Giving a house to charity

[FIREd]

So I have this house. I would like to dispose of it. It is located in an area where the RE market is very, very slow. Houses sit on average 1-2 years on the market and generally sell after several price reductions. The house itself is in good condition, but it sits on a sloped piece of land and the retention wall behind the house (about 5' tall and 30ft long) is starting to lean dangerously and needs to be replaced before selling. According to my RE agent it's a safety issue and it needs to be addressed before putting the house on the market. I have gotten some estimates to replace the wall and they run high, about 20% of property value (steep driveway, tight access to the back of the house means more manual labor, wall must be designed by an engineer per code because it is more than 4' tall etc...).

In addition, the RE agent estimates that we would have to pay nearly 9% of property value in commissions and closing costs. So, even if we sell at full price, we'd get back only about 70% of what the house is currently appraised for, after months of repair work and maybe another year or two of the house sitting on the market. And that's assuming we don't have to go through price reductions.

We were thinking about making a sizable contribution to our donor-advised fund (DAF) at the end of this year and I am now thinking about donating this property to the fund. First, we get to deduct the full value of the house from our current high income. We are well within the 39.6% marginal tax bracket at the Federal level, and the 11.3% marginal tax bracket in California. So if we donated the property, the immediate income tax savings would be quite significant. I quite like the idea of not going through the traditional sale process with its many frustrations.

Has anyone done anything like it? Any pitfalls?

 

[Ronstar]

I haven't donated a house before, but I have dealt with detention pond/ retaining wall issues. I would recommend that you contact a civil engineer and real estate attorney to discuss the issue. The realtor may or may not be correct in his assumption that it is your responsibility to repair the wall before selling(donating) the property.


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[MooreBonds]

As far as I am aware, whenever you donate 'physical property' (i.e. things like mutual fund shares, stock shares,etc.) to a DAF, the DAF simply sells it immediately and puts it into their general accounts for you to give them 'recommendations' on what sub-investment accounts to put it into. They never hold the same investments that you donated.

Unless you start your own DAF, no DAF that I am aware of would accept a house. They would tell you to sell it first then send them a check after closing.

Also, there might be some issues related to donating property, a la the infamous 'used car donation', where many people used to donate used cars with their own generous estimated value - while the charity would often have to end up selling the same used car for far less. The gov't has since changed that to only permit you to use the car's value that the charity actually sold it for.

In the same way, unless you had a very good appraisal, the gov't new rule might also extend to real property that is donated to charities (i.e. they might make you wait until it sells to use that actual value).

The only way around this might be to donate it to a 501(c)(3) that could use it as a retreat house or some other function. that way, the house's value isn't dependent upon it taking 1-2 years to sell, and to finally sell for something that could be far less than an appraisal would be.

 

[FIREd]

As far as I am aware, whenever you donate 'physical property' (i.e. things like mutual fund shares, stock shares,etc.) to a DAF, the DAF simply sells it immediately and puts it into their general accounts for you to give them 'recommendations' on what sub-investment accounts to put it into. They never hold the same investments that you donated.

Yes. If I understand correctly the information on their website, that's how Fidelity Charitable handles such donations. It's fine by me.

I may give Fidelity a call this week to talk about some of the other issues that you mentioned (e.g. how is the donation valued).

 

[jerome len]

If the home is kept and used by a charity you would be able to use a cerfified market value......but the appraiser would have to note the problem and the estimate of repair. He may require a written estimate. If the house is to be sold, you would be able to deduct the sale price. And, this type of deduction enhances the chance of an audit.....on the home only or your entire return. If I were you, I would look for a charity that will keep and use the home.......and, can afford to do the repair. Good Luck......at my church, a few years ago, a wealthy individual gave a home with the stipulation it would be used by the Pastor and kept for 5 years......that passed the IRS test.

 

[38Chevy454]

What about just sell for cheap in an as-is sale? Sell it for 60-70% of market value (assuming retaining wall fixed would be 100% value). Should sell fast, and being an as-is sale you do nothing for any repairs and buyer assumes responsibility. Just make sure any sale is very clear you have no lingering responsibility once money and keys change hands.

From a pure financial perspective, 60-70% is more than 50.9% (39.6% plus 11.3%) tax savings. Even if you have LTCG that will effect the net proceeds, by selling it as-is you get rid of it with no time and money hassles trying to get the repairs done, just to sell it later for some increased money; which the differential amount may or may not even cover the costs of the repairs.

 

[FIREd]

What about just sell for cheap in an as-is sale? Sell it for 60-70% of market value (assuming retaining wall fixed would be 100% value). Should sell fast, and being an as-is sale you do nothing for any repairs and buyer assumes responsibility. Just make sure any sale is very clear you have no lingering responsibility once money and keys change hands.

My preference was to sell the house "as is", at an attractive price point for a quick sale. The RE agent is pushing back on the idea and said that the house could not go on the market "as is" because the wall poses a safety issue and therefore it is a liability. He would rather have the wall repaired and the house listed at full price. At this point, I don't know whether he is truly concerned or just protecting his commission. I think that I need to follow Ronstar's advice and consult some experts to determine how much of a liability it truly is.

From a pure financial perspective, 60-70% is more than 50.9% (39.6% plus 11.3%) tax savings. Even if you have LTCG that will effect the net proceeds, by selling it as-is you get rid of it with no time and money hassles trying to get the repairs done, just to sell it later for some increased money; which the differential amount may or may not even cover the costs of the repairs.

The donation would definitely net less money (especially because it would trigger the AMT so the tax savings would not be quite as much as 50.9%). But the difference would be going to a good cause and the tax savings would be immediate. The area where the property is located had some bad windstorms earlier this week and the yard is a mess apparently. So now I have to hire people to clean it up. That's a total PITA. The sooner I get rid of this ball and chain, the better. At this point, maximizing the payoff is only secondary.

 

[ChiliPepr]

What about just sell for cheap in an as-is sale? Sell it for 60-70% of market value (assuming retaining wall fixed would be 100% value). Should sell fast, and being an as-is sale you do nothing for any repairs and buyer assumes responsibility. Just make sure any sale is very clear you have no lingering responsibility once money and keys change hands.

+1

It would have to be a cash Sale, so I am guessing it would be closer to a 50% - 60% markdown. The liability issue is only for getting a mortgage.

 

[FUEGO]

Find a new realtor? This is a flipper's wet dream. Buy at a steep discount, fix retaining wall, sell. Heck, I might even be interested. I'd think the wall wouldn't be a complete non-starter if it was disclosed adequately.

As for the retaining wall, if it collapsed, is the house likely to collapse with it? If the wall is already leaning like you say and the house isn't crumbling, that's a good sign. Although once the wall collapses you'll have more erosion that could eventually cause the foundation to shift. If the wall collapses, is it going to hit something (another yard)? Or slide into the creek/ravine/ditch behind the house? Or as I re-read your OP, it sounds like the liability might be it collapsing into your yard?

/retiredCivilEngineer with prior experience of dealing with massive slope failures and settlement issues

 

[38Chevy454]

Time for a new realtor. Just get it sold and out of your worry, and continued time and money for upkeep.

If you want to donate to charity, that is nice and not trying to discourage the idea. Just make sure you have no lingering liability for anything with the property or house. That is why I suggest the as-is sale.

Has to be some contractor or house flipper that would jump on a cheap price and do the work to fix it up.

 

[photoguy]

I'd think the wall wouldn't be a complete non-starter if it was disclosed adequately.

I also struggle to see how the retaining wall could be a liability if it were disclosed properly. And presumably the buyer would get their own structural engineer to inspect it (or you could get your own and provide the report).

 

[Walt34]

I also struggle to see how the retaining wall could be a liability if it were disclosed properly.

I was wondering about that and also think I'd get a 2nd opinion from a real estate attorney, not a real estate agent. As far as I know, as long as it's fully disclosed you can sell a house with cobras living in the walls.

Sounds to me like the agent is worried about potential liability to himself.

 

[jebmke]

So I have this house. I would like to dispose of it. It is located in an area where the RE market is very, very slow. Houses sit on average 1-2 years on the market and generally sell after several price reductions. The house itself is in good condition, but it sits on a sloped piece of land and the retention wall behind the house (about 5' tall and 30ft long) is starting to lean dangerously and needs to be replaced before selling. According to my RE agent it's a safety issue and it needs to be addressed before putting the house on the market. I have gotten some estimates to replace the wall and they run high, about 20% of property value (steep driveway, tight access to the back of the house means more manual labor, wall must be designed by an engineer per code because it is more than 4' tall etc...).

In addition, the RE agent estimates that we would have to pay nearly 9% of property value in commissions and closing costs. So, even if we sell at full price, we'd get back only about 70% of what the house is currently appraised for, after months of repair work and maybe another year or two of the house sitting on the market. And that's assuming we don't have to go through price reductions.

We were thinking about making a sizable contribution to our donor-advised fund (DAF) at the end of this year and I am now thinking about donating this property to the fund. First, we get to deduct the full value of the house from our current high income. We are well within the 39.6% marginal tax bracket at the Federal level, and the 11.3% marginal tax bracket in California. So if we donated the property, the immediate income tax savings would be quite significant. I quite like the idea of not going through the traditional sale process with its many frustrations.

Has anyone done anything like it? Any pitfalls?

Check with your DAF. I would guess that they will only acknowledge the net realizable value when they sell it. That would be the limit of your deduction. Also, donations to DAFs are subject to the 30% rule I think. Check the IRS pubs to be sure.

 

[FIREd]

Find a new realtor? This is a flipper's wet dream. Buy at a steep discount, fix retaining wall, sell. Heck, I might even be interested. I'd think the wall wouldn't be a complete non-starter if it was disclosed adequately.

As for the retaining wall, if it collapsed, is the house likely to collapse with it? If the wall is already leaning like you say and the house isn't crumbling, that's a good sign. Although once the wall collapses you'll have more erosion that could eventually cause the foundation to shift. If the wall collapses, is it going to hit something (another yard)? Or slide into the creek/ravine/ditch behind the house? Or as I re-read your OP, it sounds like the liability might be it collapsing into your yard?

/retiredCivilEngineer with prior experience of dealing with massive slope failures and settlement issues

The wall has been leaning for many years but was stable. Recently, the brick veneer partially collapsed after some heavy rain, but the cinder block wall is still up. Even if it falls, the house itself won't be impacted at all (the house is about 16' away from the wall. The wall is only about 2'-4' tall behind the house and it is not leaning nearly as much there). The neighboring properties won't be impacted either. The damaged part of the wall is located behind the semi-detached garage. When the big chunk of brick siding fell, it made no damage to the structure, it just fell in the yard. I am attaching a pic. The wall on the left side of the picture is the back of the garage.

The realtor thinks that the liability is the wall collapsing on someone, like a kid.

He is also concerned that, in a slow market with lots of inventory, the wall issue might make the house "unsellable". I countered that, with an appropriately discounted price, it should not be an issue. But he is not convinced. I even proposed to give the buyers a credit to handle the repair themselves.

 

[FIREd]

Check with your DAF. I would guess that they will only acknowledge the net realizable value when they sell it. That would be the limit of your deduction. Also, donations to DAFs are subject to the 30% rule I think. Check the IRS pubs to be sure.

In our case, the 30% rule is not an issue because the value of the house is pretty low relative to our income.

 

[FUEGO]

Hmmmm, remove brick veneer, power wash the cinder block, allow it to dry then prime/paint with a neutral color. Lipstick on a pig for psychological effect (to get the buyer's wife to calm down ). Then disclose that it could be an issue in the disclosure form with an engineer's report attached?

Was the wall often wet? I wonder if groundwater and surface water runoff leached through the brick mortar and caused it to degrade over time.

 

[NW-Bound]

No civil engineer here and not even a mason, but it seems to me that this retaining wall should have been a poured concrete wall, and with proper footing and bracing.

 

[FIREd]

Hmmmm, remove brick veneer, power wash the cinder block, allow it to dry then prime/paint with a neutral color. Lipstick on a pig for psychological effect (to get the buyer's wife to calm down ). Then disclose that it could be an issue in the disclosure form with an engineer's report attached?

Funny, that's what I told DW we should do... The neighbor next door did exactly that when his wall started leaning many years ago and the brick veneer started falling off. His wall is still holding, though it leans worst than ours. Of course we would still disclose the problem properly. In fact, I found the documents related to our purchase of the property back in 2005 and there was already a disclosure regarding that wall.

Was the wall often wet? I wonder if groundwater and surface water runoff leached through the brick mortar and caused it to degrade over time.

I had the wall inspected by an engineer many years ago and his opinion was that drainage was the main issue. The part of the wall behind the house has a drainage hole that gushes quite a bit in heavy rain. This part of the wall does not. so the water might have pushed through the masonry work, I don't know. It also seems to me like the brick veneer was not anchored properly into the cinder block wall (I see no metal tabs extending from the cinder block wall).

 

[FIREd]

No civil engineer here and not even a mason, but it seems to me that this retaining wall should have been a poured concrete wall, and with proper footing and bracing.

There is no doubt that the wall was not built properly. Almost all the houses on our street have or have had the same problem.

 

[FUEGO]

Funny, that's what I told DW we should do... The neighbor next door did exactly that when his wall started leaning many years ago and the brick veneer started falling off. His wall is still holding, though it leans worst than ours. Of course we would still disclose the problem properly. In fact, I found the documents related to our purchase of the property back in 2005 and there was already a disclosure regarding that wall.

There you go! Go for it. As a former engineer (not licensed in any jurisdiction currently), I'd recommend a beige paint color.

I had the wall inspected by an engineer many years ago and his opinion was that drainage was the main issue. The part of the wall behind the house has a drainage hole that gushes quite a bit in heavy rain. This part of the wall does not. so the water might have pushed through the masonry work, I don't know. It also seems to me like the brick veneer was not anchored properly into the cinder block wall (I see no metal tabs extending from the cinder block wall).

Yeah, the mortar can break down over time if frequently exposed to water. It's been 15 years since my last class on concrete, but I seem to recall decalcification as a possible effect of water leaching through constantly.

I bet the cinder block wall isn't anchored into anything, either. I'm curious if there's a way to auger through the block wall into the fill dirt behind the wall and then brace the wall. I'm thinking of a huge auger that looks like a massive screw with a 1 ft head or something to attach to the wall and a brace. Might be easier than removing the whole block wall, excavating, and then reconstructing an engineered retaining wall.

 

[pb4uski]

Do you really even need the wall? If the property line is far enough to the right of the wall in the picture and you can get a mini-excavator in there you might be able to take out the wall, excavate back to create a steep slope and then put in some rip-rap or seed it.

Or as others have suggested, take out the veneer and pretty it up (but it will still be fugly). Or put a faux-wall up with PT decking anchored into the cinderblocks so it will "look" plumb and less ugly.

In any event, from the picture it would not appear to be a safety issue, the issue seems more to be an agent trying to limit their liability and maximize their commission.