1031 exchange and property sale

[Cassandra Brown]

I am a first time 1031 exchanger and am a novice purchaser.  I own a 4plex in San Marcos, CA (San Diego County) that I was given by my mother in 2018.  She has since died and I no longer have any reason to keep going to California. I was ambivalent about selling it, even though I live in Wisconsin and am completely reliant on the manager, but a long term tenant moved out and the rehab on the place was exhausting and confusing. 

 I have an accepted offer for reasonable price, ($1,415,000) but now the inspection has revealed a termite problem.  The buyer  naturally wants a reduction, but I already reduced to get to the current price.  I had 4 offers of 100K below list in the first 24 hours; so then I did a multiple counter offer on advice of the broker, reducing the list price by $50K, and got 3 takers on that; the broker  then recommended this buyer.

I was unaware that my agent is also the buyers agent until this point in the proceedings, (although this info was present in the offers that were presented; I just didn't read closely enough), and it has made me feel weird although he has been very helpful and seems nice (only phone conversations).  He is recommending I reduce my price again by 25K

I was about to buy a 4plex in Burlington, Vermont, where my daughter lives, but the contingency of this sale was a problem for the seller so they took a different offer.  So I still haven't identified the properties for the 1031 exchange and feel a little wary about the whole process now.

I'm just wondering if I should follow the agent's advice and take the reduction or wait and start over--but now that I have the termite report I will need to disclose that, of course, and I wonder if that will affect the price.    Meanwhile the apartment that was redone has been empty, so no rent and the buyer wanted it to remain empty for this last month or so.

My goal was to make more rental income by exchanging this property for ones that have more cash flow even if they had less appreciation. (I'm retired so cash flow is important to me).  

Any thoughts or advice is appreciated.  

[Bill B.]

If you don’t have any need to sell, put the pressure back on them. Just say no thanks, I lowered the price $50k already. The realtor stands to make $70k maybe he’ll kick in $10k and the buyer will eat the rest. Or you go back to the other 2 buyers, tell them what was found and ask if they are interested at this lower price. Certainly your realtor can then tell “his buyer” that you’re shopping the deal back to the other buyers. If you don’t need to sell I wouldn’t. 

Ps. It’s too late now but please consult accountants/tax experts before making big financial decisions like your mom giving you this property. I’m going to assume your cost basis is almost zero as it’s her old cost basis minus depreciation. You could be looking at a $250-$400k tax bill between state and federal. If she had left you the property at her passing you wouldn’t have to do a 1031 exchange and the taxes would have been zero. 

Pps. Talk to your PM. They may have interested buyers and offer lower commissions between two of their clients. (Let the first listing contract expire or cancel it first.)