By Terri Breer
This is the second part of a Three-Part Article on best practices for mediating the disposition of the Family Residence. Last week’s blog focused on the important considerations and questions that need to be addressed when the parties are deciding whether to sell or stay in the family home. This article will assume that the parties have agreed to list the Family Residence for sale.
Mediators and other divorce professionals should rely on a step-by-step process that they routinely implement to ensure that their clients consider all the practical and financial issues involved in selling the Family Residence. In most cases, the parties will have a myriad of concerns and fears that include not just financial concerns, but also fears related to moving from a family home and familiar neighborhood where the family has significant memories that they have collected over many years. When a move is necessitated by the financial realities that have been created by the divorce process, listing the Family Residence for sale may also become an emotionally challenging time for both parties. The practices described in this article will assist the parties in providing the best chance for a conflict free sales process and will reduce the fears and concerns of the parties regarding the sale of the Family Residence.
When discussing, strategizing, and negotiating the sale of the Family Residence the process should include the following steps.
Step 1: Gathering Information
The parties must be sure that they gather all the real estate and financial information necessary to make an informed decision regarding the sale of this asset that is often the most significant part of their marital estate. The information that the parties gather, and the answers to the questions raised when listing a home for sale will reveal whether the parties have any conflicts regarding the sale process, as well as provide important information regarding such matters as the amount of proceeds they can anticipate receiving, the tax advantages and/or disadvantages applicable to the sale, or if there will be significant repairs and costs of listing and selling the property that will significantly impact their anticipated share of the net sale proceeds.
The parties can gather important information from their real estate agent. Additionally, they might consider bringing in financial or a tax expert to determine such things as the amount of capital gain, if any that must be recognized on the sale.
The parties will want to retain a real estate agent as soon as possible so that the realtor can assist the parties in gathering the necessary information. The agent will also help the parties determine such basic matters as when the property will be listed for sale, and at what price it will be listed.
Realtors will usually provide valuable information as they prepare to obtain the listing. The parties should interview several agents before they select the listing agent. Most real estate agent's services will include the following in their listing presentation:
Establish a likely sales price; a broker price opinion (BPO), using sales comps (low to high);
Create a Seller’s Estimated Net Sheet that will include the estimated pay off of mortgage & other liens and will itemize the costs of sale including:
- Repairs prior to marketing
- Escrow Fees
- Title Fees
- Home Inspection *
- Appraisal Fee *
- Buyers Home Warranty
- HOA Transfer Fee
- Termite Inspection & Repair paid by buyer or seller;
The realtor will also be able to provide an estimate of how long the property will likely be listed before a sale based on current market trends.
Step 2: Obtain Answers to Questions Related to the Sale of the Property
The parties will want to discuss how they will share the tasks related to preparing the property for sale, responsibilities related to showing the property and how they will communicate during the sales process when offers are presented and once an offer is accepted and the property is in escrow. The parties will be able to move through the sales process with less conflict if they have a clear understanding on how they will share the tasks related to the listing and sale of the property.
As in the case where one party decides to stay in the residence and buys out the other party, it is recommended that the mediator encourage the couple to obtain the answers to important questions before the couple moves forward with the sale process.
How will the proceeds be divided between the parties?
• Will any community debts be paid off the top of the sale proceeds?
• Are there any separate property reimbursement issues that will reduce the
community share of the sale proceeds?
• Who will live in the home pending its sale?
• Who will pay mortgage, real property taxes, insurance pending the sale?
• Will the party who continues to reside in the property receive any reimbursements for these payments, and/or will they be charged for the fair rental value of the property that exceeds the amount of the property expenses that the party pays pending the sale?
• Who will be entitled to claim what portion of the deductions for payment of mortgage interest and real property taxes? This necessitates determining whether they will they file joint return or will they be single and filing separate returns related to the tax year when the sale closes?
• How will the parties pay for repairs, improvements and/or staging the home for sale? Will these expenses be shared? Will some or all the payments be subject to reimbursement?
• Have the parties obtained a title report, and does it reveal any additional issues that will impact the sale of the property? Are there liens revealed by the Title Report that the parties as the seller will be required to remove before the close of escrow?
• How will the parties handle disputes during listing period? The parties may want to consider provisions for resolving conflicts. For example, if they can’t agree on listing price, or if they have disagreement on whether to stage the property or make certain improvements to the property before it is listed, they might agree to defer these decisions to the real estate agents discretion.
Step 3: Determine the Specific Financial & Tax Issues Applicable to Sale
Sometimes merely identifying the estimated net sale proceeds as described in Step 1 above will not be sufficient for the parties to determine the overall financial impact of the sale. The parties may need to engage a CPA, tax, or estate planning professional to provide the answers to the following:
• Will the parties have a capital gain that will exceed the $500,000 exemption provided by the tax code? If so, do they qualify for the exemption when they sell the home? Is there a specific strategy that they might employ to ensure that the exemption is preserved? Are there any other tax benefits or burdens that might apply to the sale?
• Are there any real property tax provisions that will provide future tax benefits, such as retaining a favorable assessed value as provided for by California Propositions 90 or 60 available for those parties who are selling their family residence after age 55?
• Are there any unique facts or circumstances related to this property that the expert identifies that will require further analysis and consideration? Including estate planning considerations or rights of other parties who may have ownership interest in the Family Residence?
Step 4: Ask Questions Regarding the Parties’ Plans Following the Sale
• Where will the parties be moving following the Close of Escrow? Have they identified a new residence or at least identified realistic options for their new home following the sale?
• Can they qualify for a lease? (extremely important in case the low earner is unable to qualify for lease and will need co-signer). Can they reinvest immediately in a new home? Have the parties gathered sufficient information to realistically determine their ability to secure their future lease or replacement home purchase?
• Will they need storage for their belongings? Can they afford storage, or should they sell some of their household furniture and personal items?
• Is the party suffering anxiety and emotional distress regarding leaving their familiar neighborhood? Will they need counseling to manage their emotions following the sale and their relocation?
• If they have children will their new residences be close enough for the parties to keep the same parenting schedule? Will the proposed new residence create problems related to transportation to facilitate an existing parenting plan?
• Have they identified the schools where their children will be attending when they move, or will they be able to stay in their current school district based on the new residences of the parents? Will they be able to stay in contact with the friends in the old neighborhood?
When the mediator and the parties engage in the 4-Step Process described in this article the parties can avoid any unwelcome surprises as they transition through the sale process. By following a routine process and asking all relevant questions the mediator can ensure that the parties engage in a thoughtful decision-making process that will result in the best opportunity for success following the sale of their home.
Next week’s article will discuss tips for negotiating and drafting the parties’ agreement whether they will be keeping or selling the Family Residence.
For more information contact Terri Breer, Attorney Mediator, Breer Law Offices 949.788.2992 or email@example.com