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| PleasingHome News Letter |
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YOU WILL FALL IN LOVE! Fall in Love with a True Entertainer’s Delight In Prime Burbank Hills, Known Star Light Estate http://www.pleasinghome.com/ListNow/Property.aspx/NF=1&NP=1&PropertyID=1360266&=& |
Articles and Advice |
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| What to do if your home won't sell By Dian Hymer Homes take longer to sell today than they did in 2005. This is due to a slow home-sale market that has resulted in a build-up of the inventory of unsold listings. Although there are exceptions, this situation is expected to continue until late 2008 or 2009 -- at least. What options do sellers have whose homes aren't selling quickly enough? Many of the homes that aren't selling are priced too high for the current market. The median sale price of homes sold nationally in February 2008 was down 8.2 percent from a year ago, according to the NATIONAL ASSOCIATION OF REALTORS® (NAR). This percentage was even higher in cities like Miami and Las Vegas that were speculative hotbeds in 2004 and 2005, and now have high foreclosure rates. Some areas are doing better than others. For example, the median sale price of homes sold in the San Francisco Bay Area in February 2007 dropped only 5 percent compared with a year ago. There are few areas in the country where prices have actually increased during the past year. Even so, sellers often have a difficult time coming to grips with the fact that the value of their property has declined. It has often been said that sellers are the last to know when it comes to the value of their homes. Buyers, on the other hand, are often ahead of the game. They know the market better than most sellers. They are aware of the risks involved in today's market, and they gauge the price they'll pay accordingly. HOUSE HUNTING TIP: Sellers whose homes aren't selling should analyze the price they are asking with the help of their real estate agent. It's useful to look at similar homes in your area that have sold recently. Why did these homes sell when yours didn't? If price is the key determinant, adjust your price accordingly, if you can. Sellers who are unable to accept a reasonable price for their home should take it off the market and wait for a better time to sell. Letting your home sit on the market overpriced won't accomplish your goals. And, it could hinder your sales effort at a later date when you get serious about selling. You don't want to be known as an unrealistic seller. Some listings need more than a price adjustment to sell in this market. If modifications can be made to the property to make it more salable, consider removing the listing from the market temporarily until changes can be made. Then, adjust the price some to give the listing an entirely new look when it is re-marketed. Finding a tenant rather than a buyer might seem like a good option for some sellers. Before taking this approach, talk with a tax advisor. The tax laws affecting single-family residences differ from those relating to income-producing properties. One tax benefit of owning your home is that you are entitled to $250,000 of tax-free gain ($500,000 for a married couple filing jointly) when you sell. But, restrictions apply. For instance, you need to have owned and occupied your home for two of the last five years. If you were to move out of the area, with no plans of returning, this could pose problems when you decide to sell. It can be difficult to sell a tenant-occupied property, particularly if the tenants are content to stay where they are. Also, your home might not show well with a tenant living in it. Ideally, plan on selling after the tenant has vacated. THE CLOSING: This way you can have the property repaired, painted, cleaned and staged for sale before it goes on the market. |
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| How buyers, sellers are closing deals in today's market By Dian Hymer Negotiation is back in style, and is likely to remain a necessary part of buying or selling a home in today's beleaguered residential housing market. Other key elements to a satisfactory closing are flexibility, perseverance, creativity and diligence. Needless to say, you need to work with the best real estate professionals you can find in your area. In most cases, it takes a team effort to put a home-sale transaction together and see it through to fruition. HOUSE HUNTING TIP: Successful negotiations usually require give and take by both parties. It has been said that the sign of a successful negotiation is one where both parties walk away feeling they have won. It has also been said that the key to a mutually acceptable agreement is that both sides feel a little wounded. A must in this market is a commitment to exhaust all possible ways to put and keep a deal together before calling it quits. Recently, it looked like a purchase contract was about to fall apart. The buyers had originally offered a price that seemed insultingly low to the seller. The seller set his personal feelings about the price aside and countered the buyers' offer at a price he felt was reasonable. The buyers accepted. As it turned out, the price was one that was halfway between the seller's list price and the price the buyers offered. Splitting the difference is often a winning strategy. The house in question had been well inspected before the buyers entered into contract to buy it. However, when it came time for the buyers to remove their inspection contingency, they requested a large monetary credit from the seller. Not only did the buyers discover a few health and safety issues that weren't covered in the previous reports, they also developed a serious case of cold feet. These buyers were able to find jumbo financing at a good interest rate. However, to obtain this financing, they had to make a larger cash down payment than anticipated. This left them feeling cash-strapped. The seller refused to credit the buyers the amount of money they requested. However, he was willing to credit some money. Or, he would carry a second mortgage for the buyers so that they didn't have to put so much cash down. Flexibility gives the parties to a negotiation a way to explore options for making a deal or for keeping one moving forward. In order for the buyers in this case to feel comfortable closing the sale, they needed a concession from the seller in order to ease their financial strain. By offering to carry a second mortgage against the property, the seller found a way to free up more cash for the buyer. As it turned out, the buyers elected not to take the seller-financing offer and accepted a monetary credit at closing. Credits at closing require approval by the buyers' lender. Most lenders have limits on how much money a seller can credit a buyer at closing. It is often equal to 3 percent of the purchase price, but cannot exceed the actual amount of the buyers' nonrecurring closing costs. These are costs paid for the buyers on a one-time-only basis at closing, such as title insurance or a transfer tax. A seller carry-back would also need lender approval. The lender in first position would want to ensure that the terms of the second mortgage were reasonable and would not be likely to put the buyers in financial jeopardy. THE CLOSING: Sellers should carefully consider whether it makes good financial sense to carry financing for a buyer who is making a relatively small cash down payment. |
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| What to look for in a final walk-through inspection Property should be in same condition as day you signed contract By Ilyce R. Glink Most home buyers will have at least two opportunities to inspect their property before closing on the purchase. First, most buyers will include a contingency in the contract that allows them to do a professional home inspection by the home inspector of their choice. This inspection typically happens right after the sales price has been agreed to, usually within a week or 10 days. If the home inspector finds anything wrong in the property or decides further inspections (perhaps for radon, heating and air conditioning systems, or mold) are called for, the home buyer will be able to hire specialists to figure out if there is an insurmountable physical problem with the property. Assuming those inspections go well, the second opportunity to inspect the property is just before the property closes. The preclosing inspection, or final walk-through, as it is often referred to, is a home buyer's last opportunity to walk through the property before closing. What you're looking for here is not at the same level as the initial professional home inspection. In a preclosing inspection, you simply want to make sure that the property is in the same condition as it was on the day you agreed to buy it. To avoid getting burned, you schedule the walk-through as close to the actual closing as possible, certainly within the 24 to 48 hours prior to closing. If possible, the sellers should have already moved out. The whole point of the walk-through is to protect yourself and your future property from sellers who aren't as nice as they seem to be or who are actually as nasty as they appear. By inspecting the premises, you're making sure the seller has lived up to his or her agreements in the sales contract. And if he or she hasn't, you want to know about it in advance of the closing so remedies (both monetary and otherwise) can be agreed upon before money changes hands. What should you look for in a preclosing inspection? To start with, you want to make sure that the condition of the home hasn't changed since you signed the contract several months earlier. Believe it or not, a lot can change in the ensuing weeks. To make sure the home is in the same condition, you'll want to turn on every appliance, open every door, make sure nothing's broken (lights, fixtures, windows, etc.), be certain everything the seller agreed to leave is actually there and in good shape, and be certain that when the sellers moved out, they did no damage to the home. Sometimes movers can accidentally scrape a wall or pull up carpet in the process of packing up the contents of a house. If you do your preclosing inspection while the movers are there, you'll have a harder time getting around them to make sure that the property is in good shape. If you get there before the sellers have packed anything up, you might wind up with some nasty surprises on the day you move into the property. I learned the hard way that sometimes sellers just don't want you to find out certain things until you've closed on the property. Nearly 20 years ago, my husband Sam and I bought our first place. It was a vintage co-op built in the 1920s. Our sellers were seniors, and they were a bit quirky. The property hadn't been touched in years. When we did our final walk-through, we noticed that the water was turned off in the kitchen sink. We wanted to run the dishwasher, which was really old, but didn't want to turn on the water if it was off. Looking back, it's hard to imagine why this wasn't a red flag for us. But we were really happy to be buying our first place, which was taking just about all the money we had in the world. We didn't question it. We just bought it and moved in. The first night we unpacked the dishes and decided to run a load in the dishwasher. At well past midnight, my husband turned on the water and we put in the dish soap and turned on the machine. We went to bed. We were awakened early the next morning with pounding on our front door. Our downstairs neighbors came into their kitchen and noticed that the liquid contents of our dishwasher had dripped down through the ceiling into their kitchen, ruining their window shade. My husband and I looked at each other and we knew why the water had been turned off. Too bad we didn't find that out ahead of time. Still, the damage could have been worse. As I recall, it cost us $600 to fix the damage in our neighbor's apartment. |
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| Who pays off loan when home sells? By Benny Kass DEAR BENNY: I bought a house five years ago and am considering moving to another city where real estate sells for much less. I'm a real beginner at this. If the balance on my home loan is about $148,000, what happens when I sell it? Does the buyer pay off my loan? Or do I pay it with the selling price, or what? –Judy DEAR JUDY: My role in writing this column is to educate consumers, and I am delighted to respond to your question. When you sell your house, you and your buyer will have a house closing. In some parts of the country it is conducted by an attorney selected by the buyer; in other parts it is done by a title or escrow company. At the closing, your loan -- and many other fees and charges associated with a settlement -- will be deducted from your sales proceeds. For example, real estate taxes will be prorated and adjusted. Many states require buyers and sellers to pay a recording fee and a transfer tax to the state (and sometimes the county in which the property is located). In some states, buyers pay for title insurance; in others, the custom is for the seller to pick up that expense. I suggest that you either consult a real estate agent or a local title attorney (or title company). Either one should be able to provide you with an approximate cost of selling your house. At settlement (or shortly thereafter) you will receive a check for the net sales proceeds. You should also consult a financial advisor. If you are married, file a joint income tax return, and have lived and owned your house for two years out of the five years before the sale, you are eligible to exclude up to $500,000 of any profit that you made. (If you are single, or file a separate tax return, the exclusion is only up to $250,000). That means that you do not have to pay any capital gains tax to the IRS for your profit up to the exclusion limit. Since you are new to the process, you really should get legal assistance as well as consider finding a good real estate agent to help you understand the selling process. |
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| Price it right when selling in today's market By Dian Hymer We're in the midst of a challenging home-sale market in many areas. However, soft markets can provide opportunities for some home sellers. The trick is to price your home right for today's market. The most difficult reality for most sellers to face is that prices in their neighborhood may have dropped during the last year or two. Some sellers will find that it may not make sense to sell if the probable sale price is too low. If you have the luxury of waiting for a better market, stay put for now. Be sure to check with a knowledgeable real estate agent before you make a decision to move forward -- one who knows the local market well. HOUSE HUNTING TIP: It is an advantageous time for move-up buyers, who may have to sell for less than they would have a few years ago. But, they may also pay a lot less for the home they buy. A seller usually has an advantage selling when there isn't much competition from other listings. Even though the listing inventory was low in some areas at the end of 2007 and the beginning of 2008, anticipate that there will be more listings coming on the market in April and May -- the traditional home-selling season. Today's home buyers are extremely price-conscious. If there is a lot to choose from, price will certainly be a big factor. A price that's too high for the market won't bring the desired result. Homes don't necessarily lose value at the same rate in a soft market. In the current environment, buyers are more cautious about what they buy because they know that the property they buy might drop in value before it starts appreciating. They buy for the long term and are less prone to make compromises. The homes that have what most buyers want tend to hold their value better in a down market than do homes that have an incurable defect. Here a few examples of defects that can't be cured: an awkward floor plan that can't be fixed, a location next to a noisy freeway or a house that is either up or down a lot of stairs. Homes with defects that can't be corrected are easier to sell if there's low inventory, and it's a seller's market. We are now in a buyer's market. This doesn't mean you can't sell your home if it has an incurable defect. However, you will need to account for the deficiency in the price. Keep this in mind when you compare your home with one that sold recently that had level-in access, a livable floor plan, and wasn't on a busy street or next to a freeway. The condition of your property will also be scrutinized more carefully in the current market than it would have been a few years ago. You can sell a property that has deferred maintenance. But, you will sell it more quickly and for a better price if you can repair defects and have the property looking great when it hits the market. If this is not possible, take this into consideration in your list price. It's difficult to hit the market price for a property if there haven't been many recent sales in the neighborhood. If you miss the target and find that you're home is priced too high, lower it as soon as possible. A price reduction is no longer a stigma in this market. THE CLOSING: Letting a listing sit on the market too long at a high price sends the wrong message to buyers and could result in a lower sale price if market prices in your area continue to decline. |
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| Home sellers who understand market prosper By Dian Hymer Buyers aren't the only ones holding back in today's housing market. Many sellers are postponing putting their homes on the market because they are convinced that now is not a good time to sell. They would prefer to wait for a better market. Waiting could be risky if you need to make a move within the next year or so. Most areas of the country are mired in a slow market where sellers are finding it difficult to sell, at least at a price they'd be willing to accept. There's no guarantee that if you wait to sell that the market will be any better than it is now, at least in the short term. However, the market isn't slow everywhere. Some areas, like San Francisco, Palo Alto (Calif.) and parts of the East San Francisco Bay Area are still suffering from a lack of inventory. Or, lack of the right kind of inventory. Recently, there were six offers on a hot new listing in Piedmont, Calif., a city adjacent to Oakland. Multiple offers are commonplace in Palo Alto and San Francisco. What these areas have in common are a coveted location and very low inventory of homes of sale. Negative press about the real estate market is keeping sellers who could do quite well selling now from doing so. If you'd like to sell, but have been scared off by bad news, don't make a decision until you find out more about what kind of homes are selling in your local market. HOUSE HUNTING TIP: Supply and demand set the pace of any real estate market. When there are more homes for sale than there are buyers willing to buy, it takes longer to sell and prices are often soft. When there is a shortage of homes for sale and plenty of buyers wanting to buy, good homes sell quickly and there is often an upward pressure on prices. Even though the overall market might be soft, there can be pockets that are hot. The hot spots needn't necessarily be a specific location. They can be a certain type of house within a location. For example, the Piedmont listing mentioned above took 13 days to sell. It would have sold more quickly except that the sellers decided to expose the property to the market before entertaining offers. The home was a good size and had broad-based appeal. It had eight rooms, a two-car attached garage, a level-out backyard, and it had been completely remodeled with high-end finishes. It was priced competitively. Contrast this with another Piedmont listing that did not sell in the three months it was on the market. It was a smaller six-room house with no garage and without a level-out backyard. It had limited appeal in comparison to the listing that sold quickly. And, it was significantly overpriced for the market. The current market is extremely price-sensitive. An Oakland, Calif., listing was on the market earlier in the year priced approximately $100,000 above what the market would bear. The listing was removed from the market and listed several months later at a realistic price. It sold then with three offers for over the asking price. Selling in this market is not easy. But, sellers who understand the market can do well selling today. They must be realistic about what they need to do to prepare their home for sale. Property condition is more important to buyers today than it was several years ago. Sellers also must be committed to the process. There is no margin for error when it comes to pricing. THE CLOSING: If you can't bring yourself to price to sell, you're not a committed home seller. |
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| Best deck material: Douglas fir or redwood? Both require long curing process, but one costs much less By Bill & Kevin Burnett Q: I'm building a small deck in the backyard and for cosmetic reasons am painting it rather than finishing the wood. So, being cost-conscious, I am wondering whether using a Douglas fir 2-by-6 versus a con-heart redwood makes sense. The lumber cost is less than half. A friend said that the redwood really ought to cure 90 days and then be washed with oxalic acid to leach out the tannins so the paint doesn't peel and crack. Whichever wood I choose, I was figuring I could buy it, prime it and screw it down prior to applying the top coat. I didn't factor in any period for curing, and 90 days is a long time (just because I was in the mood to see my creation finished). But it sounds important to let it cure for some time before doing any of that. A: Cool your jets. Your friend's right about allowing redwood to cure prior to painting. The same thing applies to fir if you go that route. Moisture levels in lumber must stabilize prior to painting for the paint to successfully adhere to the wood. Construction-grade lumber has a relatively high moisture level. The wood must acclimatize before you seal the surface with paint. Excess moisture must evaporate to give the paint its best chance to stay on the wood. Buy the boards, and stack them with sticks between each board to allow air to circulate. We can't overemphasize the importance of this step, as it allows air to get to all sides of each board. Let the boards cure for two to three months to allow the moisture content to stabilize. If you can stack the boards out of the weather (under a patio or in the garage), that would be best. If that's not possible, and they get rained on, the curing time will be extended. When the curing is complete, plan on priming all six sides of each board. Pay special attention to the ends because the end grain is the most susceptible to moisture penetration and the resultant paint peeling. If you don't precut the decking, you'll have to prime them once you've screwed them to the joists. Speaking of joists, we strongly recommend using pressure-treated material for the framing to inhibit the possibility of rot. Consider applying two coats of primer to the decking for extra protection. It's more work, but it will make the job last longer. This is especially important if you choose to go with fir, as it doesn't take paint quite as well as redwood. As to the choice between Douglas fir and con-heart redwood, we'd save a buck and go with fir. The extra work involved is offset by the cost savings. We know this is heresy to lumber dealers, but if you select vertical grain fir, cure it properly and prime and paint it thoroughly, it will perform. An added bonus is that fir is harder than redwood and will resist heavy foot traffic and dings a bit better. Lowe's and Home Depot will allow you to go through the "stacks" to select boards without charging a premium. Lumberyards allow it also but generally charge a premium for the "select" grade. Look for vertical grain as opposed to the flat grain. It holds paint better. Use good quality primer and deck paint and you'll get many years of use from your new deck. An alternative we'd consider for a painted deck is a composite product we saw a couple of years ago at the Pacific Coast Builder's Conference. Generally, we're not big fans of composite decking, but a product called CorrectDeck CX caught our eye. It's a manufactured plastic/wood product and has a paint-like surface that is impervious to staining. Check it out at www.correctdeck.com/products/decking/cx/default.htm. |
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| Selling inherited house hits roadblock How probate, tax issues could have been avoided By Robert J. Bruss DEAR BOB: In 1993, my wife's father died. He left everything to her in his will. There are no siblings or other close relatives. Knowing she inherited the house, we moved our family in and have been living in the house and paying its mortgage ever since. Now that our kids are grown and on their own, we want to sell the house and "downsize" for our retirement years ahead. However, when we talked with a Realtor about listing the house for sale, she said we can't sell it until my father-in-law's estate is probated and the house title is transferred to my wife. Is there any way to avoid probate? --Jerome W. DEAR JEROME: No. However, many states have speedy small estate probate procedures for situations like the one you describe. Because your late father-in-law willed his house, probate court proceedings are usually required. Probate could have been completely avoided if he held title in his revocable living trust, specifying that after his death the house should go to your wife. However, it's now too late for that. I suggest that your wife consult a local experienced probate attorney to probate the will. He or she can often expedite uncontested probate matters in less than the six to 12 months usually required. But your wife has another problem to consider. When she receives the title, she will receive a new stepped-up basis to market value in 1993. Since then, the house has probably greatly appreciated in market value. However, you and she can't qualify for the Internal Revenue Code 121 principal-residence-sale tax exemption up to $500,000 because she hasn't owned the house at least 24 months (although you both clearly meet the 24-month occupancy test). Consultation with your tax adviser is strongly suggested. IS HEIR LIABLE FOR PROPERTY TAX ON WORTHLESS LAND? DEAR BOB: About five years ago, my aunt died. She left everything to me, including a worthless lot. I consulted several nearby Realtors and they wouldn't even list it for sale as it is only worth around $5,000. However, the county keeps sending me the property tax bills, which I haven't paid. They have tried to sell the property at a tax sale but nobody will buy it even for the amount of unpaid property taxes. Now the county reported to the credit bureaus that I owe the unpaid taxes and this is hurting my credit rating. What can I do? --Ralph R. DEAR RALPH: It is very unfair for counties to report unpaid property taxes to the credit bureaus, especially when you inherited worthless property you don't want. Perhaps you can contact the county tax collector to see if he will accept your quitclaim deed in return for canceling the property taxes. Then you can tell the credit bureaus the property taxes have been cancelled so the adverse information can be removed from your credit reports. CALL HEALTH DEPARTMENT ABOUT DOG STENCH PROBLEM DEAR BOB: I live in a condo complex where one owner has four barking dogs. The neighbor has never walked the dogs and keeps them in a tiny fenced patio. The smell is unbearable in hot weather. The condo homeowner's association refuses to act even though the CC&Rs (covenants, conditions and restrictions) only allow one small pet. What can be done? --Dorothy J. DEAR DOROTHY: Shame on your ineffective homeowner association board of directors and officers for refusing to enforce the CC&Rs. However, your city or county health department, or the local humane society, can take action to abate this nuisance, which is also a health problem. A few phone calls should solve the problem. |
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| Will shopping multiple lenders hurt credit? By Dian Hymer It's not uncommon for home buyers to talk with several mortgage brokers or lenders to compare loan products and interest rates. One buyer who shopped around was scolded by a mortgage broker when he found out she was talking to more than one broker. He told her that she was ruining her credit score by allowing multiple credit inquiries. Too many credit inquiries can negatively affect your credit score, but you can control the damage. And, credit inquires make up a relatively small part of your credit score. For example, the FICO credit score from Fair Isaac Corp. that is widely used by mortgage companies for qualifying borrowers uses five types of information to calculate a credit score. Each type counts as a percentage of the total credit score. They are: payment history (35 percent); amounts owed (30 percent); length of credit history (15 percent); new credit (10 percent); and types of credit in use (10 percent). Credit inquiries fall into the "new credit" category, which accounts for less than 10 percent of your credit score. Only voluntary inquiries are taken into account, such as the inquiries made at your request when you shop loan rates. Loan agents usually need to know your credit score before they can quote you an interest rate. The FICO credit-scoring model ignores all mortgage inquiries made within the last 30 days, so they will have no impact on your credit score. An older version of the scoring formula uses a 14-day time span. A newer version uses 45 days. The lender decides which version of the scoring model it wants to use. There's no need to panic if you don't line up your mortgage in 30 days. The scoring formula looks for mortgage inquiries older than 30 days. It counts all the mortgage inquiries within a certain period, which varies depending on the scoring model used, as one inquiry. For some borrowers, one inquiry might not affect their credit score at all. If it did, it should be less than five points off your score. Let's say you talked to four lenders during a week in September. You authorized each to check your credit. Then you postponed buying until November, when you shopped rates again within 30 days prior to closing the sale. The most recent credit inquiries wouldn't affect your credit score. The four that were made in September would count as one inquiry. HOUSE HUNTING TIP: There’s a wide range of rates being quoted. This is a time when it could pay off to shop carefully for the best rate and mortgage product to suit your needs. For example, one mortgage broker quoted 6.75 percent on a conforming loan (to $417,000) for a 5-year, interest-only, adjustable-rate mortgage (ARM) with no points. (One point -- a loan origination fee -- is equal to 1 percent of the mortgage amount). Another broker offered a 5-year ARM that is fixed for the first five years at 5 7/8 percent with no points. And, this rate was available for loan amounts up to $650,000. Nonconforming jumbo financing for mortgage amounts over $1 million is still high -- in the 8 to 9 percent range. Some buyers are achieving a lower blended rate by combining a conforming jumbo (to $729,750) with a second loan. Borrowers who have good credit and an established banking relationship with a lender might be able to arrange a preferential rate. Before you authorize a credit check, find out what kinds of mortgage products a lender offers and provide a brief summary of your financial situation. Try to focus your rate shopping within a 30-day time period. THE CLOSING: Don't authorize a credit check until you've narrowed your search down to likely prospects. |
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| Get started on the house hunt By Dian Hymer Mortgage interest rates dropped recently and home prices have moderated in many areas, making it a good time to buy. If you've never bought a home before or if you currently own a home but have never bought and sold at the same time, the process can seem intimidating. You can ease your anxiety by formulating a game plan and by assembling the best team of professionals you can find, including a mortgage person; a real estate agent or two if you're buying and selling in different locations; inspectors; an insurance agent; a closing agent or escrow officer; and an attorney, depending on where you're buying. The two key players on your team are the mortgage person and the real estate agent. Once you have these selected, they can help you line up the additional help you need. The best recommendations for real estate professionals are from acquaintances who recently had a good experience buying in your area. Be sure to ask if they would use their agent or mortgage person again. The first step is to find out how much you can afford. Most buyers need a mortgage in order to complete a home purchase. A lender will qualify you for a certain loan amount depending on how much cash you have available for a down payment and closing costs -- the various fees associated with buying or selling a home. Other relevant factors are your credit score, your verifiable income and what type mortgage you decide to use for your purchase. There are a lot of different mortgage options: 30-year fixed-rate mortgages, 15-year fixed, interest-only, as well as various types of adjustable-rate mortgages. HOUSE HUNTING TIP: You can work with a mortgage broker who will shop the mortgage market for you and place your loan package with the lender that offers the best deal. Or, you can work directly with a lender, such as Bank of America or Citibank. Just make sure that you understand what kind of loan is being offered. You might want to consult with an independent party like your accountant or financial advisor to determine which kind of financing is best for you. Once you know how much you can afford, ask your mortgage broker or lender to have you preapproved for the financing you need. This requires that you complete a loan application and have your credit checked. This will put you in a good bargaining position with the seller. While you're checking on financing, you should also find a real estate agent. If you've never bought a home before, you should use an agent who is a good communicator and who will take the time to explain the process. Also, keep in mind that your agent will be interfacing with the other parties in the transaction. You want someone you trust and who you are sure will represent you professionally and work diligent on your behalf. Repeat home buyers who will be selling and buying using the same agent will also want to make sure that the agent has good marketing skills. It's a benefit if the agent is organized and has good resources. A good seller's agent can help you get ready to sell your home by creating a task list of the things that need to be done before your home goes on the market. Your listing agent should be able to give you the names of reputable people who can assist you with cleaning, painting, hauling, storing, inspections, staging, landscaping and whatever else you need to prepare your home for a profitable sale. THE CLOSING: With this ground work completed, you are ready to seriously hunt for a home. |
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| Sellers list right to avoid price reductions By Dian Hymer In most areas of the country, 2007 marked a change in the residential home-sale market. Buyers gained clout for the first time in over a decade. Inventories of homes for sale grew to record levels in some places. Price reductions, which carried a negative stigma when listings were easy to sell, came to be seen as a necessary part of the home-sale process. That is not to say that price reductions are a good thing. They are not. The initial marketing effort is a prime opportunity to attract attention to a new listing. When the merchandising and pricing are on target, a timely sale occurs. If the opportunity is missed either due to poor planning and preparation, or to a price that's too high for the market, the only hope for success is to lower the price quickly to an acceptable level. Many sellers balk at the notion of reducing the list price soon after the property is listed. However, the timing of a price reduction is critical. If you wait too long, hoping for the impossible, it could be difficult to kindle enthusiasm for the property. This is particularly so in an area where there are a lot of new homes coming on the market and where the sales volume is low. This means that the competition from other listings grows as you wait for the unlikely: a knight in shining armor to appear and pay the asking price or more. HOME SELLER TIP: The best time to make a price reduction is as soon as you discover that your home is priced too high for the market. Waiting too long to lower the price can cost money in the long run if the market is moving lower. Reducing too little, too late can lead to a series of further reductions and ultimately to a lower selling price. Ideally, you should avoid such an unpleasant downward spiral. The goal is to sell without having to reduce the price. To do this, you must accept current market conditions. You also need to recognize that no matter how wonderful you think your home is a buyer will find fault with it. To be a successful seller in this market -- and to some extent in any market -- requires separating pride of ownership in the property from the task as hand, which is to sell for the highest price possible. It's not easy for most sellers to put their emotional feelings about their home on ice. It helps to stop thinking of the property as "home" and to start looking at it as a commodity you want to sell. Before listing a property for sale, sellers should seriously consider their motivation. Successful sellers in today's more difficult marketplaces have a compelling need to sell. They don't simply want to sell if someone will make it worth their while. Many of today's prospective home buyers have a wait-and-see attitude about the market. They are looking, but it will take a fabulous home offered at a great price before they'll commit to buy. Sellers should also check out the temperature of the local market. Residential real estate is a localized business. Even if you live in a city where prices are down, that might not be the case in your neighborhood. The supply of homes for sale and demand for housing are critical variables, as is the local employment picture. There is a common theme to the listings that sell well now. These listings look great, are in good condition, don't have incurable defects and are priced right for the market. THE CLOSING: Being realistic about what to expect is half the battle. |
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| Facing foreclosure: When must I move out? By Benny Kass DEAR BENNY: I am one of the unfortunate who has to deal with eventual foreclosure. Can you tell me how long I can remain in my home until legally having to vacate? –Constance DEAR CONSTANCE: Before the foreclose takes place, please talk to your lender -- and not just a low-level loan officer but someone high in the company. With all the foreclosures taking place throughout the country, lenders (at least the legitimate ones) do not want yet another foreclosure on their books. If no one buys at the foreclosure sale, the lender will be stuck with the house and will have to pay real estate taxes and insurance. Also, check with your county and state governments. Many governments now have programs to assist borrowers who are in trouble, so you may be able to save your house. How long do you have to stay in the house if it is foreclosed? Technically, you have to move out when the house is sold. But again, talk with your lender. They may be willing to let you stay for a period of time, if you can pay some rent. Lenders do not want houses to be vacant. If the home is scheduled for foreclosure, I would attend that sale. Find out who bought it -- it may be the lender itself if no one bids. Then discuss your situation with the buyer; once again, you may be able to strike a deal with that buyer. To my knowledge, although you have to move out, it has been my experience that many homeowners whose property has been foreclosed upon just stay in the house until eviction proceedings are brought, and then they move out. DEAR BENNY: I live in North Carolina and my neighbor recently planted trees, two of which are on my property. Where do I stand? –Brian DEAR BRIAN: I can't give you advice about North Carolina law because I don't practice law in that state. However, I suggest that you arrange to have a survey made of your property so that you will know exactly where your property line is. If your neighbor's trees are even one inch on your property, I would try to meet with your neighbor and discuss the situation with him or her. Be friendly; perhaps you can invite the neighbor over for coffee. If the trees are on your property, you have the absolute right to demand that they be removed. If you do not object to those trees, then perhaps you can reach an agreement that the neighbor will maintain the trees. And while it may be a very small amount of money, you may want to ask your neighbor to pay the percentage of your real estate tax on which the trees stand on your property. Finally, depending on your own state law, so long as you will not injure anyone or cause any property damage, you should have the right to cut down the trees if they are on your property. DEAR BENNY: I'm a 66-year-old female living in California. I'm divorced and own three homes -- two rentals and one primary residence. I plan to leave my children an equal interest in my real estate holdings upon my demise. I do not have any other investments, savings, IRAs or holdings worth mentioning. I need to generate a living trust, but keep postponing it due to the cost. I ran a search online and saw that one can order the necessary paperwork for the price of $149. I am a REALTOR® (retired) and would be able to obtain prelims on my properties myself. What do you think? Would it be binding? –Marianne DEAR MARIANNE: I cannot recommend that you use what is generally referred to as "off the shelf" legal documents that you can get on the Internet. These documents are general in nature, and may not be specific for your needs. Since you have the ability to assist a lawyer, I am sure that you can negotiate the attorney's fee. But I strongly recommend that you consult a local attorney who understands real estate and living trusts. DEAR BENNY: I presently have a Starker (Section 1031) exchange with my brothers invested in a rental property. We had this set up for about five years. If we sell the whole property, can it be divided into three shares with each one of us owning one share for another exchange? It is hard to work with three owners when we live in different areas of the country. –Marilyn DEAR MARILYN: If the property is in the name of a partnership -- instead of in your three individual names -- then when the property is sold, you either have to pay the appropriate capital gains tax or do another exchange. The new property (called the replacement property) must be in the name of the partnership. If, on the other hand, the property is titled in your individual names, then when it is sold, each of you has the right to enter into another exchange on your own (or pay the tax and keep the balance of one-third of the sales proceeds). If the property is in the name of a partnership, here's a tip: In the year before the property is sold, formally dissolve the partnership and put the property in the name of the three of you. Then, next year, you each have the right to do with your one-third as you so desire. DEAR BENNY: I purchased a townhouse in my brother's name until I resolved my financial difficulties. He already owns several properties. I am not really benefitting from this transaction. My intent is to have him transfer ownership to me this summer. How do I get my name on the deed and the mortgage? –Janet DEAR JANET: Your brother will have to deed the property to you. You and your brother will have to explain the situation with the current mortgage lender. They may be willing to allow you to assume the obligations of that mortgage, and they may also release your brother from his obligations. Much depends on the lender and the kind of loan currently on the house. If it was an ARM (adjustable-rate mortgage), the lender may be willing to cooperate with you. On the other hand, if the existing mortgage contains a lower rate of interest than is currently available, the lender will probably not allow you to take it over. If you have cleared up your credit, and can qualify for a mortgage on your own, then it may all work out alright. If you are unable to qualify, ask your brother if he will guarantee the loan. This may convince the lender to allow the transaction to take place. But your brother should consult a tax accountant to determine any tax consequences he may have when he transfers the property to you. DEAR BENNY: My tenants are divorcing. I received a 30-day notice from the husband. His spouse was not part of the 30-day notice. She would like to continue renting the property. My concern is that she does not have a job, and will be able to afford the rent only from monies received from spousal or child support. Her mother (who lives out of state) has offered to cover the rent if this becomes necessary. What should I do: create a new month-to-month tenancy? Who would be named? What precautions should I take? –Monica DEAR MONICA: I would recommend that you enter into a new lease with both the current tenant and the mother named as the tenants. Make sure that the lease states that the tenants are "jointly and severally" responsible for paying the rent. This means that each tenant is legally obligated to pay the full monthly rent. How long a term should you have? That really depends on you. If you think that the tenant will take good care of the house -- and that with the assistance of her mother, the rent will be paid timely -- then why not consider a year's lease? The mother may be concerned that a month-to-month is too short a period of time. DEAR BENNY: Are title examination and loan origination fees legitimate or just junk fees? –Lee DEAR LEE: There are some consumers who believe that most, if not all, of the lender's charges are "junk" fees, which means that they are not necessary for the settlement (escrow) process, but are primarily used to increase the lender's profits. For years, lenders would charge between $50 and $75 for a credit search. As a result of litigation on this matter -- and the fact that everyone can get a free credit report at least once a year -- lenders now charge a lot less for the credit search. Loan origination fees are, in my opinion, junk fees. But in most cases, if you want to get a loan, you will have to pay this to the lender. You should try to negotiate this fee as well as all other charges when you begin the loan application process. The title examination, on the other hand, is legitimate. The mortgage lender is going to give you a large sum of money and wants to make sure that your house will serve as good collateral to secure the loan. You will sign a deed of trust (the mortgage document), which will be recorded among the land records in the county where the house is located. This document gives the lender the right to foreclose on the house if you cannot make the monthly payments. But if there are other lenders -- or other clouds such as tax liens or mechanic's liens -- on title, the new lender will not have the security that it needs. So a title search must be obtained to satisfy the new lender that it will be in first position against your house. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
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| Condo foreclosed but HOA fees keep coming By Benny Kass DEAR BENNY: Recently my condominium unit was foreclosed upon, but the association has now sued me for unpaid condominium assessments. Am I still responsible for this debt? –William DEAR WILLIAM: Unfortunately you are, but only until the foreclosure sale took place. Once a new owner took title to your unit -- whether it was a successful bidder at the foreclosure auction or the bank itself -- that new owner is obligated to start paying the association dues. But unless you have other assets, in my opinion, the association is wasting its time -- and its members' money -- going after you. DEAR BENNY: My neighbor claims that I have a dead tree, and he fears it will damage his property. His attorney and insurance company notified me of his concern for possible damage to his property. I have checked my trees and do not see anything to merit his claim. What are the legalities within these parameters? –Marilynn DEAR MARILYNN: A letter from an attorney and from an insurance company is not proof that your tree is dead. You have been put on notice, and you should immediately contact an arborist in your area to get a formal, written report as to the condition of your tree. If the report indicates that the tree is healthy, send a copy to the attorney and to the insurance company, and that should be the end of the matter. On the other hand, if the tree is dead -- or diseased -- ask the arborist for advice as to what you have to do, and follow that advice. While tree law differs in the various states, the general rule is that if your tree is a danger to a neighbor, and you aware of this -- or have been put on notice -- should the tree fall and cause damage or injury to person or property, you will be responsible. DEAR BENNY: We just sold our rental (single residential unit) house using the 1031 exchange (Starker) to buy a condo in another state. We did this, as you know, to defer tax on the capital gains on the house we sold. We are now in the process of closing escrow on the condo we are buying. We intended to make this condo as our second residence (not primary) in the future. How many years minimum must this condo be used as an investment property (such as being a rental) before we can we use it as our second home without having to pay tax on the capital gains or any tax penalty? Also, if we decide to not rent the condo after closing of escrow and use it as our second home instead, how can we opt out of the 1031 exchange that we have availed of? Is it enough to just pay the tax on the capital gain in 2009 when we file our 2008 income tax? --J.M. DEAR J.M.: This has been a confusing area of law for a long time, but just recently the IRS clarified the area of vacation and second homes. On March 10, 2008, the IRS issued Revenue Procedure 2008-16, which makes it clear that in order for your 1031 exchange to be valid, you have to rent out the property for at least two full years, and at a fair rental rate. In answer to your question about how you go about cancelling the exchange, the IRS explained as follows: If a taxpayer files a federal income tax return and reports a transaction as an exchange under §1031, based on the expectation that a dwelling unit will meet the qualifying use standards ... and subsequently determines that the dwelling unit does not meet (those) standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange. In your case, since you did not yet file a tax return for 2008 (the year in which you sold the first property), next year when you file your return, just treat the sale as a capital gain and pay the applicable tax. DEAR BENNY: We have owned a cabin in New York state since 1979. We are residents of Florida. We want to sell the cabin and build a new cabin on another lot. We have never rented the cabin; we have never lived there. We use it for vacation purposes only. Is the capital gains tax break this coming year good for this type of long-term capital gains? If so, this would be the year to sell? If not, do you have any advice? Will that capital gains break be good only for this coming year? Our gain on the cabin (after subtracting the basis) will be about $70,000. –Janis DEAR JANIS: If you sell, you will have to pay the full capital gains tax. Unless you are in a low-income tax rate, the current federal tax is 15 percent of your gain -- plus whatever tax the state of New York may impose. There is a very significant tax break for homeowners who sell their house. If you are married and file a joint tax return, you can exclude up to $500,000 of your profit. (If you are single or file a separate tax return, the exclusion is limited to $250,000). But in order to qualify, you have to have owned and lived in the house for two out of the five years before the property is sold. In your case, while you have owned the cabin for more than two years, you did not actually live there, and thus I suspect that you will have to pay the tax. Is this a good time to sell? Sorry, I really can't answer that question. Every location -- and every house -- is different, and you have to ask professionals in your area that question. |
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| Rid hardwood floors of doggy scratch marks Remedy depends on how deep the damage is By Paul Bianchina Q: My dog's nails have left minor scratches in my wood floors. Is there any way to repair this without complete refinishing? --Judith K., via e-mail. A: If the scratches are not all the way through the finish and into the wood below, there are a couple of things you can try: 1. Sand the scratched area with 0000-grade steel wool to blend the scratch into the surrounding area. 2. Use a very small brush and apply a small amount of polyurethane just to the scratch itself -- keep it off the surrounding area as much as possible. Many hardwood floor companies also offer polyurethane scratch repair kits. 3. Rub a small amount of paste wax directly into the scratch, using a clean, soft rag. Let the wax dry, then buff the area around the scratch. If you have dark-colored floors, use a dark paste wax that's formulated for darker woods. 4. Use a color-putty stick in a color that matches the floor. Rub it lightly into the scratch, then let it dry. 5. Try one of the commercial scratch removers available that work primarily by filling in the scratched area and eliminating the reflected light from that area, making the scratch seem to disappear. All of the products you need are available at most home centers, paint stores or retailers of flooring-related products. Try the repair in an unobtrusive spot such as a closet before tackling more obvious areas. If the scratch is through the finish and into the wood beneath, you need to have the area sanded and recoated. However, many hardwood floor contractors can sand and coat just a portion of the floor, so it still may not be necessary to do the entire floor. Q: I had the siding replaced on my home, and now there are several bumps and holes in my interior walls, like the nail heads have come through. The contractor says there is nothing you can do about this. Is that true? --Ria M., via e-mail. A: What you are seeing sound like nail pops. These occur when the nails holding the drywall to the studs either come slightly out of the wood, or the drywall joint compound that covers the nail heads comes off. The repair is pretty simple, and entails tapping the nail back into the drywall, then recovering and re-texturing the resulting "dimple," followed by touching up the paint. As to your specific question, the answer is yes and no. Nail pops can certainly be caused by pounding on the opposite side of the stud from the drywall, as would be the case with the installation of siding. If the drywall was not installed well in the first place, it can be very difficult for the siding installer to prevent these nail pops from occurring. On the other hand, a siding contractor is aware of the possibility of nail pops during any siding job, and would typically check the interior of the home early on to see if any damage was occurring, or at least make you aware of the possibility so you could keep an eye out for it. My best advice is to sit down with the contractor and see if you can come up with a mutually agreeable solution. Perhaps he could do the drywall repairs and you could do the painting, or you could agree to split the cost of having someone else do all the repair work. |
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| Making an attractive home-purchase offer By Dian Hymer It's easy to assume that negotiating is adversarial. You, the buyer, are on one side -- the side that wants to buy a property for the lowest price possible. The opposition on the other side is the seller who wants to sell for the highest price possible. You're locked in a tug of war to see which side will win. It's more productive to look at a negotiation as a problem-solving process. You and the seller may have different ideas about what price the property should sell for. However, you're united in a common goal of consummating a deal. The challenge is to resolve your differences through a process of give and take until you either reach your common goal, or decide to go your separate ways. Of course, you have to arrive at a mutually agreeable selling price for a sale to go through. Sometimes this will happen quickly; sometimes it's a drawn-out process that can last over days or even weeks. HOUSE HUNTING TIP: Patience can be your ally. Sometimes rushing the process can quicken its demise. In fact, you may be better off waiting before starting the process if you think that the asking price is too high. For the first time in years, we are in a market where some home sellers -- typically those who bought recently -- won't be able to sell their home for a profit. But, they may need to test the market to be sure. If this is the case, the best negotiating strategy may be to offer nothing until the sellers are close to reducing their asking price. There can be a benefit to making an offer just before a price reduction is made. If you wait until the price is lowered, you could end up paying a higher price if other buyers suddenly become interested. In order to make sure you know that the sellers are contemplating reducing the price, ask your real estate agent to talk to the sellers' agent and make sure that the sellers are made aware of your interest. Don't be bashful about the fact that you are interested, but not at the current price. This way, you may receive a call when the sellers decide they'd like to see an offer from you. When you make an offer and there's no competition from other buyers, your initial offer price should leave you room to move up in price. But, it should not be so low that it's insulting to the seller. Otherwise he or she might not respond at all. An offer that's much lower than the market would give the seller the impression that you can't afford more, so there's no point in issuing a counteroffer. Buyers often think that if they start too high initially, they'll end up paying too much. Your initial offer price should be good enough to entice the seller into a dialogue. It's a price to get the ball rolling. From there, you can move up in small increments, if necessary. Don't get so caught up in negotiating the price that you overlook other opportunities for consensus building. Most good negotiations have a sense of fairness about them. During the process of your negotiation, you and your agent should brainstorm all the possible ways that you can accommodate the sellers. Do they need a quick close? If so, they might be willing to give more on price for a speedy close. However, you might want to hold up offering this information at the beginning of the dialogue. That way, you have something more of value that you can offer the sellers in exchange for a further price concession. THE CLOSING: When you get close on price, offering to split the difference can put a seal on the deal. |
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| Is buying a home to live in a good investment? By Dian Hymer Anecdotal evidence suggests that in some markets investors are buying foreclosure properties at bargain prices. These properties are located in areas that appear to have good growth potential, and they generate enough rental income to at least offset the holding and maintenance costs. The deal needs to make sense financially regardless of whether there is a big run up in appreciation. The plan is to hold the property for the long term. There was a time not long ago when investors bought condos and houses even if they didn't produce enough cash flow to cover the carrying costs. Prices were rising so quickly, they could afford a little negative cash flow. The holding period was short and the appreciation payoff was big. According to Standard & Poor's/Case-Shiller 20-city home-price index, prices increased almost 75 percent between February 2000 and February 2008. In most housing markets, it's not possible to count on appreciation now. The market could be bottoming out in some places, according to some economists. Or prices could move lower before leveling off. It could be years before significant appreciation is again part of the housing picture. With this in mind, is buying a home to live in still a good investment? Just as the lenders are moving back to basics in terms of qualifying borrowers for mortgages, home buyers should examine the fundamentals of home ownership to determine if they are good candidates. HOUSE HUNTING TIP: The equity in your personal residence shouldn't be used to pay for vacations, education, new cars and credit-card debt. Many homeowners who participated in serial refinancing when rates were low and money was easy found they had no equity left when the credit crunch hit in August 2007. A good portion of these repeat refinancers now owe more than the current value of their home. Along the same lines, it's risky to look at your home as a retirement account. It's not a good idea to rob your pension plans in order to purchase a home. This money should be kept for retirement. Some financial advisors suggest that you don't consider the equity in your home as part of your financial portfolio. After all, you will always need to live somewhere. Most people will always need to budget part of their net worth for housing. Buying a residence hoping for appreciation to increase your net worth is dicey. You may earn appreciation. Nationally, home prices have tended to rise over the long term. But, this doesn't mean that your home will appreciate during the time period you own it. However, there are plenty of good reasons to buy your own home, if you can afford it. The government subsidizes the cost of home ownership by permitting taxpayers who itemize deductions to write off some or all of the mortgage interest and property taxes they pay. Restrictions do apply. So, check with your tax advisor before making a purchase. Owning your own home gives you a sense of security. You can choose the community in which you live. You're not at the mercy of a landlord who might issue an eviction notice. If you buy with a fixed-rate mortgage, you know how much you'll be paying over time. Rents, in most places, are subject to increases. It doesn't make sense to spend money fixing up someone else's house so that it feels like yours. And, most landlords will have a say in what you can and can't do -- even down to paint colors. THE CLOSING: But, if you own it, you can redecorate to your taste |
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| Where are today's best real estate bargains? By Dian Hymer The housing market is soft. Hard times for some can mean opportunity time for others. Could now be a good time to step into the housing market and pick up a bargain? Generally, it is a better time to be a buyer than a seller, but this is not so in every market. In San Francisco, for example, there are still more buyers than sellers for prime upper-end properties. You're not likely to pick up a bargain there. Many more markets are suffering from too much inventory and too few buyers. These markets would seem to offer the best opportunities. However, this is not necessarily so. Even though the price you pay is relatively low, it could take some time before the value of your investment increases. Anecdotal evidence suggests that the best housing investments are properties that are always in demand. These are well-planned and well-constructed homes in prime locations that appeal to a wide cross section of home buyers. In a strong seller's market, virtually all listings sell if the inventory is low enough. For example, a small two-bedroom, one-bath home on a substandard lot in Rockridge, a trendy Oakland, Calif., neighborhood, might be snapped up quickly in a seller's market, and buyers feel an urgency to buy before prices rise further. In August, there was such a listing on the market in Rockridge. By mid-September, it had received no offers, even after a price reduction that would have triggered multiple offers in a stronger market. HOUSE HUNTING TIP: Property that's not selling isn't necessarily a bargain if no one wants to buy it. A foreclosure that's selling for less than the defaulting owner paid for it isn't a bargain unless there is clearly upside potential. A property in a good location that suffers from deferred maintenance could be a prime property in the future. That is, as long as it doesn't have incurable defects, like the two-bedroom, one-bath home on a small lot with no expansion potential mentioned above. These starter homes sell well in a hot market. The demand dries up quickly when the market slows because these homes don't satisfy most buyers' long-term needs. Good candidates are properties that are located in areas close to urban centers with good transportation and where the population is growing faster than new homes in the area are being built. These locations could be the next hot spots when the market turns around. Buyers have the luxury of being selective when there is a lot of inventory on the market. Before you waste time negotiating on a deal that can never come together on terms that you can accept, find out about the seller's situation. Sellers who bought within the last few years may not be able to offer their property at a price that makes it a good deal for you. Many who bought in competition paid significantly more than the buyer who made the second to the best offer. In other words, they paid too much. Also, many buyers who bought in a multiple-offer competition bought the property "as is" regarding deferred maintenance. To make matters worse, some of these buyers waived their right to inspect the property. To avoid making this mistake, have any property you're seriously considering well inspected. And, keep in mind that a seller who paid a premium price for a property that he didn't inspect might not be willing or able to sell it to you at a price that's reasonable given current market conditions. THE CLOSING: There are good buying opportunities in the current market for well-qualified buyers. Just make sure that you pick your bargains carefully. |
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| Attic ventilation makes a healthy home Does your house have enough vents in the right places? By Paul Bianchina If you're like most folks, you've probably never given any consideration to how well ventilated your attic is. But proper attic ventilation is very important to your home's good health, both in summer and winter. In the summer, a good flow of ventilation will remove unwanted heat that is trapped in the attic. That heat can damage the roofing, and it also makes it that much more difficult to keep your home cool. In the winter, removing attic heat allows the underside of your roof to stay closer to the ambient temperature of the outside air, which helps prevent ice damming. And throughout the year, good attic ventilation removes excess moisture before it can accumulate and create the potential for mold growth or damage to wooden structural members. Properly installed, attic ventilation works on the natural passive movement of air. For the typical attic, this means a combination of low vents along the eaves of the roof, and high vents along roof's ridge. Since the air in the attic is warmer at the ridge than it is at the eaves, lower temperature air is drawn in through the low vents, pushing the higher temperature air out through the high vents. While the movement of air is more dramatic in the summer when attic temperature differentials are higher, this movement actually occurs at all times and in all temperatures. VENTILATION REQUIREMENTS How much ventilation your attic needs depends on the size of your house and, to some degree, its shape. To determine ventilation requirements, most building codes rely on a simple mathematical formula of 1 square foot of ventilation area for every 300 square feet of attic area. For example, if your home has 1,500 square feet of living space, you would need 5 square feet of vent area to provide an adequate amount of air flow (1,500 square feet divided by 300 = 5). Since it is the passive movement of the air through the attic that creates the ventilation, the placement of the vents is a very important consideration in how effective they will be. They need to be installed so that roughly half are in high locations along the ridge or in the gable ends, and half are placed low along the eaves. Attached garages can add to the ventilation load of the home as well. If your home has an attached garage and the attic of the garage is continuous with the attic of the house, then the square footage of the garage needs to be included as well. For example, if your 1,500 square foot home has a 500 square foot attached garage and the attics are continuous with one another, then the required vent area goes from 5 square feet to 6.67 square feet (1,500 square feet + 500 square feet = 2,000, divided by 300 = 6.67). If the garage is attached to the house but the attics are not continuous, you have a slightly different situation. Because the attic of the garage is still going to get warm (even if the garage does not have a ceiling), that heat is still going to have an impact on both the garage roofing and the heat being transferred to the house, not to mention on the garage itself and all its contents. Therefore, the garage attic needs to be ventilated as well. You can use the same 1:300 formula, but the square-foot requirements and the layout of the vent locations for the garage should be considered independently of the house attic. NET-FREE AREA If you were to purchase a vent that is 12 inches by 12 inches (one square foot) in overall size, you would not actually be getting one square foot of ventilation area. The framework of the vent and especially the insect screening in it reduces the overall amount of area that the air can actually pass through -- sometimes by as much as half. For that reason, vents are rated in net-free area (NFA), which is the actual amount of open ventilation area that the vent contains after deducting out all of the space taken up by the frame and the screening. The exact NFA will be printed directly on the vent by the manufacturer, and it's important to utilize this number as opposed to the overall size of the vent in making your calculations for how many vents you will need. With whatever type of vents you use, remember to keep them free of insulation and other debris that reduce their effectiveness, and to be certain that all bathroom, kitchen and other exhaust fans in the house are vented all the way to the outside, not into the attic. |
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| Presale inspections can give sellers advantage By Dian Hymer It's becoming more common for sellers to hire inspectors to inspect their property before it's put on the market. The reports are then made available to buyers to review before they make an offer. From a seller's perspective, presale inspections accomplish two goals. One objective -- particularly in states such as California that have seller disclosure requirements -- is to make sure that property defects are disclosed to prospective buyers in a timely fashion. Sellers who order inspections often do so to ensure that defects they might not be aware of are disclosed before, not after, the sale closes. However, presale inspection reports should not be viewed as a substitute for a seller's disclosure obligations. For example, if you are aware of a roof leak, you must disclose it, even if the inspector misses this defect. Another benefit to sellers from presale inspections is that they tend to cut down on renegotiations that can occur after buyers complete their inspections. If the buyer is aware of a defect before an offer is made, it can be factored into the offer price. This way, the seller has a better idea of how much he is likely to net from the sale at the time the offer is accepted. The more a buyer knows about the condition of a property before an offer is made, the better. If minimal information is available when the purchase contract is negotiated, and big surprises revealed are in the buyer's inspection reports, the transaction could collapse. In this case, the seller has to start over. And, the reports that were generated by the first buyers will probably need to be disclosed to future buyers. Sellers who understand the wisdom of ordering presale inspection reports should use inspectors that are well known and respected in the local area. Your real estate agent should be able to recommend the best local inspectors to you. Some sellers and listing agents mistakenly order reports from inspectors who are known for being less critical than others. This can defeat the seller's purpose and raise a suspicion in the buyer's mind if the inspector overlooks an important defect that the buyers uncover when their inspector examines the property. The seller of a Crocker Highlands home in Oakland, Calif., recently hired a pest inspector who issued a benign report on the property. The inspector recommended no further inspections. When the buyer's home inspector looked at the house, he saw evidence of dry rot under a bathroom. So, the buyers asked a second pest inspector to inspect the property. The inspector recommended that test openings be done to determine if there was damage behind the finished walls. These further inspections revealed damage to the wood framing and a cost of more than $5,000 to repair it. So this particular presale inspection did little to mitigate further price negotiations. HOUSE HUNTING TIP: Before you rely on an inspection report that was ordered by the sellers, make sure that the inspector who prepared the report is well respected for thoroughness and impartiality in the local marketplace. If this is not the case, plan on having another inspector look at the property. If the report is out of date, ask the inspector to update the report before you sign off on it. Read the report carefully. Call the inspector yourself for answers to any questions you might have about the report or the property. Schedule a meeting with the inspector at the property to do a walkthrough of the property with you so that he can explain the report and answer any questions you might have. THE CLOSING: It's never a good idea to forego inspections just to save money. |
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| Swapping vacation homes easier under IRS rule By Benny Kass Many investors are taking advantage of the like-kind exchange, which is authorized under Section 1031 of the Internal Revenue Code. These exchanges are commonly referred to as "Starker" exchanges. But if you own a vacation home, there has been a lot of confusion as to whether that property qualifies for the exchange. Indeed, back in September 2007, the Treasury Inspector General for Tax Administration (TIGTA) issued a scathing report about the lack of IRS oversight of the capital gains (or losses) deferred through this kind of exchange. The TIGTA report recommended that the IRS "must provide clear guidance to taxpayers regarding the rules and regulations governing like-kind exchanges with respect to second and vacation homes that were not used exclusively by owners." The inspector general expressed concerns that "the absence of clarification on this issue leaves unrebutted the sales pitch of like-kind exchange promoters who may encourage taxpayers to improperly claim deferral of capital gains tax by selling non-qualified second and vacation homes through 'tax-free' exchanges." The IRS agreed and promised to issue guidelines by March 15, 2008. True to its word, effective March 10, 2008, we now have what is known as a "safe harbor" for these vacation-home exchanges. In order to have a valid Starker exchange, only investment properties can be swapped with other investment properties. There are other tax benefits for homes used as the principal residence, such as the ability to shelter up to $500,000 of the profit you have made (if you are single or file a separate tax return, this exclusion is limited to $250,000 of gain.) According to Revenue Procedure 2008-16, the property must be a house, apartment, condominium or similar improvement that "provides basic living accommodations including sleeping space, bathroom and cooking facilities." This can include mobile homes and boats. When discussing the 1031 exchange, one must use the proper terminology. The property that you currently own and want to dispose of is called the "relinquished property." The new property that you want to obtain by way of the exchange is the "replacement property." A safe harbor simply means that if you follow the guidelines promulgated by the IRS, your tax return will not be challenged. To qualify the relinquished vacation or second home for the exchange, it must have been owned by the taxpayer for at least 24 months immediately before the exchange. (The IRS refers to this as the "qualifying use period.") And in addition, for each of the two years within the qualifying use period, the taxpayer must have rented the property at a fair rental for at least 14 days. Furthermore, the taxpayer cannot have used it personally for the greater of 14 days or 10 percent of the number of days during each 12-month period that the property is rented at a fair rental. Sounds confusing, but it is the law. The IRS does not want taxpayers to claim that their property is "investment" when in fact they take their families to the beach for the entire summer. You can, of course, periodically go to your second home to inspect it, and make any necessary repairs. However, if that use exceeds the use restrictions described above, you will not be able to do a Starker exchange. Confirm this with your own accountant. What is fair rental? The IRS falls back on its standard formula: It will look to the facts and circumstances of each case. To be on the safe side, have at least two real estate agents provide you with a written market analysis of the rents being charged for similar properties in the area where both the relinquished and the replacement properties are located. What about the replacement property? Here, the same rules apply. If you swap one property for another, you must rent it out for at least two years or the exchange will fail. According to the IRS: "If a taxpayer files a federal income tax return and reports a transaction as an exchange under §1031, based on the expectation that a dwelling unit will meet the qualifying use standards ... and subsequently determines that the dwelling unit does not meet (those) standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange..." That could be calamitous. You did a 1031 exchange, and by law, you have to use all of the proceeds from the sale of the relinquished property in order to obtain the replacement property. Now, you have failed to comply with the requirements and have to file an amended return -- and pay the tax on the capital gain. Where will you get the money to do this? If you follow the rules, a 1031 exchange is a very valuable tool. For example, if you purchased your investment property for $200,000 and sold it for $400,000, you would in most cases have to pay the IRS $30,000, in addition to any state or local tax. However, if this property were sold in connection with a Starker exchange, and you obtained another investment property worth at least $400,000, you would not have to pay any capital gains tax. Instead, the basis of the old property would be transferred to the new one; you would have to pay the tax only when you ultimately sold the replacement property and did not engage in yet another 1031 exchange. But you must understand that a 1031 is not a "tax free" process; it simply defers the time when you have to pay the capital gains tax. And even if you follow the vacation rules outlined in the recent Revenue Procedure, you still have to comply with the general requirements of a like-kind exchange. While you must consult your tax and legal advisors about your specific situation, here is a brief synopsis of the rules. You must identify the replacement property within 45 days after you have gone to settlement on the relinquished property. The identification must be as specific as possible. You can identify up to three such replacement properties. However, if you want to identify more, the aggregate fair market value of the identified properties cannot exceed 200 percent of the aggregate value of the relinquished property (or properties). The price of the replacement property must be at least equal to the sales price of the relinquished property. All of the sales proceeds from the relinquished property must be held in escrow by a qualified intermediary; under no circumstances can you have any access to that money. It must all go into the purchase of the replacement property. And finally, you must acquire the new property within 180 days from the day you disposed of the relinquished property. The rules are complex, and must be followed religiously. A successful 1031 exchange is a valuable tool for investors, but any misstep will cause you to have to pay the capital gains tax you are trying to defer. |
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| Home mortgage provides array of tax breaks Rules on deducting loan interest, points By Tom Kelly If you feel better knowing you can deduct the mortgage-interest portion of your huge annual housing expenses, make sure you know exactly how much you can deduct. One of the more popular topics I've had with accountants this year is regarding mortgage interest. You can deduct only interest on the original amount of the loan at the time you refinance, plus $100,000. For example, let's say you purchased your home 10 years ago for $100,000 and took out a loan for $80,000. Since then, you have paid the loan down to $20,000. The house is now worth $275,000 and your oldest child needs college tuition. The house definitely has equity to tap, but your mortgage interest deduction would be limited to the first $120,000 ($20,000 old loan at the time of "refi," plus $100,000). It is important to remember that home-loan-interest deductions simply reduce your taxable income. They are not dollar-for-dollar tax credits that are subtracted from your tax bill. If you have a $1,000-a-month mortgage payment and are in the 15 percent tax bracket, only about $150 a month escapes being taxed in the early months of the loan. You can deduct the loan fees ("points") paid to buy or improve your main home in the year of purchase. You cannot deduct these fees in the year you refinanced if you refinanced only to obtain a lower interest rate on your loan. The term "points," once used to describe only prepaid interest on government loans, now is used to describe charges paid by a borrower to secure any mortgage. These points can be loan-origination fees or prepaid interest to "buy down" an interest rate. To be deductible, these charges -- or points -- must represent interest paid for the use of money and must be paid "before the time for which it represents a charge for the use of the money." According to the Internal Revenue Service, most points paid when you are refinancing an existing mortgage must be written off over the life of the new loan. However, if you sold a home in 2006, you can still deduct several items, including title insurance costs and excise tax. For guidance on closing costs, the best source may be the settlement sheet from the original loan. Points on refinance are not fully deductible in the year in which they are paid because they were not paid in connection with the improvement or purchase of a home, even though the original loan met the requirements for deductibility. What many home sellers forget to factor at tax time are the fees remaining from a previous refinance. All of those fees can be deducted in the tax year you refinanced a second time. For example, let's say you jumped at a 30-year, fixed-rate loan at 4.5 percent in May 2005. In order to get that lower rate (conventional rates were hovering higher), you had to pay at least 5 discount points. If the loan amount were $80,000, one discount point would amount to $800, and five points would be $4,000. Points paid to buy, build or improve your principal residence can be deducted in the year they are paid, as long as they were not rolled into the loan amount. However, because you refinanced to simply obtain a lower interest rate, nearly all of the $4,000 must be written off over the life of the loan. That's because the IRS sees refinancing points as repayment of existing debt. Let's say that last month an unexpected need to send Dad into an assisted-living home necessitated another refinance to pull some cash out of the home. You decide on an adjustable-rate mortgage with a very low starting rate and pay no fees. Now that the existing loan is paid off, the remaining balance of the fees from the previous loan is deductible in tax-year 2007. The tax rules and deductions for second-home owners who rent out their properties on a short-term basis depend on many factors, including how often you personally use your second home, how many nights or a percentage of the nights you rent out your home, and your personal adjusted gross income (AGI). The details can be found in IRS Publication 527, Residential Rental Property (including Rental of Vacation Homes). Now, I need to do a better job of recording all of my deductible expenses that often slip through the cracks. It seems I might have to counter the loss of some mortgage interest for 2007. |
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| Foreclosure rescue scams on the rise States make headway, provide victims relief By Tom Kelly Are the usual suspects returning to mortgage-related scams as a result of the subprime lending fallout? Does the practice of illegal "foreclosure rescue" operations extend even into the second-home market? It always seems that when a large group of consumers are in trouble with their home finances, bad guys are around to help the unsuspecting homeowner dig their hole a little deeper. The latest attempt at the age-old practice of equity skimming is foreclosure rescue where scammers peruse county records to find properties that are facing foreclosure for nonpayment of mortgages or taxes. "Foreclosure rescue scams have overtaken illegal property flipping as the most common scam; however, illegal property flipping is still a problem," said Rebecca Jacobsen, Washington state assistant attorney general. Two months ago, the attorney general's office settled a foreclosure rescue case against three Washington-based businesses and their owners accused of taking unfair advantage of homeowners facing foreclosure. Unlike consumers who had fallen behind on their mortgages, these homeowners were targeted because they were in arrears on their property taxes. "They (the defendants) told property owners that they would solve their foreclosure problems," said Rob McKenna, Washington state attorney general. "But often, their real intent was to let the property go to auction and take any excess proceeds from the sale -- money that would have gone to the property owner if the defendants hadn't 'helped' them." Under the settlement reached and filed in King County Superior Court, Tacoma, Wash.-based Fiscal Dynamics Inc. and Cumulative LLC, along with Seattle-based Northwest Assets, denied the state's allegations but agreed to pay a total of $290,000 in consumer restitution. Two individuals -- Walt Scamehorn, who owns Fiscal Dynamics and Cumulative, and E. Arliss Morgan, who owns Northwest Assets -- also denied the allegations but agreed to the settlement terms. The money will be used to provide refunds to consumers who would have received proceeds from the sales of their homes or land had the defendants not diverted the proceeds for their own use. Based on current information, more than 100 consumers may be entitled to receive restitution. Foreclosure rescue scams have made national news the past month in Massachusetts, Colorado and New Jersey. According to the Massachusetts Attorney General's office, the defendants in its case not only obtained the title to the homeowners' residences but also stripped most of the homes' equity though inflated mortgages, false fees for fictitious services and false certifications by closing attorneys. In certain cases, the defendants resold the homes amongst themselves, thereby extracting any remaining equity. While some second homes in Colorado have been selling at a significant loss, rescue scams typically strike only single-property owners. "Many times people who have second homes are more sophisticated and understand that foreclosure rescue operators are offering something too good to be true," Jacobsen said. "The typical target that we are seeing are people with no other assets who really are in a desperate situation." Tom DiMercurio, a veteran of 37 years in the foreclosure business, agrees with Jacobsen about the second-home market. "Some of the wealthy people in this country are looking at the $2 million vacation house they visit two or three times a year," DiMercurio said. "Many have put them on the market and will not get out of them what they put into them, but they don't draw the rescue plans you are talking about. "Obviously, the very rich never worry about anything, but there were instant millionaires a couple of years ago who paid cash for expensive homes who now wished they hadn't." According to Jacobsen, consumers who think they are being scammed should not sign anything until they get the documents looked at by a neutral party. They should contact the Consumer Protection Division of the Attorney General's Office or their lender for suggestions on who would be an appropriate neutral party to review the documents. If someone offers to bail you out, do your best to make sure they aren't simply tossing more water into your sinking boat. Law enforcement officials believe most of the people offering the help are out to help you sink. |
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| A television in every room The latest home accessory craze By Katherine Salant Once upon a time, about half a century or so ago, the choice in televisions was limited. Only black-and-white sets were available, and the largest screens were only 24 inches. The set was encased in its own cabinetry and nestled in among the other pieces of furniture in the living room. How things have changed. Today a homeowner who wants to purchase a new television confronts mind-boggling choices. There are different types of television sets, an enormous range in screen size, nuances in picture quality, and resolution to satisfy the most persnickety movie buff and the sports nut who wants to watch football games and instant replay with minimal blurring. And there's a set and a price to fit every homeowner's budget, no matter how large or how small. The old-style, picture-tube set, now called a cathode ray tube, or CRT, is more compact that it was 50 years ago, but relative to the newer sets, it's heavy and bulky with a 24-inch depth, and it still occupies floor space, either on a table or in a sizeable armoire. A liquid crystal diode set, usually called an LCD, and a plasma set are, by comparison, extremely compact. With circuitry tucked in behind the screen and a depth of about 6 inches, they can be hung on the wall like a piece of art (some would say that these new sets are pieces of art). Between the two types of sets, screen sizes can range from 7 inches to 60 inches. A rear-projection set is bulky and big, but it's the most affordable option if you have your heart set on a super-sized 61-inch screen. If you're building a new house, a critical difference between the old and new types of televisions is the wiring. It can be concealed behind the walls if you plan ahead and tell your builder where to locate your cable outlets. Where might you want a television in your new house? A recent interview with Dave Wilson, a home technology integrator based in Orlando, Fla., suggests that there's a set for every household activity. The only thing keeping you from having a television in every room is a lack of imagination or perhaps a streak of practicality -- while you could have one everywhere, some locations are more sensible than others. For example, the laundry room is one place that you will be spending a fair amount of time, especially if you have young children or a large household and do laundry every day. A television can be a welcome diversion that makes the time go faster as you sort loads, fold clean clothes, and, most of all, while you iron (surely the most odious chore of them all). As most laundry rooms are compact spaces, Wilson recommends a wall-mounted, 15-inch LCD. Another spot for a television and a room where you probably don't have one now is the master bathroom. Wilson's clients often want one there so they can catch the news and weather as they start their day. In the past he rarely did it because of the challenges and cost involved in trying to install one of the old-style clunkers -- you had to steal space from an adjoining room to create a niche big enough to house it. With the new, compact, wall-mounted sets, however, you can put one almost anywhere in a bathroom, including behind a mirror, Wilson said. The question for today's homeowners is how many sets in your master bathroom and where? In some bathrooms, one set will suffice because you can see it from both vanities and the soaking tub. But Wilson said it's not uncommon to install three because the vanities are quite separate and the tub is off in its own alcove. To avoid cacophony when both spouses get ready for work at the same time, they have to agree on the same station, he added. The set by the tub would be watched during a relaxing soak on the weekend or at the end of a work day. No one would watch an entire movie, but it's a nice place to watch the evening news or perhaps one show, Wilson said. He uses a 15-inch LCD in the vanity area. For the tub area most homeowners want a bigger screen, and he's installed LCDs as large as 46 inches. A television for your home office is another increasingly popular option, Wilson said. Though some homeowners engage in solitary pursuits in their home offices and regard a television as an intrusion, others need to follow the news and stock quotes throughout the day. The challenge is placing the screen so that you can frequently glance at it without being distracted as you work at your computer. Wilson has tucked an LCD into a bookcase by the desk or placed one on the wall so that you can see it by swiveling your chair or looking up. A television for the kitchen is also becoming increasingly common. Although it's the center of family life in most households, it's also a room where the cook is likely to spend a lot of time alone, especially if he or she gets home from work first and starts the meal prep before the rest of the household arrives. In those instances, a television can be good company. Because you'll be listening more than you're watching -- chopping vegetables, stirring sauces, and all those other tasks require your full attention --a small screen can work well, Wilson said. He likes to tuck a 15-inch LCD that flips down for viewing under a wall cabinet by your food prep area or, where possible, position a wall mounted LCD so that family members sitting at the kitchen counter can also see it. The one place where most people want a set with a big screen is the family room, and most want the biggest size they can afford. But, Wilson advised, to maximize your viewing enjoyment, you need to consider other factors as well, including the viewing angle, the proportions of the screen, the degree of contrast, glare, and the sharpness of the image, which can vary from one type of set to another. The salespeople in locally owned upscale appliance stores or national chains such as Best Buy are generally quite knowledgeable on the technical end of things. But they can't predict how well a particular set will work for you without seeing the space where you want to view it. For example, a big screen in the store will often look even bigger in your family room and overwhelm the space, Wilson said. To see if the size you want is a good fit, he suggested making a mock-up of the actual screen size and tacking it up on your wall. You'll quickly decide if it looks right or ridiculous. Another consideration for a family-room space is viewing distance. The bigger the screen, the farther back you must sit to watch it comfortably. The rule of thumb, Wilson said, is that the viewing distance is 1.5 to 2 times the width of your screen. For example, a 56-inch screen size has a width of 46 inches to 48 inches and a viewing distance of about 6 feet to 8 feet. For most family rooms, a 50- to 60-inch screen works best, he said. Another issue with the big screens in family rooms is where to put them. Bowing to the tradition of "home and hearth," most homeowners want to arrange their furniture around the fireplace. But they also want to arrange the furniture for maximum comfort while watching television. You can have both if you hang the set above the fireplace, Wilson said. Some homeowners think this looks terrible when the set is turned off. In these instances, he covers it with a retractable piece of art. For this arrangement to look right, he added, the size of the fireplace and the television screen should be similar. If your fireplace measures 42 inches on the diagonal, you would want a 42-inch LCD or plasma set. But he hastened to add, other factors can also come into play. If you have a long mantelpiece, a 50-inch screen might look OK. |
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| Smart home sellers opt for pest inspection By Dian Hymer No one wants to buy a house that's riddled with termites. So, a termite inspection -- technically an inspection for damage by any kind of wood-destroying organisms -- is usually done at some point during the course of a home sale. Loosely referred to as a termite inspection, an inspection for wood pests covers such organisms as dry rot, fungus, wood-boring beetles, carpenter ants -- to name a few -- in addition to termites. Who pays to repair the damage varies, often depending on market conditions. For example, during soft markets that favor buyers, sellers are usually more willing to pay for pest repairs than they are when houses sell quickly. However, in a hot seller's market, buyers are more likely to overlook these defects and buy properties in their "as is" condition, without asking the sellers to pay for repairs. Even if a seller doesn't have to do pest repairs in order to sell, there are times when it makes sense to do so. Buyers look favorably on a house that has little, if any, pest damage. It's one less thing for buyers to worry about after moving in. A pest report with little or no damage is a big draw. Although it's not custom everywhere, it's wise for sellers to have their homes inspected for wood pests before selling. Actually, it's a good idea for homeowners to have their homes inspected every few years, even if they're not planning to sell, so that problems can be dealt with before they become major. In some areas, sellers don't pay to have their homes inspected for wood pests until they have accepted an offer from a buyer. This approach can be problematic. If the pest inspection reveals more damage than anticipated, the contract could end up in renegotiation. And, if you can't come to terms with the buyers, the listing will be back on the market. There's another advantage to having a wood pest inspection done before the marketing begins. Even if you don't have the time or inclination to have all the work done, it might enhance the marketability of the home to have selected items done. For example, let's say the bathroom floor not only looks bad, but there is dry rot underneath it. The pest report calls for removing the old floor, repairing the damage and installing a new floor. If you do this work before you put your home on the market, you not only eliminate one of the items on the pest report, but your home will probably look more attractive to prospective buyers. HOUSE HUNTING TIP: As nice as it is to move into a house that needs no work, there are benefits to having the buyers oversee corrective work. The sellers are on their way out of the property. They could be involved in a job transfer or a divorce, and have little time to devote to making sure the job is done correctly. The buyer has a vested interest in making sure the job is done right. It may be advantageous for the buyers to take responsibility for wood pest repairs if they plan to make improvements to the property. For instance, a buyer could factor deck repair costs into the price and accept a dry-rotted deck in its present condition, without asking the sellers to make repairs. That is, if the condition is not an urgent concern. This way, the buyers can redesign the deck to meet their own specifications. THE CLOSING: Buyers who agree to take on the pest work can either factor that in to the price or ask the seller to credit money to them at escrow. Check with your mortgage representative to determine the best way to structure the transaction taking your financial situation into account. |
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| What's causing my mold infestation? By Bill & Kevin Burnett Q: I have mold developing underneath a window in my bedroom. The window faces north-northwest and never has sun on it. I wonder if the mold could be caused simply by moisture accumulating in the room, or is it a more serious problem, such as a leaking window frame? I have no idea whom to consult. One inspector wrote in his report that the paint job was poor, but didn't say why. There's a contractor in my neighborhood, but how do I know he knows what he's talking about? I'd like to get someone who could determine what is causing the mold, and why the paint splits off my front window sills within months of being applied. The wood is not soft, and the tip of a knife does not penetrate. Any tips on what kind of expert I should be consulting and how to recognize a reliable person would be greatly appreciated. A: The mold on your window is either the result of too much moisture and too little ventilation or it could be symptomatic of a more serious problem. The peeling paint on the front window sills likewise could be a sign of excess moisture or it may simply be that the top coat of paint is incompatible with the undercoat. If there is a structural problem, it is possible that it's caused by termites, but we doubt it. More likely it's caused by a fungus infestation, also known as dry rot. Fungus flourishes in moist conditions. We recommend that you employ a licensed professional structural and pest control contractor to determine whether you have a problem and if so, its extent. The inspection you had done seems to have been deficient. A "bad paint job" tells us (and you) nothing. If, for example, exterior caulking was substandard, that may be the cause of water infiltration and the mold. If it's been going on awhile it could also cause rot. A general building contractor might be of help in identifying structural defects but generally does not have the specialized training necessary to ferret out and identify specific pest control problems, such as the cause of the mold under your window. As for finding a reliable structural and pest control inspector, we suggest you inquire with the people who use them the most: real estate brokers. A structural and pest control inspector is part of almost every home sale. Most brokers have a number of pest control operators they use regularly. Tell the broker up front that you're not thinking of selling (unless you are) but that you have a problem and are looking for some guidance. We think the broker will be happy to recommend a licensed pest control company. Once you have a name, schedule an inspection. Also ask to talk to the inspector and tell him your concerns. We recommend that you have the entire home inspected and that you be there during the inspection. It's possible that the inspector will suggest that he open a test hole or two in the exterior walls to determine if there is hidden damage. This is the case especially if the house siding is stucco. Our experience is that inspectors do not recommend this unless they suspect trouble. Allow him to do it, but ask him to patch the holes when he's done. After the inspection, ask the inspector to talk to you about his findings and ask questions. He'll probably be happy to take you around the house and show you any problems he uncovers. A week or so after the inspection you will receive a written report detailing the damage he's found and the cost to repair it. At this point you can choose what, if anything, to repair. You can also put any suggested repairs out to bid. The cost of the inspection should be no more than $200. We think this is a bargain for the knowledge you'll get. If what you have is merely mold, the cause is a lack of sunshine and inadequate ventilation on your north-by-northwest windows. This is especially true if you live in a foggy area. Mold needs three things to thrive -- moisture, food and a temperate environment. The moisture is provided by condensation; the food is the paint or plaster; and the temperate climate is provided by the warmth of your home's interior. If the mold is not too severe, clean it up by wiping the area with a 25 percent solution of chlorine bleach and rinsing with cold water. Keeping the curtains open and the promoting ventilation by opening the door and windows (weather permitting) will help keep the mold at bay. |
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| Pros and cons of buying fixer-upper home By Dian Hymer Buying a fixer-upper home can certainly be profitable. But if you're not careful, it can also lead to a financial misstep. Here are tips to keep you on the right track. Many first-time buyers are attracted to fixers as a way to buy a home in a choice neighborhood that would otherwise be unaffordable. A successful fixer turnaround requires time, money and expertise. If you're a first-timer who works full time, is short of funds, and has little or no previous contracting experience, you should reconsider this strategy. Regardless of whether you're a first-time or seasoned home buyer, you should seriously consider if you're well suited to the task before you buy. Remodeling is challenging and disruptive. It can end up taking longer and costing more than anticipated. Many relationships have crumbled during renovation projects. Buyers who are convinced that buying and renovating a distressed property will be a personally and financially rewarding endeavor need to make sure that the property they buy is worth the price they pay. Overpaying for a fixer can jeopardize your equity. In fact, if you overpay and then overimprove for the market, you can end up with negative equity. Beware of overpaying for fixer properties in hot markets with limited inventory. Some buyers get caught up in the frenzy of a bidding war and pay more than they should because they perceive an opportunity to make even more money. HOUSE HUNTING TIP: Gambling on appreciation is risky. It's impossible to perfectly time the market. If oil prices were to suddenly skyrocket, sending interest rates higher, a rip-roaring market could be brought to a halt. To decrease the risk factor, make sure you pay no more than fair market value, regardless of how fast you think market values will climb. In a slower market, a listing that has been on the market for awhile might be a good buy if the seller's ready to negotiate. But, if a fixer has been on the market for some time with no offers, ask yourself if it's a good deal at the price if no one else wants it. Find out why the property hasn't sold. Is it the price, current market conditions or the condition of the property? If it's the latter, make sure that you have a keen understanding of the property's condition and the cost to correct defects before you buy. Some fixers need expensive infrastructure improvements, like a new drainage system or a foundation retrofit. These improvements, while necessary, won't return 100 percent of the cost when you sell. If you buy a home that needs system upgrades, make sure that you will be able to offset the costs you won't recoup with cosmetic enhancements that will return more than you invest. Cosmetic fixers provide the greatest opportunity in terms of return on your investment. If possible, get multiple estimates for significant work during the inspection contingency time period. In most cases, fixed-price contracts are a good idea if you are working with minimal funds. Time and material bids could run less than a fixed-price bid. However, they could also run over what you've budgeted Budget carefully and then add at least 10-15 percent for cost overruns due to delays, increases in the costs of materials, changes and additions. Save all reports and receipts for work done. Use licensed contractors for significant work and take out permits when required. Do it yourselfers with no prior building experience should limit their participation to less complicated projects such as painting and yard cleanup. THE CLOSING: Save copies of old reports and documentation of defects you've repaired and improvements you've made. They will be useful when you sell. |
| When can home seller cancel deal? Bounced deposit check raises red flag By Robert J. Bruss DEAR BOB: I had a contract to sell my home. I gave the buyer seven days to bring me an acceptable mortgage letter from a bank, but he presented a letter from a mortgage broker indicating final approval of his loan was subject to "underwriting." His bank returned his $1,000 deposit check for insufficient funds. Can I legally terminate his contract? --Jorge S. DEAR JORGE: From your description, it sounds like your buyer is in breach of the sales contract. That letter from a mortgage broker indicating his mortgage approval is subject to "underwriting" is worthless. Today's smart home buyers get preapproved in writing by an actual lender before shopping for a home. If your buyer had done that and shown you the lender's approval letter or certificate, you could feel confident he'd obtain a mortgage. Although mortgage brokers can obtain such preapprovals for their borrowers, because they are not the actual lenders, mortgage brokers can issue only prequalification letters, which are nonbinding on actual lenders. Especially because your buyer's $1,000 deposit check bounced, if I were in your shoes, I would feel confident canceling that sale for breach of contract. For full details, please consult a local real estate attorney. ANOTHER DISADVANTAGE OF GIFTING A PROPERTY BEFORE DEATH DEAR BOB: In a recent article, you answered a widow's question about gifting her property to her daughter and son-in-law. But one tax consequence you failed to mention, which snares many people, is the fact that by gifting real estate before death to a child, the child loses the opportunity to receive a stepped-up basis to market value upon the donor's death --Tim F. DEAR TIM: Shame on me. How could I have forgotten that major benefit of inheriting real estate instead of receiving it as a gift before death? A big disadvantage of a property gift is the donee takes over the donor's adjusted cost basis. In the situation you describe, the mother presumably had a very low cost basis if she owned the property for many years. The gift donee takes over that low basis. However, when real estate or other assets are instead inherited, the heir receives title by inheritance with a new stepped-up basis of market value on the date of the decedent's death. For more details, please consult your tax adviser. MUST HOMEOWNER FORM A CORPORATION TO RENT A HOUSE? DEAR BOB: Do I need to form a corporation to rent my single-family house as an investment property? My son says "yes." --Christina K. DEAR CHRISTINA: I'm sure your son is a fine young man, but he is mistaken on this issue. Landlords do not need to form a corporation before they can rent their property to tenants. Millions of property owners rent real estate to which they hold title in their own names without forming a corporation. Perhaps your son was thinking that forming a corporation to hold title to the rental house would limit your liability. But forming a corporation is not necessary. Nor is it a good idea, especially because holding title in a corporate name forfeits your rental property income tax benefits. However, before renting that house to tenants, please consult your insurance agent to be certain you have adequate liability insurance. You need a rental property owner's insurance policy, not a homeowner's insurance policy. With adequate liability insurance, you can rest easy and forget about all the drawbacks of owning corporate real estate. For more details, please consult a local real estate or tax attorney. |
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