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posted: 8/3/2012 5:15 AM

Yard sales raise key insurance issues

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Garage sales generate an estimated $1 billion in revenue each year, but it could turn out to be a costly proposition if a bargain hunter gets hurt while visiting the property.

Q. We are planning to have a garage sale soon, but my wife is a little worried that we'll get sued if a shopper trips and falls on our property. If that happened, would our homeowners insurance protect us?

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A. It should, but it's important to check with your insurance agent to make sure.

You have asked a timely question, because summer is the peak season for rummage sales, and Aug. 11 is National Garage Sale Day.

Most homeowners and renters insurance policies provide between $100,000 and $300,000 in protection if someone gets hurt on the policyholder's property. They also typically provide between $1,000 and $5,000 in "no fault" medical coverage, which allows a visitor who gets injured to submit his or her medical bills directly to the insurer for reimbursement rather than suing in court.

Your policy should protect you on your yard-sale day, provided it's a one-time-only event. But you might have to arrange additional coverage if, say, you plan on holding the sale over a series of weekends or if neighboring homeowners will be having their own sales in conjunction with yours. Again, check with your agent for details.

Plan your yard or garage sale with safety in mind, urges Jeanne M. Salvadore, a spokeswoman for the nonprofit Insurance Information Institute (www.iii.org) in New York. That includes repairing loose railings and cracked concrete that may cause injuries, placing sale items so that there is enough space for visitors to move about without tripping, and avoiding the placement of the stuff near stairs and ledges.

Keep sharp objects, such as knives and gardening tools, out of the reach of children. Don't sell items that you know are unsafe or hazardous, Salvadore adds, and make sure that your pets are kept safely indoors until the sale is over.

Also remember to call your local police department or city attorney to see if you will need to have a permit or must meet any other local requirements. Several cities and counties across the nation allow yard sales to be held only on certain days, while others have strict limits on the hours of operation.

Q. Our neighbors put their home up for sale the same week that we did, and both of the houses sat on the market for about two months. But then the neighbors starting advertising that they would pay a $2,000 bonus to any agent who brought out a buyer, and their home sold just three days later. Is this a common marketing tactic? Is it legal?

A. Yes, it's legal. And it also can be a wise marketing strategy, especially in areas where sales are slow or there are several properties vying for the attention of buyers.

Commissions, by law, are always negotiable. The seller typically agrees to pay a sales commission to the agent who lists the home, and the agent later splits the money with the broker who eventually produces a buyer.

Still, there's nothing to prevent you or any other seller from sweetening the pot by offering a bonus above and beyond the agreed-upon sales fee. The bonus usually is offered directly to the buyer's broker, and can be anything from cold cash to an all-expenses-paid vacation.

The idea behind offering such a bonus is to get more agents to tour the home and to give them a little extra incentive to sell it. Offering agents a bonus won't make an overpriced property sell, but it can make a house that's priced accurately sell faster.

Q. Is it true that, if my husband and I form the type of living trust you recommend and then put our home into it, we automatically would forfeit the right to keep some or all of our profit tax-free when we eventually sell?

A. No; creating a trust so your heirs could avoid costly and time-consuming probate proceedings after you die would have little or no impact on your personal tax situation while you are still alive. You and your spouse would still be able to keep up to $500,000 in home-resale profit if you file your taxes jointly, or $250,000 each if you file separately, provided that the home had been your primary residence for at least two of the five years before the sale.

You also would continue to be able to take your usual annual deductions for mortgage-interest charges, property-tax payments and the like.

REAL ESTATE TRIVIA: Developers made an average profit of 6.8 percent on their newly built homes last year, according to a recent survey by the National Association of Home Builders. That was down from 8.9 percent two years earlier and the lowest profit margin reported since the group began tracking such figures in 1995.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

2012, Cowles Syndicate Inc.

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