This section provides helpful information on
How to Hire a Realtor,
1031 Exchanges,
and how the Tax Reform Act
can have a positive impact on your financial future!


The following information on
How to Hire a Realtor
is a reprint of a recently published article written by Ed and Terri Smith.

With So Many Realtors to Choose From...
Many articles have been published over the years on the subject of “how to hire a Realtor” and “what questions to ask first”. The following 10 questions seem to be those most frequently suggested by the many experts/authors on the subject.

1. Do you have any advanced licenses or professional designations?
While these alone do not guarantee results, industry statistics show that agents with advanced licenses and professional designations usually do more sales. Such investments in time and money normally indicate a strong commitment to their profession.

2. How many years have you been selling real estate (in this market)?
Experience is certainly one of the world's best teachers, and good experience should be one of the most important considerations in selecting the right agent. (Surveys) tell us that roughly 70% of all new real estate licensees have "dropped out of the business" within 2 years.

3. Are you a full-time agent?
Someone who relies on real estate to earn a living will probably be more highly motivated to get your property sold! Remember that real estate is a profession that allows agents to remain active and licensed, whether they work a little or perhaps even not at all.

4. How much real estate have you sold over the past year?
Knowing how much of the agent's business was generated in your particular area and how many of the agent's sales were involving properties similar to yours can be extremely helpful.

5. Do you have a written marketing plan?
A formal, written, well organized marketing plan will not only help you make direct comparisons, it will tell you what to expect from your agent.

6. Do you have a list of references?
References should be available and don't be afraid to call them. Ask how promptly the agent returned their phone calls and whether or not the agent stayed in touch. Did the agent live up to their promises?

7. How much will you charge for your services?
Very important! Rates and fees many vary significantly between different agents and companies. While cheaper is rarely better, make sure you compare apples to apples. (If price were the only issue, we'd all be driving Yugos!) And remember, if the agent can't negotiate a decent paycheck for themselves, how are they going to negotiate a decent sales price for you?

8. How much can you sell my property for?
NEVER, never hire an agent just because they quoted the highest estimate of value for your property! An overpriced property often ends up actually selling for less than market value. So, in addition to making less money, you will probably be spending a much longer than average period of time to accomplish it. When in doubt, pay for an appraisal before listing.

9. Are you computerized?
Just as in nearly every other type of business on the planet, technology has dramatically impacted real estate sales. From advertising on the Net to desktop publishing and mass marketing, technology has opened many new avenues and opportunities for agents. Your agent should be fully automated.

10. Are you a member of a national referral network?
Franchise and independent real estate firms alike may be members of referral networks. These "member firms" as well as many corporate clients will often refer relocation and transferee business through these networks. These networks are also utilized to refer second home buyers, investors, and sellers across town, or across the world!


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At any rate, no list of qualifications or set of questions will guarantee you a perfect experience. However, when combined with a pinch of intuition and a dash of old fashioned common sense, you should be well on your way to a successful real estate transaction!

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~ Why 1031 Exchanges? ~

Tax deferred exchanges have actually been around for many years. Throughout our nation's history, farmers have traded land for land, tractor for tractor, livestock for livestock, etc. There was no tax consequence on these types of transactions until 1918, when the first federal income tax was imposed.

The process for conducting 1031 exchanges today is actually the result of a 1979 court case involving a man named Starker. Starker won his case (for the most part) against the government, establishing the case law that has provided the foundation for modern-day exchanges. That is why many refer to a 1031 as a "Starker Exchange".

Although the Starker Decision validated the tax payer's right to conduct tax deferred exchanges, 1031's did not really gain widespread popularity until the "Final Treasury Regulations" were issued in 1991. Since that time, 1031's have become increasingly popular. So popular in fact, that 1031s are fast becoming the rule rather than the exception in real estate transactions!

Most buyers and sellers today can benefit from 1031 exchanges. To follow is our personal "1031 Top 10 List", the ten most important things to know about 1031 exchanges:

1. A 1031 exchange does not allow you to sell real property "tax free". There are tax ramifications on most sales, although the 1031 process does allow you to sell "tax deferred".

2. The sale of your "relinquished property" does not have to occur at the same time that you purchase a "replacement property". It can, but this would actually be a "simultaneous exchange" which has become somewhat less popular since the Starker Case.

3. Within 45 days of the sale of your relinquished property, you must positively identify up to 3 potential replacement properties. Or, you may identify an unlimited number of potential replacements, so long as the aggregate fair market value does not exceed 200% of the value of all relinquished properties.

4. You must acquire (close on) the replacement property by the end of the 180th day from the transfer date of your relinquished property. That is why we often recommend against pre-construction product for replacement properties.

5. Actual or constructive receipt of proceeds (if you touch the money) from the sale of your relinquished property, prior to acquisition of your replacement property, will disqualify the exchange.

6. The use of a qualified intermediary is required. The intermediary holds the money, accepts the property on your behalf, then transfers the acquired property to you. Many local attorneys and title companies offer this service. Someone who has represented you (attorney, Realtor, employee, etc.) within the past 2 years prior to the transaction may not act as your intermediary.

7. If your relinquished property is a condo, you don't necessarily have to acquire another condo to qualify the exchange. Just about any properties held for investment are considered "like kind".

8. The ability to sell a property (paying no capital gains tax), investing the proceeds into a new property, all the while deducting the expenses of maintaining the property on your tax return is a FANTASTIC way to build wealth!

9. Exchanges involving family members have special restrictions. You may have to hold a property for at least two years after acquisition.

10. Feel free to contact Ed and Terri for additional information. Consult your CPA, attorney, or tax consultant to see how 1031 exchanges may benefit your particular situation!


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Tax Reform Act of 1997

The tax legislation enacted last year has had an extremely positive impact in both the national and local real estate markets. Most would agree that this is the best we've had it since '85 (prior to the Tax Reform Act of 1986).

Forget about having to roll the gain from the sale of your home into a new one within 24 months! The new rules abolish the 1034 roll-over provisions. Now, if filing jointly, you can exclude up to $500,000 in capital gain on the sale of your primary residence. This is a very far cry from the old 'one-time exclusion' you could take if over 55 which only excluded $125,000 in capital gain from taxation.

You can take this exclusion at any age now, although some of the qualifications may sound a little bit familiar. As an example, you must have lived in the home for two of the last five years prior to the sale. Not necessarily on the date of the sale and the two years does not even have to be consecutive. The requirement is that you used the property as your principal residence for 'periods aggregating at least two years of the five year period ending on the date of the sale'. If filing jointly, both you and your spouse must satisfy this test. If only one party qualifies, you may be limited to only one half of the joint exclusion, or $250,000.

Additionally, the law reads that you do not qualify if you have "sold a principal residence during the last 24 months that qualified for this exclusion". So, other qualifications withstanding, you can now sell your primary residence after every 24th month (for what would equate to most of us as) tax free! So when you consider the fact that Uncle Sam is already effectively helping the homeowner make mortgage payments by allowing the deduction of mortgage interest, you can see how this new provision in the tax law will simply make this opportunity irresistible to homeowners.

Even if the sale of your primary residence exceeds the new exclusion limits and you have to take a capital gains hit, other tax legislation passed last year means that your tax liability will probably be much lower. Tax Reform 1997 included a reduction in the capital gain rate from 28% to 20%; 10% if you're in the 15% bracket.

Proper tax planning is still critical. Some complications could arise if you have transferred ownership of your home to a revocable living trust, or if you have used your home as rental property. Ask your tax consultant how these provisions may impact your particular situation.

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Ed Smith (ABR, CRB, CRS) and Terri Smith
are licensed real estate brokers with
RE/MAX Coastal Properties in Destin, Florida.

They are members of “Who’s Who Among Top Producers Nationwide”,
the “RE/MAX International Platinum Club”,
and are the founders of RE/MAX along Florida’s Emerald Coast.

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