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| Real Estate Update |
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Articles and Advice |
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| Pricing to sell in today's market By Dian Hymer Putting yourself in the right mindset to sell is essential. It's the most difficult aspect of selling for most sellers. Your home is worth what a buyer is willing to pay, which may not be what you think it is worth. Detaching yourself emotionally from your home is difficult. Clearing out years of clutter, depersonalizing your home by removing personal memorabilia, and staging your home for sale can help you step back and view the home as a commodity that needs to be sold rather than as your personal sanctuary. Putting your home on the market at a price that reflects what you want and not what the market will bear can cost you time and money as it sits on the market unsold. The home-sale market is a localized phenomenon. The only way to get a clear picture of what your home is likely to sell for is to find out which listings are selling in your neighborhood and for how much. The most recent sales -- those that closed within the last three months -- will be the most informative. Be sure to take a hard look at the list prices of homes that are new on the market. If the list prices are lower than they were two or three months ago, this indicates that prices are declining. This needs to be taken into account when you select a list price. HOUSE HUNTING TIP: Pay close attention to your competition. Don't fall into the trap of pricing your home higher than your neighbor's home because yours is better. If your neighbor's price is too high for the market, neither of your homes will sell. Ask your listing agent to call the listing agents of properties similar to yours to find out what kind of showing activity they are receiving. Have they had offers? If so, why weren't they accepted? Were the offers too high? If so, you should set your sights lower. Some listing agents recommend that you list considerably under market value in order to stimulate multiple offers. In some cases, this can be an effective strategy. For example, in the low-end foreclosure market, this was common practice at the end of 2009. Some listings priced way below market value received more than a dozen offers. However, it can be risky to price significantly lower than market value on a more expensive property for which the demand is lower. You could end up with more than one offer, but you could also receive under-market price offers. Your home needs to be perceived as a good value to a buyer to sell in this market. However, you could shortchange yourself by discounting the price too much. Your home is most marketable when it is new on the market. Buyers wait anxiously for the new crop of listings. Listings that don't sell relatively quickly often languish on the market. Price reductions often follow as the sellers try to find market value. A listing that has been on the market for months is likely to receive a low offer -- if a buyer makes any offer. A listing that receives a lot of showing activity when it first hits the market but gets no offers is probably overpriced for the market. In this case, it's best to lower the price to market value as soon as possible while the listing is still fresh in agents' and buyers' minds, even if this is within two to four weeks of the listing date. THE CLOSING: Listings in neighborhoods where sales activity is slim require a longer marketing period. Even so, pricing right for the market is imperative. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Playing the real estate waiting game By Dian Hymer Buyers often are reluctant to make an offer to buy a home they find early on in their search. After looking for months and not finding anything comparable, some buyers regret not having moved quickly on a listing even though they saw it early on. In most cases, you should consider yourself lucky if you find the home you want to own for years relatively quickly. It's not uncommon in some low-inventory markets for buyers to look for a year or more before they are able to buy. For the last few years, sellers who haven't had a pressing need to sell have been waiting for a better market before putting their homes on the market. In one case, the inventory was so paltry that buyers who purchased in the Upper Rockridge area of Oakland, Calif., looked for four years before finding the house that would work for them in the long term. In high-demand niche markets, there can be a shortage of listings and a lot of buyers waiting for the same kind of home. A couple who purchased in the Oakland Hills looked for more than a year in an area where not much that suited their needs was available. They made two offers during that time and ended up losing in multiple-offer competitions before they were finally able to secure a new home. HOUSE HUNTING TIP: Buyers who find the right home soon after starting their search need to get a quick education about the local market in order to be able to keep from making a bad decision. You don't want to pass on a house and kick yourself later for doing so. You also don't want to buy a house that doesn't work out for you, particularly in the current market. You'd be unlikely to sell the home again soon and break even. Find out how often a listing like the one you're considering comes on the market. High-quality, well-located homes in coveted locations come on the market infrequently in some areas. Ask your real estate agent how many listings like the one you're interested in came on the market in the last six months or one year. How long did it take them to sell? Were there multiple offers? In other areas that have lots of homes for sale similar to the one you like, you have the luxury of shopping the market awhile. If someone else buys this home, you'll be able to find another in a reasonable period of time. There's no urgency, unless interest rates are rising and locking in a low rate is key to being able to afford the home you want. To ease your concern about buying a home before you've seen many, scour the Internet for other similar homes for sale in the area. Ask your agent to show you any other homes currently on the market that might work for you. This is how to determine the range of housing options in the area as well as understand local pricing. Buyers from out of the area are at a disadvantage if they are not familiar with the housing market in the new location. The Internet helps buyers gain information about what kinds of homes and how many are available in the new location. THE CLOSING: Although no one likes to make an interim move to a rental before buying, it does have the benefit of letting you live in the new community and decide which neighborhood will work best for you. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist. |
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| Loan modification “blackmail” By Benny L. Kass DEAR BENNY: My wife and I received from our lender a repayment agreement for our original mortgage. This was a result of the bank initiating a foreclosure sale, which was temporarily suspended because we agreed to enter the Home Affordable Modification Program. But the bank is asking us "to acknowledge that they are the legal holder and owner of the Note and Security Instrument and further acknowledges that if Lender transfers the Note, as amended by this Agreement, the transferee shall be the 'Lender' as defined by the agreement." It should be noted that this is not the original bank we signed the mortgage with. We obviously won't sign this amendment and supplement to the original mortgage until we have an attorney review the documents. What do you think we should do? --Brian DEAR BRIAN: Your lender is trying to protect itself by having you sign that document. Over the past several years, lenders sold their mortgage loan papers in bulk to such groups as Fannie Mae or Freddie Mac who "securitized" those loans and resold them to investors all over the world. No one knows the whereabouts of the original promissory note that you initially signed.. And many judges throughout the country have told lenders, "If you cannot show me the original note, I will not let you foreclose on the property." So, your lender is basically "blackmailing" you. If you want the loan modification, you have to sign the agreement. You really should get a lawyer to assist you. The lawyer will determine whether judges in your state require the original note. If they do, you may be in stronger bargaining position with your lender. It should be noted that not all courts have adopted this position. The bottom line: You don't want your house to be foreclosed upon. Only you can make the decision, but get some legal advice before you sign that agreement. DEAR BENNY: In 2006, the assessed value of my house had climbed to $756,000 and then dropped to $714,000, trailing the declining market. I filed an abatement based on erroneous information that my town was using, and was successful. My house was reassessed at $531,300, very close to my suggested valuation. About the same time, I refinanced my house based on a bank appraisal of $678,000. Since then, my house valuation has decreased each year and it now has an assessed value of $442,600; our area is being re-evaluated this year. Here is my dilemma: I firmly believe, based on almost daily research, that the market value of my house is somewhere in the low $500,000s. I think by filing this abatement, I shot myself in the foot. I know buyers look at the assessed value, which is easily accessed on our town Web site. In my case, this differs dramatically from two years ago as well as the appraisal I had during the same month my abatement went through. Can I realistically list my house at what I consider to be market value and expect a real estate agent to explain these events to potential buyers, or am I stuck with an asking price closer to the current assessed value? --Karen DEAR KAREN: I don't think you shot yourself in the foot; in fact, you have been paying real estate tax on the lower assessed value. You can list your property for any amount you feel it is worth. Some real estate agents may balk if your valuation is too high, but if you have the research (comparables) showing what other similar houses in your area are selling for, you should be able to convince the agents of the value of your house. From my experience, assessments in many parts of the country are not consistent with a home's true value. Many older homes are not carefully inspected, so the government assessor does not always know what kind of improvements have been made. Keep in mind that based on today's economy we are in a buyer's market. Regardless of the price you set for your house, potential buyers will lowball their offers. Obviously, you do not have to accept any offer and have the absolute right to counter with a higher price. When an offer is made either to a seller or a buyer, the recipient has three alternatives: you can accept it, you can counter, or you can reject it outright. One suggestion: Because most buyers do not pay all cash, they will need to get a mortgage. Lenders will obtain an independent appraisal before committing a loan, and appraisers are coming in very conservatively with their valuations. So, to satisfy yourself, I suggest that you consider obtaining your own appraisal before you sign up with a real estate agent. It will be worth the $300-$500 dollars that most appraisers will charge you. DEAR BENNY: I own a condominium unit in a fairly large association. Over the years with good management, we have amassed a sizable reserve account. Recently, the board announced that because we are earning only a very small amount of interest on this account, it wants to start investing these funds in the stock market. The announcement stated that with interest rates starting to increase, the board believes that the stock market will be a good place to earn more money for our association. Can the board do this? --Charles DEAR CHARLES: If absolutely every owner in your association agrees to go to Las Vegas and gamble with your reserve account, I would reluctantly have to say this would be legal (although clearly inappropriate). Notice that I said that every owner must affirmatively agree. Your board of directors has a fiduciary duty to all of the owners who elected them to their positions on the board. If they want to spend their own money on the stock market -- or in Las Vegas -- that of course is their business. They certainly have the right to spend their own money as they see fit. But your reserve account does not belong to the board; it belongs to every owner in your association. The clear obligation of the board of directors is to invest your money in secure, insured investments -- even if that means that your money may not be earning as much as everyone would like. Reserve accounts are very important to the well-being of any community association. If, for example, your elevator or your roof needs replacement, and if the association does not have enough money in reserve to pay for these matters, each owner -- including you -- may be faced with a special assessment. This may cost you a lot of money. More important in today's market economy, lenders are insisting that a condo association have adequate reserves before they will commit to a mortgage loan. Indeed, the FHA loan -- which today is probably the most important mortgage around -- requires associations to have a minimum reserve requirement of 10 percent of the annual budget. For example, if your association's budget is $400,000, you have to allocate $40,000 annually for future reserves. A reserve simply means that the association should have money set aside "in reserve" to cover the cost of future emergency or major repairs. Reserves are (or should be) an essential part of every community association. 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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| Pay attention to home inspection By Paul Bianchina For just about anyone, a home is the single-most expensive and single-most complex thing that you'll ever own. So when making that purchase, you certainly want to do everything possible to be an informed buyer and to protect yourself and your investment. One of the ways to do that is to have a home inspection prior to closing the deal on the purchase. A home inspection will give you a lot of information about the physical condition of the home you're considering buying, and should alert you to any potentially serious problems. But as a potential home buyer, it's important that you understand what a home inspection includes and doesn’t include. There are certain things you legitimately can expect your inspection to provide for you, and certain things that it won't. And you also need to understand that the more you participate in the inspection process, the more you'll get out of it in return. Finally, understand that just like there are good and bad contractors, there also are good and bad home inspectors. Expect to have to do a little homework to find one of the good ones. What is a home inspection? A home inspection is a visual inspection of the home you're thinking of purchasing, performed by an objective third-party inspector. The inspector will examine the physical structure of the home from top to bottom, as well as the home's operating systems. Typically, a home inspector will look at the following things: • Outside: The exterior home site; general condition of the foundation and basement walls; condition of the exterior walls, including the siding, exterior trim, windows, exterior doors and exterior paint; type and condition of the roofing; condition of gutters, downspouts, flashings, and vents. • Inside: The condition of the attic, roof support structure, attic insulation and attic moisture issues; condition of the basement and crawl space, including insulation and moisture issues; garage and carport; electrical system; visible plumbing system; heating, cooling and ventilation system; general interior condition of the home. A short time after the end of the inspection you'll receive a written report detailing the inspector's findings. Any defects the inspector identified will be noted. Inspectors never should attempt to sell you anything, such as their services to come in and fix anything that was identified in the report. To do so would be a clear conflict of interest. It's important to understand that inspectors do not do what is known as "destructive testing." In other words: they don't cut holes in walls or otherwise open up inaccessible areas to look inside. Everything is based on their visual inspection of whatever they can access. They're also not there to comment on anything that's readily apparent from a cosmetic standpoint, such as a sloppy paint job. What types of things does the inspection not cover? It's equally important to understand what a home inspection doesn't cover, because this is where you need to be sure that you continue with your due diligence when you're buying your home. For example, your home inspector will point out any obvious signs of visible mold or mildew in the home. However, he will not be performing any type of actual mold inspection. If you suspect a mold infestation in the home, you need to have testing done by a trained hygienist. Home inspectors will point out structural problems that have been caused by insect damage. But they're not there to perform a complete termite inspection. They also don't do inspections for the condition of the well, septic tank, or any type of soil contaminants. You also need to be very aware of the fact that a home inspection has nothing to do with code violations or zoning issues. You need to check those things out for yourself with the local building and planning offices. It's up to you to assure yourself that any prior work on the house was done with the necessary building permits. It's also up to you to check that there are not any issues when it comes to how the house is currently zoned, or how the current zoning might affect your use of the property in the future. What do you need to do? You have a couple of other responsibilities in this process as well. First of all, know who your inspector is, and what's required of him. Different states have different regulations pertaining to how home inspectors are regulated, so find out what's required. Interview the inspector before you hire him. Be sure he complies with all those requirements, including whatever license, insurance and bond is needed. Ask for and verify references. Ask for and read a sample report. Be sure it gives you the type of information you need, in a format you can understand. Find out if the inspector belongs to any professional trade organizations, and what their standards and codes of ethics are. The other important thing is that you need to attend the inspection. Follow the inspector around, even up into the attic and into the crawlspace if you're physically able to do so. See what he's looking at. Understand the potential problems. Ask questions and take notes. When you get your report, read it over from cover to cover at least twice, and be sure you understand it. You paid for it, and it's one of the most important documents you'll ever have. So if you don't understand any of it, be sure someone explains it to you. |
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| Is “do it yourself” in your DNA? By Paul Bianchina In many ways, this is a tough time to be a homeowner. Finances might be tight, but that doesn't stop the roof from wearing out, or the plumbing from starting to drip. Or perhaps you're thinking of selling your home, and you need to add a deck or replace some windows or siding in order to be competitive in a tough real estate market. But you can't really afford to hire a pro. That may have left you giving some serious thought to undertaking some do-it-yourself projects that in the past you might not have considering tackling. There are some pros and cons to that. Doing things yourself saves money and adds value to your home. It can also bring a lot of personal pleasure, and a definite sense of pride. But there are risks. A poor job can actually detract from the value of your home. In some cases, you can even end up paying more for wasted materials and correcting mistakes than you would have paid to have a contractor do it right in the first place. So before you break out your tools and head to the home center for a stack of lumber and paint, take a moment for some honest assessment. Do you know how to do the work? This is the obvious first thing to ask yourself. Do you know what steps are involved in the project? All of the steps? There are lots of great columns (you're here, right?), books, videos, TV shows and other sources of information that will help tell you how to get from point A to point Z in a project. Take the time to check out a few of those sources. Understand what's involved. Then ask yourself if you know how to do those things. If you don't, can you learn them? Do you have the right skills and abilities? OK, you figured out the steps involved. Now, do you have the skills and the physical abilities to accomplish those steps? Remember, they're two different things. You might easily read about how to re-roof a house, and fully understand all of the steps involved in doing it. But if you're not able to handle the rigors of working for hours at a time on a steep roof, then understanding the theory of how to do it won't be enough. Can you commit the necessary time? This is a tough one for a lot of homeowners. For one thing, it's really hard to understand just how long some of these projects are going to take -- especially if you've never done them before. For another, the time commitment to the project means time that's going to be taken away from something else. It may be that re-siding the house takes the entire summer, simply because you can do it only on the weekends. Will that work for you? Will that work for your family? If the purpose of doing the re-siding work is to sell the house, will you end up missing the prime selling season? Time creates other risks, as well. Take re-roofing, for example. If you can commit only small chucks of time to the project, you may be leaving your home vulnerable to sudden rain storms if the roof isn't adequately protected. Or your home may not be secure if you're taking windows or doors out, but temporarily replacing them with plywood or, worse yet, sheets of plastic. Have you thought about the physical side? Most building projects, even the simple ones, require some amount of physical labor. Are you up for that? Climbing, crawling, lifting, carrying and all the other things that go along with getting the work done? Then there'll be those times when, despite your own willingness to do the work, another set of hands is going to be necessary. Do you have a helper you can call on? What about getting the materials? Can you pick them up at the home center or the lumber yard by yourself? Can you get them delivered? Once they get to the house, can you get them where they need to go: onto the roof, into the house, or into the basement, attic or crawl space? And don't forget that once things get under way, there's the obvious need for tools and equipment, which you'll need to buy, rent or borrow. You might want to go back to the first question, and look at all of the steps involved in the project. That might help you better understand the physical side of things, as well as those times when a helper might be needed as well. Do you want to do it? Be honest here. Your real estate agent may have said that your house will show better with a fresh coat of paint. You can't really afford to hire a painter, so you decide to do it yourself. Unfortunately, you hate painting more than root canals, and the only thing you want to do is hurry up and get it over with. Do you really think that the appearance of the finished product is going to help you sell your house? None of this is meant to dissuade you from tackling a do-it-yourself project. Just the opposite. Taking responsibility for their own homes is something I encourage people to do every day. But so is honest assessment. So just take a moment before you start, and make sure your eyes are open before you get started. You'll end up with a better finished project as a result. |
| Repairing damaged exterior paint areas By Paul Bianchina As the weather warms and you start wandering around outside a bit more, you may be noticing that winter rain, snow and wind have played havoc with your exterior paint in some areas. Particularly affected are those sides of the house exposed to the direction of winter storms, and you’ll often find that while the entire house doesn’t need repainting, those damaged areas certainly do. Preparation The key to any good paint job is proper preparation, and that’s even more true when you’re repairing a weathered portion of your home’s exterior. There are several steps required in a good prep job, and you’ll need to determine which of them are applicable in your particular situation. First, you need to complete any necessary repairs. If the weathering has rotted or splintered siding or trim boards, for example, they need to be replaced or re-secured before proceeding. This includes repairs to windows and doors, weather stripping, roofing and any other damaged areas. Next, you’ll need to prepare the site to receive paint. Any loose or peeling paint needs to be removed first, working back until you are certain you’re into undamaged paint that is well adhered to the underlying surface. For small areas of wood or flat masonry such as brick – or for an entire wall if you have the stamina – you can use a paint scraper and remove the loose paint by hand. Hold the scraper at a low angle, relatively parallel with the board you’re scraping, and work with short, firm strokes to scrape the paint off. Work with the grain of the wood to avoid raising grain fibers, and be careful not to dig into the wood’s surface. Be sure and wear eye protection against flying paint chips! Small areas can also be handled with a belt or pad sander. For larger areas, you might consider the use of a gas-powered pressure washer, which can be rented by the day from most rental yards. Use the lightest pressure setting and the widest nozzle spray pattern that will get the paint off – high pressure and narrow, concentrated spraying can gouge into wood and soft masonry, or possibly damage surrounding areas. If the siding, trim or other surfaces you’re working on have been painted several times in the past, when you have scraped down to bare wood you may notice that the surrounding areas of existing paint are considerably higher than the surface of the wood. This will show through your final paint job, so take some sandpaper and feather the sharp edges of the old paint so that it blends more smoothly down to the bare wood areas. When the paint has been removed, let the surfaces dry completely before proceeding with the painting. If you’ve used a pressure washer, the surface of the wood will be damp but not saturated, and should dry fairly quickly. If the wood has been exposed to a full winter of driving rain, however, the moisture will be deep into the wood or brick, and you may need to wait several weeks until the wood is dry. Painting over it while it’s still moist will simply cause the paint to fail prematurely. The final preparation step is to re-caulk any areas that require it. Use a good quality latex caulk with silicone, and make sure you close up all the gaps in siding and trim before painting. Priming and painting With the surfaces clean and dry, you’ll next need to apply a primer over any bare wood. This is an important step, and to ensure a good coating and long paint life, it should not be omitted. Use a good quality oil-base primer that’s formulated for the wood or masonry you’re working with. For surfaces that are damaged or very dry and porous, apply two coats. The final step is the application of the topcoat of paint. If you have any of the original paint available for touch-up use, be sure and check its condition before trying to use it. Latex paints will harden in the can if they’re exposed to any oxygen, and, depending on where they’ve been stored, they are subject to freezing as well. Oil-base paints will separate over time, and need to be thoroughly re-mixed prior to use. If you have questions or doubts about the paint, have your local paint store check it for you. If you don’t have paint, or if the existing material is ruined, your paint store can custom match new paint for you. Simply bring them an old paint can or a piece of wood or other material that’s been painted with the color you want, and they can do a remarkable job of matching the color. As always, specify only top-quality, name-brand material when buying paint. One final word of caution – if you have an older home and suspect that one or more layers of the paint you’ll be scraping or sanding off may contain lead, be sure and have it checked prior to working on it. Your local paint store can give you additional information on how and when to test for lead paint, and what to do if you find it. |
| Real estate contingencies make comeback By Dian Hymer During the recession of the early 1980s, when mortgage interest rates hovered near 18 percent, few home buyers could qualify for financing, particularly if they already owned a home that needed to be sold before buying a replacement home. Offers made contingent on the sale of the buyers' current home were popular. Contingent-sale offers are increasing in the current housing market. Most buyers who want or need to make a move to a home that better suits their current lifestyle can't qualify to buy before selling their existing home due to stringent mortgage-qualifying criteria. Sellers don't like offers that are contingent on another property selling because it increases uncertainty. If the buyers don't price their house right for the market and it doesn't sell, the sellers are back to square one searching for another buyer. Most buyers aren't keen on selling their current home before they know where they will be living next. This can limit buyers' prospects because many sellers won't accept contingent-sale offers. The best houses at the best prices usually sell quickly, sometimes with multiple offers. Sellers usually reject contingent-sale offers if there's another qualified buyer who doesn't have to sell a home. As always with homebuying and selling, compromises must be made. In areas where home sales are slow and there are many homes on the market, a contingent-sale offer may be better than no offer. A drawback is that once the sellers accept a contingent-sale offer, this fact must be disclosed to other interested buyers. This can slow the showing activity. Aggressive marketing, like continuing to hold Sunday open houses, can counteract this to some extent. Sellers who accept contingent-sale offers can continue to entertain offers from other buyers for backup position, subject to the collapse of the primary offer. But when there is plenty of inventory for buyers to choose from, there's not much incentive for a buyer to make an offer on a listing that already has an accepted offer -- even though it is contingent on the sale of another property. HOUSE HUNTING TIP: Sellers who accept contingent-sale offers can maximize their chance of selling by including a release or escape clause in the contract. This clause allows the sellers to notify the contingent-sale buyers that they have accepted another offer in backup position and that they are invoking the release clause. The release clause has a time frame -- often 72 hours, but it's negotiable -- within which the primary buyers must remove the contingent-sale contingency and provide evidence that they can close the sale of the replacement home without having their home sold. If they are unable or unwilling to do so, the first contract is canceled and the backup buyers move into primary position. Recently, buyers who were in contract to buy a home contingent on the sale of their home were delivered a 72-hour notification. The buyers who were kicked out of contract had their home on the market but hadn't found a buyer in time. It's tempting for buyers who lose a home they want to another more qualified buyer to pull their home off the market and wait for a better time to sell. However, it's near impossible to buy contingent on the sale of another home in a seller's market when buyer demand is high. THE CLOSING: It's inconvenient for most buyers to move to an interim rental if they sell their home before they find a suitable replacement home. But, with cash in hand, they have the luxury of waiting for the right house. They can make a stronger offer and probably receive a price concession compared to the premium usually paid to entice sellers into accepting a contingent-sale offer. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Avoid house-rich, cash-poor pickle By Benny L. Kass DEAR BENNY: I am 58 years old and married. I have 22 years left on my 30-year mortgage, which is at 5 percent. I have a Roth IRA. I have some extra money to invest. In this current economy, what might you suggest? Should I pay money toward the principal on my mortgage? Put it in the Roth? I lost money in the stock market (bank stocks), so please don't suggest that I go back into stocks. Thanks in advance for any knowledge you might share. --Tommy DEAR TOMMY: Your question is perhaps one of the most difficult ones I have received. I have two crystal balls on my desk and, unfortunately, both are cloudy. I don't recommend paying off your mortgage, but you may want to consider sending in extra money every month. This will dramatically reduce your loan balance and shorten the paydown period. If you decide to send in additional money, please make sure that you write "extra payment toward principal" on your check as well as on the payment statement you send to the bank. I know that readers will challenge me on this; many homeowners believe firmly that it makes a lot of sense to pay off the mortgage so that you do not have to pay all of the interest that accrues. I understand this position, but too many of my clients end up "house rich and cash poor" at age 65 or older. I believe it makes sense to invest your extra cash rather than pay off the mortgage. Keep in mind that mortgage interest is tax deductible, so the "bite" is not a dramatic as the monthly payment. OK! Now readers will send me e-mails asking "Where can I invest?" Banks are currently paying less than 1 percent on most deposits. That's true, but I believe that by the end of the year, banks will start paying more for long-term CDs (certificates of deposit). In the meantime, I would: 1) Start sending in extra money every month to your mortgage lender. Take your monthly payment (only for principal and interest and not for any escrows) and divide it by 12, and that number should be the minimum of any additional payment; 2) Yes, you should consider increasing your Roth investments, but first you should talk with a financial advisor to get assistance as to how much to invest; 3) Have you considered buying real estate for long-term investment? Prices are low, and while investment money is hard to locate, it's not impossible, especially if you can put up a sizable downpayment. If you are not interested in real estate, invest the balance of your additional cash in laddered CDs. This means that you open several accounts with staggered due dates. As the date approaches for each account, you roll over that CD for another period of time. And try to get CDs that allow you to withdraw without penalty at any time. DEAR BENNY: My husband purchased a condominium 20 years ago as an investment and has rented it continually during the course of ownership. A few years back the condominium board voted successfully to eliminate all renters. They gave all rental units five years to cease renting. Additionally, they voted that all condominiums must be occupied by the legal owner only. I can understand the desire to eliminate rentals for all new purchases. Can the association force us to cease renting -- thereby affecting our income -- and force us to sell in a down market? --Susan DEAR SUSAN: This is a very serious issue facing condominium associations and unit owners throughout the country. There is the perception among associations as well as mortgage lenders that somehow tenants are going to create problems within the community. Lenders such as Fannie Mae, Freddie Mac and even the Federal Housing Administration (FHA) impose caps on the percentage of absentee owners. Perhaps there is some truth to this perception, but from my experience some tenants make better "owners" than the owners themselves. Be that as it may, however, this issue has been litigated in many states. The courts have been fairly unanimous in holding that if the association follows the proper rules and requirements, the courts will uphold rental restrictions. What are these proper procedures? First, the restriction must be done by an amendment to the association bylaws; it cannot be accomplished merely by a rule promulgated by the board. Why an amendment? Because to amend your legal documents, it requires a super-majority vote of all unit owners. Second, the amendment process spelled out in your legal documents must be carefully followed. Was there proper notice? Was there a quorum at the meeting when the amendment was approved? Is the language of the amendment the same as was provided in the notice of the meeting? While these are technicalities, they are important. You and your husband should review the process by which the rental restriction was adopted. If, however, it was done properly, you have no case. Condominium law is very clear that all owners are legally bound not only by the rules and regulations as they were when the unit was first purchased, but by any future amendments properly enacted. Here's a thought, however. Talk to your board about getting an extension based on market conditions. But if they don't agree, discuss your situation with your attorney. You may want to consider doing a Starker (Section 1031) exchange and swap that condo for some other real estate investment. DEAR BENNY: For medical reasons, I anticipate outliving my wife. If I remarry (or get involved in a long-term relationship), how do I keep my new bride (or significant other) from inheriting the house when I die? --Thomas DEAR THOMAS: You are an optimist, but I wish you good health and a long life. Although your question sounds simple, the answer is somewhat complex. You should have a last will and testament, which would spell out your intentions with regard to the house on your death. But a will is not necessarily the controlling factor. For example, if you and your new bride (or significant other) hold title as joint tenants with rights of survivorship (or in many states as tenants by the entireties), then your house will pass automatically on your death to the other person on title. This is true even if your will states some other disposition. If, for example, you want to leave your house to a child, you can add that child to your title as "joint tenants." But caution: There are tax consequences to this and you should consult a local attorney for more details. Alternatively, you can keep the house in your name only, and the will you create will be effective. However, in many states, a spouse has rights to take property -- even against the clear intentions stated in the will. Again, you have to consult your attorney about the laws in your state. Finally -- and this is always a touchy topic -- you can have your new spouse (or friend) sign a "prenuptial agreement" whereby she states in writing that she will make no claim to your house on your death. DEAR BENNY: We are planning to sell our vacation home in Virginia and then purchase another one as soon as possible. How long do we have between the sale of the first vacation home and the purchase of the second vacation home to avoid paying taxes on the profit from the sale of the first? Is it necessary to strive for a "double-closing"? --Colin DEAR COLIN: Unfortunately, unless you do a Starker (Section 1031) "like-kind" exchange, where you literally swap one investment property for another, you will have to pay capital gains tax. Your vacation home is not your principal residence, and the up-to-$500,000 exclusion of gain (for married couples, or $250,000 if you file a single tax return) applies only to your main home. If you want to do a Starker exchange with your vacation home, there are a number of specific rules that you must follow. First, you must own the property for at least 24 months before the exchange. Next, during the two years before the exchange, you have to rent the property to another person at a fair rental price for 14 days or more. More important, your personal use during each of the two years before the exchange cannot exceed the greater of 14 days or 10 percent of the number of days the property is rented. And finally, the exchanged property, which we call the "replacement" property," must similarly be used the same way. In other words, it must be investment property instead of merely a second, vacation home. Accordingly, in your case, since you call it your "vacation" home, you will not qualify for the 1031 exchange. You will have to pay capital gains tax on the sale of the first property, and it makes no difference when you settle on the second home. Benny L. Kass is a practicing attorney in Washington, D.C. and Maryland. No legal relationship is created by this column. |
| Seller financing for today's market By Dian Hymer During the recession in 2001, a strong home-sale market was instrumental in pulling the economy back on track. The opposite may be the case now. The economy, particularly employment, needs to improve before the housing market stabilizes. Low interest rates are helping the home-sale market today, but the housing market is far from stalwart. Unemployment is high; mortgage qualification is difficult; and most buyers can't afford to buy a new one without selling their existing home first, creating a logjam in the repeat homebuyer segment of the market. Interim or bridge financing that buyers used routinely in the past to buy a new home before selling their current home is virtually nonexistent in today's market. An interim loan is a loan secured on your current home to generate cash for a downpayment on a new home. Homeowners who have a home equity line of credit (HELOC) secured against their property can tap unused funds to convert equity to cash in order to buy a new home before selling first. HOUSE HUNTING TIP: Seller financing could be the answer for some homebuyers. One possibility would be to ask the sellers of the home you want to buy to carry financing until you sell your home. If the sellers have no mortgage secured against the property -- i.e., they own it free and clear -- they might be willing to carry a first mortgage. Compared to other investment options, 5 percent or so from a buyer with good credit and a decent downpayment could be attractive if the seller doesn't have an immediate need for the proceeds from the sale. As with all terms of a purchase agreement, the terms of seller financing are negotiable -- everything from the interest rate, when the loan is due, how and when payments are made, the amount of the late fee, etc. Interest on the mortgage can accrue and be due when the loan is paid off. Or payments can be amortized and paid monthly. Particularly with a first mortgage, sellers will probably want to receive periodic payments. However, it lowers the buyers' carrying costs while they own two homes if the seller will defer payments until the note is paid off. A more common scenario than a seller-carry first mortgage would be to find sellers of a home you'd like to buy who have enough equity to carry a second mortgage secured either against your current home or on the home you are buying from them. This wouldn't work if the sellers have already committed their proceeds from the sale, like to the purchase of another home. If the sellers carry a second mortgage on your home, it should not require approval of your first mortgage lender. However, you would need to be able to qualify for a first mortgage on the new home. In order to be approved for that loan, your overall debt-to-income ratio will be scrutinized by the lender's underwriters. The underwriters will factor in the cost of the seller-carry financing into your overall debt. Most lenders will also want the term or due date of the seller's loan to be not less than five years from closing. Check with your mortgage broker or lender before making an offer that will include seller financing to find out what the first lender on the new home will require. The sellers will want their loan paid off when your current home sells. The first mortgage lender might allow a seller-carry second mortgage with a due date in five years or when your home sells, whichever occurs first. THE CLOSING: The lender wants to make sure the buyers aren't faced with a large balloon payment due months after closing. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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