Dear Michael: We are a California limited liability company (LLC). We would like to know if we could purchase a residential property under the name of the company. We plan to use it as our primary residence and also conduct our business from there. Please tell us the risk of making this purchase under an LLC?
Answer: First, if your business is sued and loses in litigation, the assets of your business will be at risk and you could end up loosing your home. If the home is your primary residence, you may also lose by placing the home in a limited liability company (LLC). Under current tax law, if an individual owns a property, that individual can sell the property and exclude up to $250,000 from federal income taxes if that individual used the property as his primary residence for two out of the last five years ($500,000 can be excluded from gain for married couples). If the LLC owns the property, the LLC is usually not considered a person for purposes of the primary residence exclusion. If you run your business out of this home, you may run afoul of zoning laws in your municipality. In some cities, you may not use more than 10 percent or 15 percent of a home for a home office if the property is located in a residential neighborhood. If you're planning to own the home and obtain loans on the home, you may find it difficult to get a lender to give you a loan on the basis that the home is a primary residence. Because the home is owned by the LLC, most lenders may treat the home as an investment property and you may end up having to pay greater costs to close the loan on the property and probably have to pay a higher interest rate on the loan. Speak to an estate planner or a tax adviser to help you solve some of your issues. You'll probably find that the home should be owned separately from the business but that you and your wife can lease a part of the home to the LLC. The rent would be income to you on the personal side, but you would be able to deduct some of the home expenses as business expenses due to the rental of that portion of the home to the LLC business. Please consult your accountant for more details.
Dear Michael: An appraiser appraised my home for less than the accepted price; this is causing a problem with the sale. How I can get value at the accepted price rather than the appraised value?
Answer: The appraised value is not necessarily the same thing as the market value which a buyer may be willing to pay for a home. The appraised value of a home is what appraisers conclude the home is worth based on sales of comparable homes in the area, and these figures are facts. The market value is how much someone will actually pay for your house, and can be based on some facts and emotions. The right buyer may decide to pay more for your home just because they feel it’s the right home for them. In order for you to move forward with your current buyer you can request an appraisal review. The buyer’s lender will send a new appraiser for a 2nd opinion. If the results stay the same, then you have little choice, you can reduce your sales price to the appraised value, negotiate a new purchase price or cancel the purchase. If cancelling is the outcome, I suggest you re-list your home with the hope that the next appraiser meets the purchase price. Unfortunately there is no guarantee.
Dear Michael: We just purchased a home three weeks ago. Before we purchased the home, the seller disclosed that the roof leaked. We then decided not to buy it. A few days later, the seller disclosure form was amended and then it stated that the roof did not leak. The seller and Realtor said the original disclosure form was an error. We were in the home for just two weeks before the first rain. Now, we found that the roof leaked. What options do we have?
Answer: Hmm…something just doesn’t seem right! If you have proof that the seller knew that the roof leaked and not only did not disclose it but also lied to consummate the sale, then you may have ground to sue the seller for fraud. One question comes to mind: Did you (or a professional home inspector) inspect the roof before you bought the home? If you did not, you should have. Once the seller disclosed to you that there was a roof problem, you should have made sure before you removed your contingencies that he wasn’t hiding the leak. If you did in fact inspect the roof and found no leak, it may be that the roof problem you now have is a new problem. It would be wise to discuss the leak with your roofing contractor and find out what the issue is. He may be able to assess how long he thinks the problem has existed. Finally, take a look around the ceiling below the roof to see if you can tell whether there was prior damage that was painted over by the seller. If a seller knows of a problem and covers it up, the seller could get himself into big trouble. Seller disclosure laws are very straight forward. Please consult a real estate attorney for further evaluation.
Michael Kayem is a Realtor with Re/max /Execs serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or e-mail them to him at: firstname.lastname@example.org