulating techniques.

Several years ago when Steve’s home was on the Golden Solar Tour, I shot a 40-minute video in which Steve described his home’s sustainability features — by far the longest of all the videos I have ever created for homes on that annual tour. A link to the video is at JimSmithColumns.com

The other presenter is Dennis Brachfield of About Saving Heat. I’ve known Dennis for over 25 years. His company insulated an office building I owned in Denver as well as a couple homes I have owned.  Dennis is bringing a blower door to this evening’s session in order to demonstrate its function. Using a fan to depressurize a home, a blower door helps to identify the location and extent of air leaks in a building.  Another tool Dennis will illustrate is an infrared camera. By pointing it toward ceilings and exterior walls, the camera shows the difference in surface temperatures, indicating areas that could benefit from air sealing and/or additional insulation. 

I’ll never forget the time 15 years ago when Dennis blew insulation into the exterior walls of a 1945 wood-frame bungalow I had purchased. The home’s gas forced-air furnace kept the ambient temperature at 70 degrees easily enough, but occupants still felt cold.  Dennis pointed out that even if there was insulation in the walls, voids surely existed, due to a combination of sub-par installation and years of settling. I was amazed at how much more comfortable the house was after having insulation blown in to fill all those voids. What I learned from that experience was that cold walls radiate coldness just as effectively as warm walls radiate warmth. Thus, a room with 70-degree air but cold walls feels cold in comparison to a room with the same air temperature but with walls that aren’t cold.

My current home was super-insulated by Bill Lucas-Brown of GB3 Energy.  I invited Bill to join us tonight, but he had a previous commitment. On www.GB3Energy.com, you can watch a Golden Solar Tour video I shot in which Bill describes his weatherization work, which included insulating the crawl space and the rim joist area. It’s very informative.

Here’s a simple way to determine how well insulated your home is.  When you go to bed on a cold winter night and turn your thermostat down — let’s say from 71 to 67 — look to see how quickly the home cools to that lower setting, triggering the furnace.  If it’s less than a couple of hours, you could probably benefit from improved insulation of your home. I’ve started turning our thermostat down an hour or more before bedtime and I’ve found that the temperature doesn’t drop enough to trigger the furnace until 3 a.m. or later.

When your home is that “tight” it’s important to ensure the introduction of enough fresh air to maintain good indoor air quality. For that, consider installing an “energy recovery ventilator,” or ERV. This device replaces a standard vent fan with a heat exchanger that warms incoming fresh air by extracting heat from the interior air that is being exhausted.

The ERV’s function will be explained in our session — or you can Google “energy recovery ventilation.”

Wheat Ridge Ranch Home with 4-Car Garage Just Listed by Kristi Brunel

    You don’t want to miss this flawless 4-bedroom, 2-bath bungalow with a 4-car garage at 7005 W. 32nd Ave. The impeccable remodel has left no surface untouched. This ranch style home with a walk-out basement features concrete countertops, farmhouse sink, new appliances, lighting, hardwoods, bathrooms and railings. The outside space features a new front deck, stamped concrete driveway, patios, gardens and beautiful yard space. This one won’t last, so book a showing today or come by the open house on Saturday, Jan. 19th, 1-3 PM.  Or call Kristi Brunel at 303-525-2520 for a private showing. View a narrated video tour at www.WheatRidgeHome.info.

Even if You’re a Sophisticated Buyer or Seller, You Need Us — And Here’s Why…

Perhaps you’ve heard the expression, “A lawyer who represents himself has a fool for a client.” Most lawyers respect that truism, which is why you see lawyers hiring other lawyers when they are sued or criminally charged..

The same truism can be applied to real estate. Just this week I received a contract to buy one of my listings from a couple who are both real estate agents, but the offer was written by another agent.  (I suspect he will share his 2.8% co-op commission with the buyers.)

There are also many buyers and sellers who aren’t agents but who are sufficiently experienced at buying and selling real estate to be considered “sophisticated” buyers or sellers. These persons may understandably think that they don’t need professional representation, saving themselves (if they’re selling) 3% or so on a listing commission. If they are buying without representation, they may think they can negotiate a lower purchase price by sparing the seller the 2.8% co-op commission typically paid to a buyer’s agent.

Let me debunk some misconceptions about each scenario separately — first for buyers.

Buyers typically pay nothing for professional representation, since buyers’ agents are universally compensated by the listing agent at a rate spelled out in the multi-list service (or “MLS”) to which all agents belong. Our Denver metro MLS is called REcolorado. Its website is www.REcolorado.com, which has both a consumer-facing and agent-facing side.

If you’re a buyer, you can go to that website and see all the listings which are currently available for purchase, and you can click on a link to email or call the agent for each listing. After that listing agent has determined that you don’t have an agency agreement with another agent, he or she will be delighted to help you buy his (or her) listing because he won’t have to give away half his commission to another agent. And he’ll probably ask you to hire him as a buyer’s agent if his own listing is not what you choose to buy, in which case he could earn 2.8% on that purchase.

If you, as a buyer, work with the listing agent, he or she will not, by law, be working in your best interest. At best, he’ll be a transaction broker, advising neither you nor his seller in the transaction. He won’t be able to advise you on the true value of the home or what you should offer, or how to respond to a counterproposal from the seller. He also won’t be able to advise you on inspection or other issues that arise during the transaction.  You’re on your own — literally helpless.

Moreover, the chances are that you’re not saving the seller any money by being unrepresented, since the listing agent gets to keep the entire commission when he doesn’t have to share it with a buyer’s agent.  My own research has shown that only 15% of listing agreements have a provision in which the commission is reduced if the agent doesn’t have to share his commission with a buyer’s agent. I know this to be true, because the MLS requires listing agents to disclose the existence of a “variable commission” in their listings. That’s one of the fields that is not displayed on the consumer-facing side of the MLS.

There are additional reasons why a buyer (in my opinion) should hire an agent instead of working directly with a listing agent — except when it’s a Golden Real Estate listing, as I’ll explain below. The most important reason is that a buyer’s agent, in addition to being your advocate in a transaction, has more access to information about listings than you have as a consumer.

For starters, agents have valuation software not available to consumers and can create a spreadsheet of comparable sales, so you’ll know whether a home’s listing price is reasonable. Zillow’s famed “zestimates,” by themselves, are not a dependable indicator of a property’s value.

Second, agents can do searches using any field on the MLS, not just the fields that are available to you as a consumer. Do you require a main-floor master? A second master suite? A fenced yard for your dog? An unfinished (or finished) basement? An agent can set up MLS searches on virtually any criterion that is important to you, and the system will notify you and your agent within 15 minutes of a new listing matching your specific search criteria.

As a buyer working with Golden Real Estate, you’ll enjoy added advantages to having representation, up to totally free moving using our own moving trucks, boxes and packing materials. With our focus on sustainability, one of my favorite closing gifts to buyers is a free energy audit of your new home — a $350 value. And if you have a home to sell, we reduce our commission on selling your current home. These benefits also apply when you’re buying one of our listings without your own agent. Call us for details.

Now let’s look at why sellers need to have professional representation.

Understandably, sellers have a huge incentive not to use an agent — they pay the commission for both agents in a transaction, which they assume (wrongly) is fixed at 6%. That would be a violation of federal antitrust laws. All commissions are negotiable. My personal rate is 5.6%, which I reduce to 4.6% if I don’t have to give 2.8% to a buyer’s agent. And I reduce those figures by another 1% if I earn a commission on the purchase of your replacement home. Because of federal laws against price fixing, I can’t dictate (or even discuss) what our other agents charge.

That’s still a lot of money, so you need to know what you’re getting for it.

At Golden Real Estate, sellers enjoy a free staging consultation, magazine quality still photos and professional quality narrated video tours which are posted on YouTube, the MLS, consumer real estate websites and on the custom website which we create for each listing. (Visit www.GRElistings.com to see the custom websites for our current active listings.)

We also provide free use of our moving trucks and moving boxes both to our sellers and to whoever buys our listings, even if their agent is with another brokerage. And, of course, all listings are featured in this column, which appears in eight editions of newspapers throughout both Denver and Jefferson counties.

We also have a proven track record of getting the highest possible prices for our sellers because of our skill at negotiating with buyers and their agents. Most agents will not reveal the offers they have in hand when they get multiple offers. We treat that situation like an auction, where everyone knows the highest current offer, and we regularly bid up the purchase price for our sellers — and the buyers and their agents appreciate not losing out in a blind bidding situation.

In Defense of Journalists — They’re Working for You!

I’ve written about the rules of journalism before. (See my Feb. 2, 2017, column at JimSmithColumns.com.) Being a journalist myself, educated in the importance of keeping personal opinion out of news articles, as distinct from columns or editorials, it continues to bother me that the general public doesn’t recognize these distinctions.  Because of that, it’s too easy to dismiss factual news articles as “fake” based on a publication’s editorial position.

Yes, the Washington Post and New York Times express liberal positions in their editorials and many op-ed columns, but the news writers are solid professionals who report just the facts, uncolored by their own or their editorial board’s positions on a given topic. 

While tradition may dictate that each newspaper have opinion pages vs. news pages, it doesn’t have to be that way. I think that newspapers might do themselves, their readers and society a favor by deleting editorial and op-ed pages and publishing only signed letters to the editor.