Businesses and individuals often want to buy or sell something over time. There are four items to consider when entering into a sale or purchase “over time.” First, if the sale includes a house or land with a house, it may be referred to as a “land contract,” which requires numerous legal requirements. Second, if the subject of the purchase is real estate that isn’t a house, the buyer and seller can agree to almost any terms they want. Third, if the subject of the purchase isn’t real estate, and it’s personal property, the buyer and seller can be flexible in terms as long as the personal property isn’t a retail item. Finally, every installment sale should be reviewed by the buyer and seller’s tax advisers.
A deed is the document that shows when property actually changed ownership. Once a deed is signed by the seller, it will be recorded at the courthouse.
Almost every deed includes a sentence similar to “For one dollar and other good and valuable consideration” regardless of the actual cost of the real estate.
Years ago, buying a home was pretty straightforward. A buyer would pay a 20% down payment and pay off the remaining 80% over time. But as the demand for homeownership grew, more people without the 20% down payment wanted to purchase homes. Private mortgage insurance began to be used in the homebuying process.
In the years right before the housing crisis, people made assumptions that home prices would continually and aggressively increase every year. Lenders saw this as an opportunity to help more people who hadn’t saved the 20% down payment.
When you purchase a house or building lot that’s not connected to a public septic/sanitary sewer system, you must own additional acreage beyond the building footprint so that sewage can be treated onsite. So when someone purchases a new home, they may find themselves with additional acres of farmland or woods.
The tax paid on the sale of investment property is called capital gains tax. Capital gains tax is calculated against the amount earned by property that increased in value by its nature and not by the virtue of the owner’s income, rental income or interest earnings. Capital gains tax rates are typically lower than income tax rates. Capital gains tax will usually become a consideration when someone sells stocks, bonds or real estate. Calculating capital gains tax liability can range from very simple to much more complex for some real estate.
Rushing through the paperwork for business and legal transactions can create pitfalls down the road. While mistakes can happen whenever someone is not diligent and deliberate, certain situations foster the urgency to complete paperwork as quickly as possible.
Selling a house comes with a set of steps to be followed by the sellers and buyers. On the seller side, certain forms must be completed as mandated by the state that pertain to defects in the property. Buyers must submit their own reports, as a formal “offer.” Other formal steps must be followed, and certain conditions may create more steps depending on government law.
When building a new home, water and sewer services are pretty important pieces to have in place early. If the land you choose to build your home on is adjacent to public water and public sanitary sewer lines, some of the initial hurdles are already out of the way. If the land is not near water and sewer service lines, a water source needs to be found, such as a well or a pond. The biggest hurdle, however, is sanitary service. There are strict regulations surrounding sanitary sewer systems, and it’s up to local health departments to fill in the regulations’ gaps.
If you’ve bought or sold a home, you know that there’s a giant amount of paperwork involved in the transaction. In the years before the 2008-2010 mortgage crisis, many lenders were duped with fake identifies of buyers or fabricated financial statements. As a result, the amount of paperwork involved with buying and selling a home skyrocketed after the mortgage crisis.
Since the mortgage crisis, most home loan closings involve several identity checks, multiple confirmations of financial status and many other checks and balances to ensure that the deal is legitimate.
Often when people make a purchase, over time it appreciates in value. When that item is sold, the government taxes on the increase in the value of the property. The tax that is assessed is called capital gains tax. Sometimes capital gains taxes discourage people from selling property as they don’t want to pay the capital gains tax. As a result of this, the government has a process that will sometimes allow for for capital gains taxes to be delayed.