How do I buy with cash?
Pittsburgh, PA · Member since 2013 · 29 posts · 0 votes
Ok so here is what I need to know..Im buying a property with cash, what do I need to do to get the title transferred to me? I know I need to get a title search done but then what? Do we Need to go to a real estate attorney? Title company? Both? Ive got the cash to buy today so what exactly do I do next?
Thanx in advance:-)
First you need a contract to buy, then turn that over to a title company and they will take care of everything, you also need to see you insurance agent to get coverage on the day of settlement if you want it insured. The money needs to go to your bank and the title company will let you know how much to bring to closing, the sale price plus costs of the transaction. You'll need to bring certified funds from your bank made out to the title company, they will give you the instructions. Show up, provide the funds, close the deal, walk away owning it. Good luck :)
Bitsy Voloskie
What do you think the house is worth? The cheapest house I bought in Pgh was $7,000, so congrats on a great buy.
Lucas S.
I don't know how the IRS would know the value of the property. They would know the purchase price and possibly the depreciated basis, if rented and they would know the sale price when sold, but how would they know the value?
I've bought houses for $100 and for $200, and don't think the IRS ever cared what the value was, only that i was paying taxes on any rent and or gain.
Lucas S.,
Thanks for bringing this to my attention, I never really gave that much thought. I will find out the situation before I make a move on It, and i certainly dont want to make his situation worse! I do have a Tax guy and I'll give him a call in the morning.
Lucas S.
The gift tax is only on the donor, not the donee. However, imho it does not apply to a below market purchase.
Using your logic then at every Sheriff Sale, the Sheriff would owe the IRS a gift tax on every sale below market. and since most of the sales at Sheriff Sale are to the bank at "costs"; $200,000 houses are transferring at $1,600. Boy the sheriffs of the country owe the IRS billions and this could solve the debt crisis.
At every tax sale the tax collector would owe the IRS money.
And at the IRS real estate sales the IRS would owe money to the IRS also.
I am sure they have a system for determining rough value for properties in a given area and then they just flag certain transactions for manual review if they think it is worth investigating. Then they would do what everyone else does for determining property value (do some sort of comp based appraisal, or base a value on the income). If properties are really cheap in your area I would imagine they would not prioritize that for review as the potential return to them would be very small if any. Their IRS website says you are suppose to get an independent appraisal done on your own to establish value. I didn't find where it said how they would do it if you didn't.
Man I totally live in the wrong area though! People buying houses for $100-$7000??? I bought a forclosure at the bottom of the market for $230,000 +$20000 in repairs, and that was a great deal for Fairfax County VA (had gone for $400000 previously). Well i guess it is in my plan to stay a bit longer for the good jobs and then move somewhere else where I can invest more easily.
Lucas S.
So this property in Fairfax County, who paid the IRS gift tax since you bought a $400,000 for $200,000?
I have a 3 br house about 1400 sq ft with gas heat a deck and a 2 car garage, for you $29,900. ( and its only about 100 miles from Fairfax.) (I know somebody who commutes that 100 miles to DC every day)
David. Did you bother reading my post? If something is for sale on the open market and you are able to purchase it for a given amount - that is the market value.
The IRS defines it this way:
"What is "Fair Market Value?"
Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Regulation §20.2031-1.
"
So if it is being sold in the normal market for whatever the item is, then you are free to purchase it for as little as possible. If it never goes to market (ie you buy it directly from a friend), then you are not covered by this.
@Bitsy Voloskie
I don't mean to scare you off the deal at all, just trying to bring something to your attention that should probably be investigated. Sounds like you have a good plan in talking with your Tax Advisor! Best wishes and let me know what they say if you get a chance.
Lucas S., Im not scared off the deal I just dont what the seller to have anymore money issues thats all, But be sure that we will do our research on the matter to see what is the best case for us all:) Thanx again for the info and i will be sure to let you know what the tax guy says and how it all unfolds lol!
You can use a title company -- you definitely want to get clean title so make sure you do your due diligence. If someone is willing to quickly sell for cash, you might get surprises otherwise (liens that you were unaware of). A title search will help you find these things.
Bitsy Voloskie - since you are in PA, I am assuming the property is also in PA for the remainder of this post; things might be different for another state. I must also add that the Pennsylvania Association of Realtors (PAR) forms now seem to be password protected, so you might have to see if you can get the forms through a realtor.
First, in PA the seller has to provide a "Seller's Disclosure" - there are some specific items that must be addressed in this by state law. The Pennsylvania Association of Realtors has a "Seller's Disclosure" document that can be used but it covers some additional items that the PA law does not require. Here is a link with more info on this:
http://www.biggerpockets.com/forums/93/topics/76200-do-you-have-the-seller-fill-out-a-seller-disclosure-form
There may also be a need for a HUD/EPA lead-based paint disclosure.
Next, you get a contract signed by seller and buyer. The Pennsylvania Association of Realtors has a contract that is commonly used in PA. Google search for "Pennsylvania agreement sale residential" and you'll find some online sources for that form that aren't locked ...
Once that is signed, you get the paperwork to a title company in PA. The title company will handle the title search, the title insurance, the tax certifications (make sure property taxes are paid), the utility certifications (any lienable utilities should be paid up), deed prep, preparing the HUD1 closing estimate and actual closing doc (could be different from estimate), the closing, collecting transfer taxes, deed recording, etc.
Next would come your inspections, as Dev Horn suggested. These come before closing, during your inspection period, so that you can exit from the agreement on your inspection contingency if anything is not to your liking.
The transfer taxes vary throughout the state of PA, so hard to specify the amount you will be paying. For such a low transaction amount, the PA Dept of Revenue may decide to audit the transaction in order to try to collect more in transfer taxes. I have seen this last year. They expect to collect transfer taxes close to what would be collected on the FMV of the property, and if much lower they might look into it. So you should be keeping copies of all pertinent documents.
Lastly, I would be concerned by unpermitted work. It sounds like this property is in that condition right now, where some work has been performed but is incomplete; if any permits were pulled, they would very likely still be open since work is not finished.
Thanks Steve Babiak, Im gonna do all the necessary steps to get everything in order:-) I appreciate everyone's input here, its been a huge help!