Q: In Southern California, it is the buyer and not the seller that orders the home inspection report. However, your texts indicate the seller should be responsible for ordering it. Why the discrepancy?
While we are aware that agents and brokers are trained to wait for the home inspection report to come from the buyer, it is our belief (and our writings reflect this) that rather than waiting for a buyer to order the report, the seller is best served by ordering a home inspection report and having full knowledge of the condition of his property prior to soliciting prospective buyers. With the aid of the home inspection report, the seller and his agent are made aware of any deficiencies in the property and can fully discuss them with prospective buyers, instead of waiting for a buyer to discover any fault and possibly pull out of a deal. When all parties are fully informed of the true condition of the property from the start, there is less chance of a costly misrepresentation claim down the line.
Q: Your information on investments and taxes advises agents and brokers to dispense preliminary tax advice to their clients. Is doing so a good idea as a real estate agent? Wouldn’t it be better left to a tax professional?
Nowhere do we state that an agent’s advice should take the place of a qualified tax professional, nor that agents should step outside of their level of expertise to give bad advice to clients. Rather, we are suggesting that real estate agents who do have knowledge of the tax repercussions of the business they practice guide their clients to help their clients make decisions about the real estate transactions their clients are considering.
We are careful to state that the advice given to a client by a real estate agent should be given as an opinion to be used to direct the client to alternatives they may not have otherwise considered. We specifically note that this gives the client more time to consult with qualified professionals regarding the alternatives an agent may propose to the client.
There are many real estate professionals who have specific experience in tax-sensitive transactions (such as §1031 exchanges), and base their practices solely on those types of transactions. There are actually real estate trade unions, such as the National Council of Exchangors (http://www.infoville.com/index2.htm), that specialize in these tax deals and whose members have extensive knowledge of tax-sensitive transactions and who would certainly be able to give informed opinions to help their clients.
Additionally, it would be remiss of an agent to fail to mention any negative tax aspects he or she may be aware of, lest the omission prove detrimental to the client and thus be an agent’s failure of his or her agency duty.
Q: Why does first tuesday refer to the §1031 exchange as “tax exempt”, instead of “tax deferred”?
The Internal Revenue Section 1031 states (in part) that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment”. Since there are no gains or losses recognized, there are no ensuing taxes, either to be paid or deferred.
Nowhere in the code section (http://www4.law.cornell.edu/uscode/26/1031.html) is there any text which indicates it would be only known as a “deferred’ exchange (nor does the word “defer” appear). The code section does not explicitly use the words “exempt” or “avoid” as we have, however these words do give a description of the basic result of the transaction.
Our legal editor believes the “tax deferred” moniker came about during the 1950s when previous iterations of the code may have caused trade unions such as the National Association of Realtors to use that terminology. However, as that term does not have a basis in existing law, we have chosen to go for more accurately descriptive wording in our writings.