Sold, Aliso Viejo Home

We are pleased to announce the successful sale of this Aliso Viejo home. Here's the story about the sale in our clients own words:

Esquire Real Estate just represented us in in purchasing our first home in Aliso Viejo, and we couldn't have had a better experience! We had no idea what we were doing as first time home buyers, but Bryan was so diligent to go over every detail with us and he was very quick to respond to our questions/concerns. Knowing he had a background in real estate law helped us feel at ease during the whole process. We felt very reassured that he was working in our best interest the entire time. We love the Zuetels and will absolutely be recommending Esquire Real Estate to everyone we know!

Josh & Heather Senger

Sold, Newport Beach Home

We are pleased to announce the successful sale of this Newport Beach home. Here's the story about the sale in the seller's own words:

Esquire Real Estate and Bryan Zuetel represented me in the purchase of a home in Newport Beach.  His professionalism was a breath of fresh air. He was always on top of each detail of the process. Bryan proved his skills in his extensive negotiations over items discovered during the inspection of the property.  All said and done, I highly recommend Bryan and Esquire Real Estate. 

- Mike T.

Supreme Court Signaling the End of Compromised Real Estate Agents?

Yesterday, the California Supreme Court heard oral argument in the matter of Horiike v. Coldwell Bank Residential Brokerage Company, Case #S218734.  The Court considered the issue of when the buyer and seller in a real estate transaction are represented by different salespersons from the same brokerage and broker, is each salesperson the fiduciary to both the buyer and the seller with the duty to provide undivided loyalty and confidentiality to both?

Before recapping the oral arguments, it is interesting to note how the California Supreme Court has framed the question.  If the Supreme Court decides that each salesperson under the same brokerage and broker is a fiduciary to both the buyer and the seller, there is no conceivable way that two salespersons from the same brokerage and under the same broker could represent the buyer and seller in a transaction because the two salespersons could not provide undivided loyalty and confidentiality to both the seller and the buyer.  So, if the Supreme Court determines that each salesperson in this scenario is a fiduciary to both the buyer and the seller, the Supreme Court will (laudably) upset the accepted status quo of dual agency in the California real estate industry.

Now down to the recap of the oral arguments.  The California Supreme Court was understandably confused by the position of Coldwell Banker suggesting that only the broker, not the salespersons, had a fiduciary duty to both the buyer and the seller.  The Supreme Court repeatedly dismissed the Coldwell Banker attorney’s attempts to present arguments on “how it’s done in the industry” or the common parlance in the industry.  Instead, the Court focused on the specific language of Civil Code section 2079.13(b), which reads, “When an associate licensee owes a duty to any principal, or to any buyer or seller who is not a principal, in a real property transaction, that duty is equivalent to the duty owed to that party by the broker for whom the associate licensee functions.” 

The plain reading of the statute, and the reading that the California Supreme Court has signaled it will adopt, is this: if the broker owes fiduciary duties to both the buyer and the seller (because the brokerage or broker represents both the buyer and the seller), the salesperson (the associate licensee) owes the same fiduciary duties to both the buyer and the seller.  As stated above, these fiduciary duties include undivided loyalty and confidentiality.  And we all know that no one broker and brokerage can adequately provide loyalty and confidentiality to both the buyer (looking for the lowest sales price) and the seller (looking for the highest sales price).  For more information on dual agency, please check out my past blog posting detailing the reasons to Just Say No: http://www.esquire-re.com/blog/2016/4/1/protect-yourself-just-say-no.

If the Supreme Court indeed rules that the dual agent brokerage and salespersons owe fiduciary duties to both sides and knowing that the brokerage cannot adequately represent both sides, expect a push from the real estate industry for legislation revising this statute and protecting the industry’s misguided concept of dual agency.

For once, delaying may be your best option

Although two things in life are certain – death and taxes – there are important ways to avoid or defer the latter.  As property values continue to appreciate, owners may find that their current home has significantly appreciated while they have outgrown the need for their larger home.  Such owners may be able to avoid or defer significant capital gains taxes by utilizing both a Section 121 exclusion and a Section 1031 deferred exchange.

In a Section 121 exclusion, generally, a taxpayer may exclude $250,000 gain ($500,000 if married filing jointly) when calculating your capital gain upon sale if you lived in the home as your main home for at least 2 of the last 5 years before the date of sale.  In a 1031 exchange, generally, a taxpayer may exchange an investment property for like-kind investment property and defer the payment of taxes.  IRS Bulletin 2005-7, https://www.irs.gov/irb/2005-07_IRB/ar10.html, allows a taxpayer to combine both tax avoidance and deferral methods.

Let’s look at an example: The taxpayer and taxpayer’s spouse purchased a home in 1990 for $100,000 and lived in the home continuously until 2014, when they sold it for $1,100,000.  The couple would have a total gain of $1,000,000 and a taxable gain (assuming they qualify for a Section 121 exclusion) of $500,000.  Thus, they would be responsible for capital gains tax on $500,000.  There are other elements to calculate and raise basis and thus lower taxable gain not considered here.

Now, let’s look at an example where the taxpayers can avoid and defer all taxes: The taxpayer and taxpayer’s spouse purchased a home in 1990 for $100,000 and lived in the home continuously until 2014, at which time they moved out of the home and rented it to a disinterested party at fair market rent.  They rented the property until 2016 when they sold the property for $1,100,000.  The couple would have a total gain of $1,000,000 and a taxable gain (assuming they qualify for a Section 121 exclusion) of $500,000.  If the couple successfully completed a Section 1031 deferred exchange by purchasing a replacement investment property, the couple would avoid payment of capital gains taxes on the $500,000 in gain.

The sweet spot for the combination Section 121 exclusion and Section 1031 deferred exchange is between the second and third year of moving out of the home.  Any more than three years will eliminate the opportunity for a Section 121 exclusion.  Any less than two years will potentially disqualify the Section 1031 deferred exchange.

The above scenario is complicated and representative only.  Please consult your legal counsel and tax advisor for the careful planning necessary to utilize these tax strategies.

Esquire Real Estate provides both a real estate attorney and real estate broker for all of your property needs and can advise you on the necessary steps to accomplish this combination Section 121 exclusion and Section 1031 deferred exchange.

In Escrow, Irvine

Esquire Real Estate is pleased to announce that after only 8 days on the market and after receiving multiple offers, we have entered escrow on this fantastic Irvine home. If you have any further questions about this or another property, please contact us and we can assist you.