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posted: 4/19/2014 12:01 AM

Neighbor upset with agent's low-cost deal

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Q. One of my neighbors is quite elderly and he and his wife (who has Alzheimer's disease) moved across the country to live near relatives. He listed his move-in condition house with another neighbor at about $20,000 below market value. An agent in that firm bought it immediately, and she is renting it out.

The listing agent just sent a postcard to all her neighbors bragging that she sold the house in record time (leaving out the sale price.) Is this considered ethical, if not downright illegal?

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A. That homeowner must have been under a lot of pressure -- uprooted at his age, worried about his wife, meeting expenses on a left-behind vacant house. In some situations a seller may be happy to accept less than market value in return for an immediate uncomplicated sale -- a "clean deal." More than just sale price is involved, and we don't know the financing details. The purchase would have been unethical -- and illegal -- if the buyer did not, upfront and in writing, identify herself as a licensed agent.

Many agents routinely send postcards to the neighbors about recent sales, and omitting the sale price may be done to protect the seller's privacy. Unless someone lied along the way, or failed to make the required disclosures, I don't see any violations here.

Q. We have a camp on a lake that we have owned for about 15 years. We are thinking of selling the camp. It's worth probably not more than $120,000. Do we have to pay capital gains tax on the camp? If so, how is that calculated? The worth of both our regular home and the camp combined probably would not exceed $250,000.

A. There's no homeowner's tax break when you sell property that is not your principal residence. You do get one special treatment, though. As you've owned the camp more than a year, your profit, if you have any, will be taxed at lower capital gains rates than your ordinary income.

Calculating your gain involves the original cost, money spent on permanent improvements over the years, adjustments if you ever rented the camp out, and certain costs of buying and selling.

Q. Please write about pros and cons of buying rent-to-own. Is it true that in default they give you only three days to move?

A. Three-day notices are not limited to rent-to-own situations. I don't know what state you're in, but in most locations there are two kinds. One (pay or leave) is given by a landlord as soon as rent is late, and it's the first step toward an eviction. The other kind gives a court-evicted tenant three days' notice to move out.

This does vary from one state to another, and it can be changed in a lease or rent-to-own contract if the parties agree. Every contract is different, depending on the needs of the property owner and the would-be buyer. In general, you move in as a tenant. In addition to the rent every month, you pay something extra that will be credited toward the purchase price when you eventually buy.

You ask about the pros: If you can't qualify for a mortgage loan now, the arrangement gives you a chance to build up your credit and accumulate a down payment or the whole purchase price. The owner hopes eventually to sell the house, and in the meantime gets to have tenants who take care of the property and treat it as their own.

A written contract is essential. It states the purchase price and the buyers' right or obligation to buy -- perhaps after a certain length of time, or after the accumulation of a specific down payment. The buyers might be looking for an institutional loan, or the seller might agree to turn over title at a certain point and hold a mortgage for the rest of the purchase price.

Usually the tenant/buyer pays an upfront deposit, eventually credited to the purchase price. The contract must answer some questions: If the purchase never goes through, will that money be returned or forfeited? Where will it be held, separate from the seller's own money, along with that extra money sent in with the rent each month?

If at some point the buyers are unwilling or financially unable to complete the purchase, may they sell the remaining contract to someone else? Would the owner have the right to approve or disapprove the next buyer?

What if the owner failed to make property-tax payments? Who will carry what kind of insurance? Who will be responsible for which repairs? The contract needs to answer all those questions, and each party should use its own attorney.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.

© 2014, Creators Syndicate Inc.

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