Home raffles, essay contests remain a tough sell

Disposing of property sparks legal, tax issues

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jan. 18, 2012

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Disposing of property sparks legal, tax issues

Tom Kelly
Inman News®

You've reduced your home's price -- twice -- yet still no takers.

You've painted the exterior, purged all unnecessary items in the kids' rooms, and prodded your agent to bring you more potential buyers.

But if you're thinking about trying to unload your home by selling raffle tickets or starting an essay contest, think again.

While two recent nationally syndicated stories have raised hopes about the possibilities of alternative selling methods, home raffles and essay contests remain problematic.

According to many states' gambling guidelines, any activity that includes "prize, chance and consideration" is gambling and must be properly licensed and regulated. Typically, raffling off a house would be prohibited because it is based on chance. A lottery is similar. Some skill may be involved in choosing the numbers, but it's mostly chance or luck.

The essay contest has been an alternative road to raffling off a home. For example, "For an entry fee of $250, state in 300 words or less why you want to live in beautiful Maple Glen." The controversial step behind the essay contest is proving the contest was totally based on skill, not chance. Who are the judges? How were they chosen?

Another critical piece to the puzzle is the tax question. Would the Internal Revenue Service consider the house a "gift" and thereby taxable to the winner? A real estate tax attorney said the "gift" question was definitely a gray area that would probably be up to a court to decide.

If it were not a gift (if there was no gratuitous intent), then it would be taxable to the person receiving the home. It would be taxed as ordinary income.

The raffle concept usually is more acceptable to some states' officials when a nonprofit is involved. A website, www.rafflehouse.com, lists 11 states where home raffles are illegal, but, as mentioned above, working with the guidelines is challenging.

The essay contest concept seems to surface every few years. The idea was the focus of a motion picture several years ago and the film immediately generated a new wave of home-essay contests. "The Spitfire Grill" starred Ellen Burstyn as the owner of a café in a small Maine town.

The character Burstyn portrayed was getting on in years and was tired of the early preparation that came with daily breakfast. She also was concerned that the grill would never sell.

Alison Elliott, the woman with the secret past who became a huge help to Burstyn, suggested to Burstyn that she hold an essay contest with the grill as the one and only prize. Entrants would pay a fee to enter their essays.

I once was sent a flier inviting me to explain in 250 words or less "Why You Should Own a Beautiful View Home Free and Clear." The entry fee was $500. It carried a variety of messages for the key players:

  • "Free and clear" to the winner meant without a mortgage or debt of any kind.
  • "Free and clear" meant disposing of a piece of property he'd been unable to sell for about 18 months.
  • "Free and clear" to the Washington State Gambling Commission and the Washington State Attorney General's Office meant take a long look before you leap.

The goal was to get 1,000 contest entries at $500 a copy ($500,000) and then let the house go to the winner. The owner heard from about 75 interested people in the first eight weeks of his contest. The deal was, if fewer than 1,000 entries were received, the contest was off. If there were more than 1,000 entrants, the owner said he would give a significant donation to two area churches.

The contest never really picked up significant momentum, mainly because the owner did not do enough to describe the qualifications of his judges.

While it's extremely frustrating to sit in a home that simply won't sell in today's market, be realistic when thinking outside of the box. First and foremost, make sure the box legally exists.

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