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| Cygan Southland Realty |
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Articles and Advice |
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| Tips for paying off mortgage early By Benny Kass DEAR BENNY: I was reading in one of your columns about paying off your mortgage faster by making an extra payment each year. You said to make sure your coupon clearly indicates you are making an extra payment. I did this at the end of 2008, but didn't know whether it should go under an extra payment or payment on the principal. I paid it on the principal because otherwise it wouldn't show up until January as a payment. I called the mortgage company and could not get a straight answer from them. I was told I could do it either way, which was not helpful. Did I do the right thing by paying the extra payment on the principal? I was setting up our payments to come out of our checking bimonthly so the extra payment would be included each year. We also have money going into our escrow account to pay our taxes and homeowners insurance. I am confused. –Lynette DEAR LYNETTE: I am also a little confused about your question, but let me try to answer it this way. I always recommend that if you can make at least one extra monthly payment each year, you can lower the amount of interest you will ultimately pay as well as shorten the term of the loan. For example, one additional monthly payment per year should reduce a 30-year loan down to approximately 22 years. You can make this extra payment in several ways. In December of each year, you can make that extra payment. Or, better yet, divide the monthly payment by 12 and add that amount to your payment each and every month. I recommend that you call it "extra payment" and include it in your coupon as an "extra payment." To be on the safe side, I also would include the amount as a note on the bottom on your check, and again call it "extra payment." If you are using an automatic payment account, instruct the organization paying the loan to make sure they label the extra payment as such. And in January of each year, do your own calculations to make sure that these extra payments have, in fact, been included in your new mortgage loan balance. DEAR BENNY: My wife and I (via our LLC) own a two-story brick building built in 1890. We are eight years into a 15-year fixed-rate mortgage with payments of $816 monthly, and a $42,000 balance. We have a successful business, which my wife operates, on the first floor. For the last several years there has been a successful historic renovation of our downtown. Many of the second-story lofts have been or are being renovated into urban living spaces. Our second-story loft has 1,800 square feet and 11-foot ceilings with 8-foot windows, but has been bricked up since the 1950s. We are considering moving forward with a renovation, but we must borrow to complete this work. Our economy has experienced a downturn recently and our county currently has a 10 percent unemployment rate. I am uncertain if we should continue under these circumstances and if we do, is it wise to refinance the total building or extend our HELOC? We are debt-free (except for our home and business mortgage), own four small businesses, have no children, own other free-and-clear rentals, and we have a six-month reserve on hand in the bank. I have proposed a budget of about $100,000 to complete this work, and other downtown rentals are running at about $1,100. What advice can you offer given the current economic situation and our borrowing needs? I do feel confident that given a 90 percent occupancy rate we can accomplish a slightly positive cash flow over our PITI. –Michael DEAR MICHAEL: I always appreciate hearing positive things from my readers. You have asked the $100,000 question, but I can provide only general information. Only you can make the final decision. Since you wrote this question to me, (a few months ago) the economy has not gotten better, and indeed it has declined further. Perhaps the new Obama administration will create hope and optimism similar to Camelot when John Kennedy became president back in 1960. You indicate that the unemployment rate in your county is quite high, but you will need a 90 percent occupancy rate to make a profit. What guarantee do you have that you will reach that goal? Keep in mind that being a landlord means you will have vacancies. Have you lined up any potential tenants, and checked out their financial and credit ratings? That's the first thing I would do before launching in the project. Only you can make the final decision. However, if it were up to me, I would hold off at least until we see some signs of an economic recovery. You can always do this later, but if you fail now, you could lose the building. DEAR BENNY: In June 2007, I purchased a house with a fixed-rate mortgage. A year later, the mortgage company requested an extra payment of $715. Six months later, they sent me another bill, claiming an extra payment was required. I am being told that a mistake was made on the original amount needed for insurance and taxes, and they cannot be sure if or when additional extra payments will be required. And nobody seems sure whether I will be allowed to take over payment of my own insurance and taxes, which I've always done in the past. Since I'm not a first-time homebuyer and have excellent credit and have managed house insurance and taxes in the past, this all seems highly weird. –Willi DEAR WILLI: I personally dislike the concept of having to pay money monthly into an escrow fund managed by a lender to pay real estate taxes and insurance. However, it is legal and most lenders (especially FHA and VA) require this. My objections are twofold. First, most lenders use this money as collateral and do not pay any interest on it. Second, lenders sell/assign loans all over the country, and often a lender in one state does not know where or how to pay the real estate tax in your particular county. But whether you are a first-time homebuyer or have good credit, if you want the loan you have to comply with the lender's requirements. You should obtain and carefully review the lender's financial records regarding your loan. Find out the costs of your tax and insurance, and compare those costs to what the lender has been charging -- and paying. By law, lenders have the right to a two-month cushion, just in case you miss a mortgage payment. Finally, I recommend that every borrower who escrows for taxes and insurance send a demand letter once a year (or twice a year if real estate taxes are paid every six months) requesting proof that your lender did, in fact, make the required payments. This is especially true in today's market economy, when many mortgage lenders are no longer in business. DEAR BENNY: My mother recently applied for a reverse mortgage. I have been trying to find a benchmark for reasonable costs associated with this loan to no avail. Could you please guide me in the right direction? –Peter DEAR PETER: Congress recently enacted a law putting a maximum limit of $6,000 on closing costs for federally insured reverse mortgages. But different lenders will have different costs. I recommend that you do a search for "Reverse Mortgage" at your favorite Internet search engine. Specifically, AARP has a lot of helpful information, which can be found at www.aarp.org. DEAR BENNY: I have an investment property I would like to use in a 1031 tax-deferred exchange. I have great credit scores (770), but my debt ratio will not allow me to qualify for a loan on the new property. I currently own the current investment property in my own name. I now have a significant other in my life. Can he go on the new loan and title work, allowing me to take advantage of the 1031 tax exchange rules and qualify? We plan on the new property being our retirement home eventually. –Kathy DEAR KATHY: It all depends on the price of the properties. Your current property is the relinquished property and the new one is called the replacement property. Since you own the relinquished property by yourself, the replacement property must also be in your name only. However, let's take this example. The relinquished property will be sold for $500,000, and the replacement property will cost $750,000. If you and your significant other take title to the replacement property as tenants in common, with your interest equaling two-thirds (i.e. $500,000), I believe this would fly through the Internal Revenue Service. But confirm this with your own tax and legal advisors. 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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| Buyers, get into negotiating position By Dian Hymer Bridging the price gap between home buyers and sellers can be a challenge in today's market. Sellers, many of whom have a hard time accepting that their home has lost value, often expect to sell for more than buyers are willing to pay. Buyers, on the other hand, are concerned that home prices could drop further. So, they're making sure that they don't overpay. There are exceptions to the rule. Very desirable homes in the best locations sometimes sell for over the asking price, particularly if there isn't much inventory of similar homes on the market. Some foreclosure properties at bargain prices are attracting multiple offers. Prices are rising in select areas. Overall, however, it's a still a buyer's market in most parts of the country. There's not much you can do to convince an unrealistic seller that he should accept your market-price offer. Many of the listings on the market belong to sellers who will sell only if they get a certain price. They may not be able to sell for less because of the size of the mortgage(s) secured against the property. In some cases, sellers bought at the peak and then improved the property. They can't bear to take the loss they would incur if they sold at market price. In other words, these sellers would like to sell, but they won't sell unless they get their price. Before you make an offer on a listing that's priced over market, try to find out as much as possible about the sellers' motivation, and if there's any flexibility in their price. A lot of time and emotional energy goes into making an offer. Save your efforts for listings where the sellers are motivated. That is, they don't just want to sell -- they need to sell. Some sellers want to test the waters at a price that's higher than the market will support. They usually feel that someone will appreciate the added value their home offers and pay more for it. However, these sellers will often negotiate with a legitimate buyer who offers a price that is less than the list price. HOUSE HUNTING TIP: To put yourself in the best negotiating position, make sure that your financing is in order and that you are able to show the seller that you are capable of closing the deal. The fallout ratio is high in the current market. Many of these transactions fail to close because the buyers couldn't get financing. It's always a good idea to be preapproved for the financing you'll need to buy a home before you make an offer. Preapproval involves making a formal loan application, having your credit checked, as well as verifying your funds for down payment and closing costs, and validating your income and employment. Lenders often want to know that you have enough surplus cash to make house payments (mortgage, property taxes and insurance) for two to three months. Buyers who make an initial low offer and who aren't in competition should make as clean an offer as possible. This means omitting anything that's not necessary. However, you should include contingencies for loan and appraisal approval and an inspection contingency. It's a good idea to include a copy of your preapproval letter with your offer. If you are approved for a higher price than you are offering, ask your lender or mortgage broker to issue a preapproval letter for the price you're offering. THE CLOSING: Then be prepared to negotiate. It may take several rounds of counteroffering back and forth to reach a mutually acceptable price. |
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| Eight ways to conserve water this summer By Michelle D. Alderson In February of this year, the Governor of California declared a state emergency due to drought. “ …California faces its third consecutive year of drought and we must prepare for the worst,” Governor Arnold Schwarzenegger said. As of this writing, the state has not issued a mandatory water rationing order, but asks that the residents of California participate in a voluntary reduction. With the summer months ahead, the drought is even more cause for concern. Lawns and gardens will be watered more often, more cars will be washed; essentially the hose will replace the rain. By adjusting their lifestyle a bit, homeowners can reduce water waste -- and save a buck on the monthly water bill. Here’s how: 1. “Plant” Synthetic Grass If you are thinking about planting a new lawn this year, know that AstroTurf is back. This is not the same kind of artificial turf you think of when you reminisce about the Brady Bunch’s backyard. Synthetic grass actually looks like grass, and it does not need a drop of water to maintain its lush green color. An additional bonus is that you’ll never have to mow the lawn again. 2. Water Efficiently Residential properties are regularly overwatered by 30 to 40 percent (http://www.stopwaste.org). Learn how to water your lawn efficiently and at the correct time of day. For example, watering your lawn either in the late evening or early morning reduces evaporation. 3. Go to a Car Wash Using a running hose to wash a car uses up to 150 gallons of water. Most car washes use about five to 10 gallons of water per car (http://www.epa.gov/). In addition, the water used to wash a car in a driveway goes from the street gutter straight to bay or rivers without being treated. Car washes must treat their water before it enters the water system. Many car washes also recycle graywater, keeping the environment clean and conserving at the same time. 4. Use a Broom Running a garden hose can waste up to 10 gallons per minute (http://conserve.sfwater.org) and is unnecessary when cleaning a driveway or sidewalk. The water from a garden hose also contributes to the pollutant waters already abundant in sewer systems. 5. Check for Leaking Sprinklers and Hoses A leaky faucet can waste 100 gallons a day (http://www.sscwd.org/), which includes outdoor systems. Check for and replace leaking hoses or sprinklers. Place automatic water shut-off nozzles on any hoses. 6. Keep a Rain Collection Barrel During a 1-inch rain, 625 gallons of water can be collected from 1,000 square feet of roof (http://www.stopwaste.org). Rainwater can be channeled through gutters and downspouts to a storage unit, which can then be used to water lawns and gardens. 7. Plant Mulch Planting a layer of mulch around trees and plants, such as chunks of bark, peat moss or gravel slows down evaporation. By doing so, 750 to 1,500 gallons of water can be saved a month (http://www.mwdh2o.com/). 8. Grow Native Plants As defined by the Environmental Protection Agency (EPA), native plants, also called indigenous plants, are plants that have evolved over thousands of years in a particular region. Native plants are drought-resistant, require fewer pesticides than lawns (another plus for the environment), and require less water to maintain their natural beauty. If you want to find more ways to conserve water both inside and outside, check out this non-profit Web site: http://www.h2ouse.org/tour/index.cfm. It’s geared for homeowners to research room by room in their home for better ways to conserve water. To read about the drought in California, visit the state government’s website http://www.saveourh2o.org/ for more information. |
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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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| Helping your loan chances By Tom Kelly When it comes to mortgage lending, strength is not necessarily in numbers. Bringing more bodies to the deal will not instantly enhance your chances of obtaining a home loan. Although many states offer first-time homebuyer assistance and lenders are willing to stretch on low-downpayment loans for customers with strong employment credentials, credit repair and a little additional savings can work wonders. The key place hopeful homebuyers with awful credit often error is recruiting an upstanding person with flawless credit to cosign your loan. If you are the primary borrower and owner-occupant, take some time to perform genuine damage control on your credit before you lure any partners or attempt to securing financing. Maybe the biggest problem is a credit report that's out of date or incorrect. It's not a bad idea to check your credit every few years. If you are planning to buy a home in the next six months, do it now. There's a difference between a credit agency and a credit bureau. Bureaus are huge companies that collect data from banks, court records, department stores, etc. Agencies typically research what is in the bureaus and report the findings to the client. If an incorrect item appears on a credit report, it's up to the consumer to see that it is corrected. For example, if a courthouse clerk inadvertently punched a summary judgment onto your record, it's your responsibility to see that it is corrected. Merely telling the agency is not enough; you should submit the explanation, or proof, in writing to the bureau. If you finally have your credit looking better and still need an additional push, consider asking the seller to consider "seller financing" or "carrying the paper'" on the house. While most sellers prefer cash, some do not necessarily want to be cashed out. Sellers check credit, but not to the extent that banks do. Typically, a seller will ask to see your tax statements. It's often up to the buyer to start the discussions that result in seller financing. Sellers who need monthly income, perhaps a retiree, sometimes will consider helping to finance the house loan. Young families who are moving up need a lot of cash and are not good candidates for seller financing, but it never hurts to ask. In addition, buyers and sellers also can save some closing fees. The buyer usually gets an interest rate from the seller that is slightly below the market rate. Be as impressive as you can to a seller. It just might get you in the door. Here are some other possibilities: Offer a lease-option -You pay a small payment up front, usually non-refundable, to the seller for the option to buy the home on a specific date for a specific price. This method can be viewed as renting with a huge first and last month's rent and a non-refundable damage deposit. It's a benefit to the buyer because it gives him time (typically a year or two) to improve his job history or clear up credit questions. The method benefits the seller because the option money is not taxed to the seller until either the option is exercised or it expires. In the interim, the seller can depreciate the house. Parents as partners - The method is popular with parents who want to help their children find an alternative to college dormitory living. By taking an ownership share, the parents get some tax benefits by renting their share of the house to their children. Because both are co-owners, both parties share in resale profits and the children establish credit. Keep the seller on the title - You move in, pay as much down as you can, but keep the seller as co-owner to help qualify for a mortgage. Set up an agreement that gives you title on a specific date after you've paid off the seller or refinanced the deal with better credit. Search for an assumable loan – Some Federal Housing Authority and Veterans Administration loans are easily assumable. However, if the seller is to be released of liability on the loan, then a complete loan application with credit check is required. Many homes now have existing adjustable-rate mortgages that are assumable. Typically, lenders are not as tough on assumption qualifications as they are when originating a new loan. |
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| How can I reduce my closing costs? By Dian Hymer Often it's easier for buyers to qualify for a mortgage than it is for them to scrape together enough cash for the down payment and closing costs. Down payment amounts vary. Usually they're in the range of five to twenty percent of the purchase price. In addition, closing costs can run another $5,000 to $10,000, depending on where you buy and the cost of your loan. Closing costs are fees associated with a home purchase that are paid at closing. Buyers and sellers both pay closing costs. Who pays which costs is often set by local custom, but it can be negotiable. Typical buyer closing costs include such items as: fees associated with getting a mortgage, homeowner's insurance, titles and closing fees, inspection fees, proration of property taxes and transfer taxes (if there are any). FIRST-TIME TIP: One of the easiest ways to lower your closing costs is to get a zero-point mortgage. Points is the term used for the loan origination fee. One point is equal to one percent of the loan amount. A $180,000 mortgage with a 2-point loan fee will cost you $3,600 at closing. A no-point $180,000 loan will save you $3,600 in closing costs. But, expect to pay a higher interest rate on a no-point loan. There's an inverse relationship between the points you pay and your interest rate. Another way to reduce your closing costs is to close late in the month. Lenders usually collect interest for the current month at closing. If you close on the fifth day of the month, you'll owe the lender 25 days of interest at closing. If you close on the twenty-fifth day of the month, the lender will collect 5 days of interest when you close. Closing at the end of the month can reduce your closing costs considerably if your loan balance and interest rate are high. Asking the sellers to credit you money to pay for some of your closing costs is another way to reduce the amount of cash you'll need to close. Keep in mind that when you ask sellers to do this, it's the same as asking them to accept less for their home. For example, if you offer $200,000 with a credit from the sellers of $3,000 for your closing costs, this is the same as a $197,000 offer. In a competitive situation, where multiple buyers are trying to buy the same home, you may have to pay full price or more to be the successful bidder. If you need the closing cost credit to make the deal work, raise your offer price by the amount of cash you need and then ask for the credit. For example, if the list price is $200,000, offer $203,000 with a $3,000 credit for your closing costs. The property must appraise for the higher price for this to work. Also, lenders have restrictions on how much they'll allow sellers to credit for closing costs: often it's 3 to 6 percent of the purchase price. And, most lenders won't allow a credit that exceeds the actual amount of the buyers' non-recurring closing costs (costs paid by the buyers one time only at closing, such as points and title fees). THE CLOSING: If the sellers are renting back from you after closing, ask them to credit you their rent money at closing. Clear this with the lender in advance, otherwise, the lender might require that rent be given to you later, when the sellers vacate. If the rent is credited, it reduces the cash you'll need to close. |
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| Going solar: Is it right for your home? By Michelle D. Alderson Just a short time ago, saving the planet took precedence over saving a dollar. Times have changed, but in today’s economy homeowners are still trying to find ways to do both. Just ask John Shipman, an energy analyst at Energy Efficiency Management (http://www.energyefficiencypro.com/) and a green home performance contractor with Energy Star (http://www.energystar.gov). Shipman states that his company’s "whole-house energy audits have increased three folds" since President Obama has taken office. The President’s stimulus package has made energy conservation a priority with initiatives that focus on energy-efficiency upgrades to homes and businesses. One of the most hyped government energy-conservation initiatives is the use of solar energy. In fact, the stimulus package was signed after the President visited the Denver Museum of Nature & Science, which boasts 465 solar panels on its rooftop. The federal government’s stimulus package helps with the cost to install solar panels on existing homes, with the hope that this cost savings will help stimulate energy conservation and boost employment in the industry. With the new stimulus package, homeowners will receive a federal tax credit of 30 percent off the total cost of installing solar panels on their homes. According to the Energy Star Web site, the tax credit is also good for geothermal heat pumps, solar water heaters, small wind energy systems, and fuel cells. This federal tax credit is in addition to any tax credits or discounts a homeowner might receive from the state. Each state has its own rebate programs, including California. If a homeowner in California wants to install solar panels, a good place to start is by checking out the website created by the California's Public Utilities Commission and Energy Commission. The California Solar Initiative Web site (http://www.gosolarcalifornia.org) "provides consumers a 'one-stop shop' for information on rebates, tax credits, and incentives for solar energy systems in California." In a nutshell, existing homeowners that choose to install solar panels would receive an up-front rebate from the state government. The rebate would be "based on expected performance, and calculated by equipment ratings and installation factors (geographic location, tilt and shading)." What does that mean to the average homeowner? If you live in the Pacific Gas and Electric Co. (http://www.pge.com/myhome/saveenergymoney/solarenergy/) area, for example, the state rebate would be $1.55 per watt for existing homeowners (you can check out your local electric company’s Web site for their cost savings). According to Vote Solar (http://www.votesolar.org), a non-profit initiative, "a typical home solar system generates about 3 kilowatts of power." The installation cost in California averages roughly $8.10 per watt. The state rebate is currently $1.55 per watt for homeowners in Pacific Gas and Electric Co. territory. Therefore, the average state rebate is worth $4,650, in addition to the 30 percent cost savings from the federal government. That means the original estimated cost would be around $24,000, but after the rebates a homeowner could pay under $14,000. Shipman thinks homeowners need to go one step further before going solar. "Solar is a fantastic renewable energy and there are a lot of advantages to it, however you need to do the basics before you put solar panels on a house. It’s like cooking the turkey with the oven half open." What he and others in the industry believe is the first step to energy conservation in existing homes is to consider the "whole house approach." For instance, installing energy-efficient windows is just one of the many ways a house can conserve energy before going solar. The effort to save money and the planet by a well-intentioned and discounted solar installation can be thwarted by old windows that leak heat and cool air. If any homeowner is thinking about installing solar panels or doing any type of energy-efficiency upgrades, it is important to do the homework. There are several companies, both profit and non-profit that can do a home evaluation, as well as Web sites that discuss solar installation. For more information, visit the CALIFORNIA ASSOCIATION OF REALTORS® Green Web Site (http://green.car.org/). |
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| Multiple offers making a comeback By Dian Hymer In the current home sale market, it might seem ludicrous to make an offer on a listing if it means competing with another buyer. However, multiple offers are on the rise in some markets. But, it doesn't always mean that you need to pay a lot more than the asking price. Sellers are ever hopeful of receiving multiple offers. These days, this is usually an unrealistic expectation. That is, unless the listing is a prime property in a high-demand neighborhood where few homes are being offered for sale. Price is a critical part of the equation. Some sellers price their homes low because they need a quick sale. If the price is below market, multiple buyers could step forward with offers. Sometimes an overpriced listing is reduced to market price or below and results in offers from more than one buyer. Most multiple offers today are on low-end foreclosure properties. Investors make up a large part of the buyers in this segment of the market. In some areas of California and Florida, prices have fallen 40 percent since the market peaked in 2006. HOUSE HUNTING TIP: Don't shy away from making an offer just because there is more than one offer. In some cases, a dozen or more buyers make offers on foreclosure properties that are listed at bargain prices. But, the highest bidder is not always the winner. Even in non-distressed-sale situations, multiple offers in today's market don't always result in an overinflated sale price. For instance, a charming older home on a sought-after street in the Crocker Highlands neighborhood of Oakland, Calif., sold after only two weeks on the market with multiple offers. The property was listed for $1.3 million, and sold for $5,000 above that price. There are far fewer financially qualified buyers in the home-buying market today than there were two years ago due to credit tightening, more rigorous financial qualification requirements and recent stock market losses. In some areas, as many as one-third of home sale transactions fail to close, often due to the inability of buyers to obtain the financing they need. Sellers who receive more than one offer should carefully consider all aspects of the offers, not merely the offer price. An offer from an all-cash buyer who doesn't need a mortgage to finance the purchase, and who can close quickly, should be taken seriously even if the price is lower than the other offer(s). However, some all-cash buyers -- who are fully aware of their strong position in this market -- feel they are entitled to a major price discount. Whether or not you'll have success countering for a higher price will depend a lot on the profile of the buyer. Buyers who intend to occupy the property for the long term are more likely to pay more than will investors who base their purchase decisions on the numbers, not their emotions. THE CLOSING: Sellers should try to keep greed out of their decision when faced with multiple offers. Today's buyers are willing to walk away from a negotiation rather than pay over market value, or it they think the sellers are unreasonable. Dian Hymer is a nationally syndicated real estate columnist and author. |
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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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| Inherit home, refi immediately? By Benny Kass DEAR BENNY: My husband and I inherited a home from my husband's uncle who passed away a few weeks ago. Will the lender expect us to refinance the home or can we just assume it even if it is a conventional loan? –Karen DEAR KAREN: Unless the existing loan was from a private person, it is most likely covered under the Garn-St. Germain Depository Institutions Act of 1982. This federal law puts restrictions on the ability of a lender to exercise the "due on sale" clause that exists in most mortgages (also called deeds of trust). One of these restrictions reads as follows: "With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon ... (5) a transfer to a relative resulting from the death of a borrower. ..." Accordingly, you should advise the lender of the death, and just continue paying under the terms and conditions of the old mortgage. However, do you know what the interest rate is on that property? Rates are currently very low, and if you can get a better rate -- and assuming that you and your husband can qualify for a new loan -- you should consider refinancing. DEAR BENNY: My father co-signed on my mortgage approximately 12 years ago. We are both listed on the title/loan papers, although I have been the only one actually paying the mortgage all this time. If one of us died would the property automatically go to the other party or do we need to make further arrangements for that to happen and stay out of the probate process? Any help that you could give me would be greatly appreciated. –Kimberly DEAR KIMBERLY: The answer depends on how title is held. This answer must be general in nature, because different states have different procedures. If you were married, you and your spouse would generally hold title as tenants by the entireties; on the death of one, the survivor would own the entire house. But clearly you are not married to your father. Thus, you can hold title as joint tenants with rights of survivorship -- which means that on the death of one joint owner, the survivor owns the entire property, and probate regarding the house is not necessary. However, if you and your dad hold title as tenants in common, on the death of one owner, his/her share of the property will have to go through probate. On the death of one tenant in common, his/her share is distributed according to the last will and testament, or if there is no such will, then according to the laws of intestacy in your state. But probate is required for this type of title. 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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| Whole new ballgame for refis By Dian Hymer Mortgage interest rates have declined to all-time lows, resulting in a pickup in mortgage refinance applications. How many of these applications result in successful refinances remains to be seen. Lenders' qualifying criteria have tightened. The lowest interest rates are reserved for homeowners who have sufficient equity in their homes and who have high credit scores -- usually above 720. Lenders also are stricter on the borrower's overall debt-to-income ratio, but this varies from lender to lender. Validating sufficient equity can be a show stopper, particularly in areas that lenders designate as declining markets. Should property values fall further, and the borrower suffers financial hardship, the lender could end up foreclosing. If the property doesn't sell for enough to cover the mortgage amount, the lender takes a loss. Some appraisers are cutting back on their property valuations. For example, an Oakland, Calif., homeowner had his house appraised early in 2008 for $1.1 million. By the end of 2008 the same property was appraised again, only this time the appraiser came up with a value of $670,000. This was a very low value for a neighborhood where similar properties sell in the price range of $900,000 to $1.2 million. HOUSE HUNTING TIP: In a situation like this, there are several ways to proceed. The first is to challenge the appraisal. The homeowner mentioned above called a local real estate agent for comparable sales information for listings sold in his neighborhood since September 2008. In this market, lenders are requiring the most recent sales data available. A possible explanation for an appraisal that's not in sync with the local market is that the lender used an automated appraisal service. If so, sales information from outside the immediate area could have been used. For instance, in some areas, being located on one side or the other of a major thoroughfare can dramatically affect market value. Some lenders are changing from using in-house or local appraisers to ordering appraisals through Rels Valuation, a company that provides appraisals quickly at a competitive price. However, this means that an appraiser from outside the local area could be the person who generates the appraisal. This might be satisfactory for homes in tract developments where there is little variability from one house to the next. However, in older established neighborhoods, where there is a lot of variability in the housing stock, an out-of-area appraiser who doesn't know the idiosyncrasies of the local market could come up with an inaccurate property valuation by simply looking at the data. Wells Fargo and other larger lenders will be requiring Rels appraisals. Wells announced on Jan. 2 that they would require a Rels appraisal for conventional purchases and cash-out refinances. Local appraisers may be slow to affiliate themselves with Rels because they will need to cut their fee considerably; they will share their fee with Rels. Refinancers who aren't successful in challenging a low appraisal should shop around for another lender. Your real estate agent should be able to provide you with references. Mortgage brokers who have access to a private lender source, like a mortgage banker, should have fewer restrictions regarding who generates the appraisal. Before submitting an application, make sure that you qualify creditwise and find out how much the lender will be willing to lend (the loan-to-value, or LTV, ratio). Some lenders will lend up to 90 percent of the appraised value on a conforming loan up to a loan amount. THE CLOSING: On jumbo loans, lenders generally require a lower LTV, often 70 to 80 percent. |
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| The art of counteroffers By Dian Hymer Negotiation is back in style. It's not uncommon for buyers and sellers to have many rounds of counteroffering back and forth before they arrive at a contract that is completely agreeable to all involved. When this is accomplished, the contract is ratified. However, there is another important element involved in ratifying a contract. Until a residential purchase contract is completely signed, and the final signed documents are delivered back to the other party or that party's agent, the listing is not sold. Let's say you decide to offer the sellers less than their asking price. They don't accept your offer, but issue a counteroffer. Before you respond to the seller's counteroffer, another buyer makes an offer. If you haven't signed the sellers' final counteroffer and delivered it back to them, they can withdraw their counter and sell the house to someone else. Or they could decide to withdraw the counteroffer to you and issue a new one. This time it could be a multiple counteroffer if the sellers also decide to counter the other buyer's offer. You end up in a multiple-offer competition, which often means paying more or not getting the house at all. You can't rely on verbal negotiations when you're buying or selling real estate. To be binding on the parties involved, real estate contracts and the addenda to them must be written. HOUSE HUNTING TIP: Timing is critical. If the seller issues you a counteroffer you can live with and you want the house, sign the document as soon as possible, even if the seller gives you several days to think about it. During that time, another buyer could make an offer and your counteroffer could be withdrawn. After you sign the counteroffer, make sure that your agent delivers it to the sellers or their agent immediately. Whoever receives the document should sign to acknowledge receipt of the document so that there's no question that the contract is ratified. Then if another buyer wants to make an offer, you won't have to compete or risk losing the house altogether. Once you have a ratified contract in place, the sellers can negotiate with other buyers, but only for backup position subject to the collapse of your contract. Don't let yourself be lulled into thinking that because the housing market is generally slow there's no chance you'll end up in competition. The best listings -- ones in good condition and priced right for the market -- can sell quickly, particularly in areas where the inventory is low. Many buyers have busy work or travel schedules. Often you find the right house to buy at the least opportune time in terms of what else might be going on in your life. Make sure that your home purchase contract states that faxed signatures are binding. This could save you hours of driving in traffic to sign a critical document in time. Sometimes faxes aren't the answer. If you'll be available only by phone or e-mail, consider giving power of attorney -- one specific to buying a house in a certain area -- to someone whom you trust completely. This person should not be your real estate agent. It should be someone who will be available on short notice. Electronic signatures are becoming more popular. But, they haven't become standard in the home-sale business. If a seller who has had no experience with electronic signatures is considering a couple of offers -- one with electronic signatures and one that was signed in person -- he would probably feel more comfortable accepting the latter. THE CLOSING: That is, unless the price on the electronically signed offer is a lot higher. |
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| Dos and don'ts of home selling By Dian Hymer An energetic real estate agent can have your home on the market in a day. However, to provide the kind of marketing exposure you need to sell in today's market takes a little longer, unless your home is photo-ready when you list. Ideally, you should start planning for your home sale months before you want your home to be on the market. First, find an agent to represent you. Then, create a game plan together for the premarketing phase of the process. Use your agent as a resource. Walk through your home with your agent to get feedback on work, decluttering, and rearranging that needs to be done before the house is photographed for advertising and shown to prospective buyers. If your agent doesn't have a good eye for design, ask for a recommendation of a staging decorator. HOUSE HUNTING TIP: Preferably, your home should not be submitted to the multiple listing service (MLS) or home-sale Internet sites without photos. Studies have shown that many buyers don't consider a listing that doesn't have photos. Some sellers have presale inspections done to find out if repairs should be made before the property goes on the market. This wasn't as important several years ago when buyers were enthusiastic about the prospect of making money in the residential real estate market. Now buyers are much more cautious, and property condition is a critical variable. One seller did a beautiful job fixing up her house for sale. She ordered a termite report and had some of the work done. But she didn't hire a home inspector to inspect the house. The interior was top-notch. In fact, more money was spent on this than was necessary. The listing agent was hired after the work had been done so the seller didn't benefit from the agent's advice about how much to spend and on what. The house sold with multiple offers. However, the buyer's home inspection report revealed that the house needed a new foundation. Fortunately, there was a backup buyer. But, the price was negotiated down significantly. In hindsight, it would have been better to have fixed the foundation and done a less expensive redo of the interior. A couple sold a similar home. They worked with their agent for months before the house was marketed. They did presale inspections and got estimates for painting, staging, furnace replacement, making necessary structural modifications and fixing miscellaneous defects referenced in the termite report. Then, they prioritized, with input from their agent, and had the most critical repairs and enhancements done before the listing hit the MLS. There was no renegotiation necessary with the buyers after they completed their inspections. Make sure buyers receive copies of proposals and paid invoices for work you did to your home so they know which items in your presale inspection reports have been repaired. Another couple, who plan to move in a few years, decided to get their home ready to sell now. They put in a new master bathroom, refinished floors and plan to replace a dry-rotted deck. They will enjoy the improvements for the remaining years they stay in the house. Most sellers wait until the last minute to get their house ready for sale. It can be very stressful trying to get all the work done in a short time frame. Doing work gradually over time is a saner approach. Sadly, most homes never look as good as they do when they're sold. THE CLOSING: Now is a good time to have work done. A lot of contractors are looking for work. You might receive more competitive bids and be able to have the work done when you want. Dian Hymer is a nationally syndicated real estate columnist |
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| Three ways to reduce capital gains tax By Benny Kass DEAR BENNY: I was told by a prominent accountant that there is a loophole in the law that states that you can be exempt from paying capital gains (if you are in a home less than the two-year period) if there are "unforeseen circumstances" involved. Are you aware of this? Can you doublecheck to make sure? This accountant is well trusted by a lot of businesspeople! At the time I was going through an "unforeseen" divorce. –Patricia DEAR PATRICIA: In general, in order to take advantage of the up-to-$500,000 exclusion of gain ($250,000 if you file a separate tax return), you have to own and live in the house for two out of the five years before it is sold. However, the law does allow a partial exclusion under certain circumstances. There are three "safe harbors" (meaning that if you meet these tests the IRS will not challenge you): (1) change in employment; (2) health; and (3) unforeseen circumstances. In this third category, if you could not have anticipated an event before you purchased your house, you may also be able to claim a partial exclusion. While this is fact-specific -- and in many cases you will have to get a special ruling from the IRS -- there also are some safe harbors that the IRS will recognize. These include: an involuntary conversion of your house; natural or manmade disasters resulting in a casualty to your home; divorce or legal separation; and multiple births resulting from the same pregnancy. It would appear that you may qualify based on your divorce. The exclusion is equal to the number of days of use times the quotient of $500,000 divided by 730 days. Note that 730 days is two full years. If you are single -- or do not file a joint tax return -- change the $500,000 to $250,000. Your accountant knows what he is talking about so you should ask him to do the calculations. However, I do not think he said that you can escape all capital gains tax. DEAR BENNY: What happens to any additional money in a foreclosure action if the highest bidder pays more for the house than the amount that the bank is owed? Is the money given to the person who was foreclosed upon, or does it go to the county or state? –Monique DEAR MONIQUE: It is a rare case that there is any money left over after a foreclosure sale. The lender, their attorneys and the auctioneer (including advertising costs) will get paid out of the price that the property is sold at the sale. The professionals who buy at foreclosure sales will generally want a good deal and will not bid much higher than the initial bid price set by the lender. And in many cases, there is no buyer, and the lender ends up owning the property. However, if there is a surplus, the money goes back to the person whose home has been foreclosed upon. DEAR BENNY: Do you know of any books or brochures that help explain the responsibilities of a condominium developer/owner? We live in an unfinished condo development in St. Louis. There are construction and maintenance issues that the current residents believe are the responsibility of the owner/developer, not the condo association. The items/issues are not covered in the bylaws. –Natalie DEAR NATALIE: There is an organization in Virginia known as the Community Associations Institute. You can find them on the Web at caionline.org [1]. This group has a number of valuable resources that may be helpful to you, including books and publications on a number of community association subjects as well as suggested names of attorneys who may be of assistance in helping you learn your rights. DEAR BENNY: I recently purchased a home and directly next to it is a piece of railroad property that separates it and two other properties. All properties have access to the streets. The railroad took the land by eminent domain many years ago, and the prior owners are now long gone. When I contacted the railroad about purchasing the land they said because they took it they cannot sell it but would be willing to abandon it for a small fee. If I pay this fee how do I get title to this land? It does appear that they took a portion of the lot I already purchased and they said so to me. How do I keep someone else from getting it once abandoned? Also, the portion they took (of my lot) was already being used as a driveway by my lot for at least the last 30 years that I know of, and the other lots appear to also have been abandoned years ago. –Robert DEAR ROBERT: This is a complicated legal issue and you should retain an attorney versed in real estate to assist you. I do not know why they can't just sell you the land, and you should ask them for an explanation. If the property has been abandoned, you may have the right to file a lawsuit claiming adverse possession. This means that you (or your predecessor) have, for the period of years authorized by your state statute, openly, notoriously and hostilely used the property. As I stated, these are technical legal issues, which must be reviewed by your attorney. If, in fact, the railroad company is willing to state in writing that they have abandoned the property, you may also be able to file what is known as a "quiet title" action, asking a judge to review the facts and determine who owns the property. DEAR BENNY: I have just found out that my neighbor's septic tank leach line and leach pit is on my property. I was going to buy the property when it was recently up for sale, but I was not given the chance. I did file a lawsuit against the seller. The contract purchaser has not yet taken title to the property. Do I have a legal claim against not just the seller but the buyer if he does indeed go to closing and take possession of the property? I am hoping that after the buyer learns that there is a lawsuit on the property, he will back off and not buy it. What happens in a case like this? –Leo DEAR LEO: You have filed a lawsuit that should put the title (escrow) company on notice. You or your attorney should contact both the title company as well as the buyer and advise them of the lawsuit. There is a concept in law called "lis pendens," meaning that litigation is pending. Ask your attorney if he is able to file this lis pendens document in your case and have it recorded among the land records on your neighbor's property. Clearly, the title (escrow) company will see that there is a pending lawsuit when it searches the title for the buyer. The buyer would be foolish to buy the property until your lawsuit is resolved. I would also try to reach an amicable arrangement with the buyer. After all, if he does buy the property, he will be your next-door neighbor. DEAR BENNY: How can I get a title company to release funds being held in an escrow account for a unreleased deed of trust for a loan 20 years ago from a bank that no longer exists? --C.R. DEAR C.R.: State law differs on how old a deed of trust (mortgage) has to be before it will no longer have any force and effect. Are you sure that the title company still holds the funds in escrow and is still in existence? If you are sure that the money is still there, you can file a suit for quiet title, asking the judge to cancel the note and deed of trust and order the release of the escrowed funds. However, the judge will carefully review the facts to make a decision as to who is the rightful owner of these escrowed funds. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. |
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| Staging tips that sell By Dian Hymer Home prices have fallen and many homeowners are mortgaged to the hilt. This makes it difficult for some sellers to justify spending a penny to get their home ready for the market. However, the home-sale market also is very competitive in areas that are still bloated with inventory of unsold homes. When buyers have a choice, they pick the best. They want a home at a good price, in a good location, and one that they can move right into without having to do any work. Investor buyers are snapping up foreclosures at an increased pace. These homes are usually not in good condition. And, in some cases they are selling for half of what they sold for four or five years ago. If you're a seller who's selling in a market where there is competition from distressed-sale foreclosures or from other sellers who are offering their homes in top condition, you will be at a disadvantage if you don't fix up your home before selling. It will take longer for you to sell and you could sell for a lot less than if you had invested time and money in properly preparing your home for sale. There is a lot you can do to get your home ready that doesn't cost much money -- it just takes time and hard work. For instance, most people have too many personal possessions in their homes, particularly if they have lived there for years. Decluttering benefits you in a couple of ways. You won't pay to move things you no longer want or need. More importantly, buyers will be better able to see what your home has to offer instead of focusing on your things. HOUSE HUNTING TIP: It's worthwhile to consider hiring a home staging decorator. Some sellers only need a consultation of one to two hours. Ask the stager what you should keep and what should be moved out before you start showing the house. Also, get recommendations for furniture and artwork arrangement. The way you live in your house is not necessarily the best way to show it off to prospective buyers. For example, many homeowners place their sofa across from the fireplace, which can mean that a buyer is greeted by the back of the sofa when they walk into the room. It stops them in their tracks. If the sofa is moved to one side and two chairs are placed opposite the sofa, the room will appear more open and the traffic flow won't be obstructed. Sometimes the scale of your furniture isn't right for showing your home to its best advantage. Recently, buyers who had been looking for more than a year for the right house saw one that they thought could be it. However, they were concerned that the bedrooms were too small. They had the good sense to go home and get a tape measure. They came back to the house and measured the rooms they were concerned about. It turns out they were larger than they appeared. The house was furnished with beautiful pieces, but they were large and made some rooms appear smaller than they actually were. Today's buyers have a lot to think about when they buy a home. Are they buying at the right price and time? Will the house work for the long term? Can they qualify for and afford the financing they need? It helps the process along if you can create an ambiance that enables a buyer to fall in love on the first visit. THE CLOSING: You need to create the wow factor so that when buyers walk in they say, "I better act quickly. This house won't be on the market for long." |
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| Buying an existing home that’s “green” By Michelle D. Alderson With rising energy costs and growing awareness – and availability – of environmentally friendly products, it's no wonder that interest in purchasing green homes is rising. Green remodels on existing homes both save the environment and save homeowners money on monthly bills. As green home remodeling becomes more abundant, so does the demand to purchase these homes. This increased interest in existing green homes has created a need to educate buyers on what is really considered "green." Over the past several years, many organizations such as Build It Green, (http://www.builditgreen.org), an independent nonprofit organization, have been created to offer a third-party unbiased evaluation. Because of the growing desire to purchase existing green homes, states Bruce Mast, development director at Build it Green, "the Real Estate Council has been setting the stage to incorporate GreenPoint Rated results into MLS listings in several areas." What is GreenPoint Rated? Mast explains that, "GreenPoint Rated provides an independent assessment of a home across five categories: community design, energy efficiency, indoor air quality/health, resource conservation, and water conservation." Other organizations that have similar rating systems for homebuyers include the U.S. Green Building Council (http://www.usgbc.org), a non-profit community; and Green Globes (http://www.greenglobes.com), an assessment and rating system. The USGBC has created the REGREEN (http://www.greenhomeguide.org/guide_for_green_renovation/index.html) program in partnership with the American Society of Interior Designers' Foundation. Working with LEEDs for Homes, a LEED (Leadership in Energy and Environmental Design) certification offers an unbiased green home inspection for possible buyers. In addition, Green Globes boasts a rating system that has an easy-to-use online questionnaire for a minimal cost. Once the questionnaire is completed, the user automatically receives a report. All three organizations have online tools to answer questions and guide interested parties through the certification process. Part of this process includes understanding what different elements make a home green. The elements can range from simple re-landscaping to more complicated structure updates. But all share a common goal: to help preserve the planet and save on energy costs. The following are just a few examples of "greening" a home: • Buying ENERGY STAR (http://www.energystar.gov) appliances is the most popular way to go green. These EPA- and Department of Energy- approved appliances use less energy than conventional appliances. • Another easy way to green a home is by replacing standard light bulbs with energy-saving CFLs (Compact Fluorescent Light Bulbs), (http://www.energystar.gov/index.cfm?c=cfls.pr_cfls) which can be found at most supermarkets and drugstores. • Using VOC (volatile organic compounds) (http://www.epa.gov/iaq/voc.html) also receives green certification recognition. VOC paint is just one example of how this compound is used. • Installing low-flush toilets, solar paneling, and low-emittance windows helps lower water and energy bills. • Planting native vegetation and drought-resistant landscaping can save on water usage as well. When thinking about purchasing a green home, a buyer might wonder if it's really worth all the effort and cost. Aside from saving the planet, green remodels on existing homes have proven to be cost-efficient. Veronica Cortes, a homeowner in Northern California recently did an entire green remodel on her 1957 ranch-style home. Currently she pays $30 per month on average for her energy bill after installing solar paneling. In the winter months, her neighbors pay anywhere from $276 to $500. Cortes says all the heartaches of a remodel were worth it: "Our house nurtures us in ways that it never did before: … the place is flexible and its spaces can accommodate different uses depending on our needs, [and] it's cheap to run." |
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| What should I consider before remodeling? By Dian Hymer So, you're thinking about remodeling instead of moving... Before you start knocking down walls, carefully consider the feasibility, practicality and cost of the remodeling venture. It's helpful to hire a design expert to consult with you about the feasibility of the project you have in mind before doing anything else. Initially, try to hire a design professional who will charge on an hourly basis. Many architects want to develop a full set of architectural plans for you right away. This can cost thousands of dollars, which you don't want to spend unless you're definitely going ahead with the project. During the feasibility analysis, you need to find out if your home can be modified to create the kind of space you want and need. You also need to talk with the local building or planning department to find out if there are any restrictions that would preclude you from completing the project. Once you've determined that your remodel project is feasible, then give a good hard look at the practicality of the project. Remodeling is disruptive. It takes time. Can you and your family weather the storm? Anecdotal evidence suggests that a major remodel can put a fatal strain on an already shaky marital relationship. HOMEOWNER TIP: A common mistake homeowners make is assuming that when they sell they will recoup the money they invest in remodeling their home. How much you can recoup will vary depending on local real estate market conditions, the type of remodel project, and the length of time between the project completion and the sale of the property. Generally, it doesn't make sense to tackle a major renovation if you plan to sell in the near future. If this will be a long-term home for you, then it may be worthwhile to invest in a major overhaul. But, keep in mind that design tastes change over time. The beautifully remodeled kitchen that looks fabulous to you today may look dated to prospective buyers when you sell ten years from now. Kitchens are important to most home buyers. However, if you're planning on selling soon, you're likely to recoup more if you do a modest kitchen makeover than you will if you do a major reconstruction. According to Smartmoney.com, a complete kitchen makeover recoups 80 percent of its cost. A modest redo involving new paint, cabinet hardware and floor covering paid back 87 percent of the investment. These figures are based on national averages. Talk to a local real estate agent whose opinion you trust to find out whether your remodel plans are likely to meet with market approval. The point of remodeling is to make your home better suit your lifestyle. But, it's also important to consider the resale potential of your improvements. The value of a remodel project will vary from one place to the next. Even though nationally a major kitchen renovation only returned 80 percent of the investment, in San Francisco it's possible to recoup over 100 percent, depending on the quality of the renovation. Your agent can also help you determine if you will be over-improving your home for your neighborhood. Ask to see comparable sales information on homes like yours and also on homes similar to your hypothetically remodeled home. THE CLOSING: Keep in mind that most remodel projects end up costing more than budget. Factor this in to your cost analysis. |
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| Spruce it up to sell Some sellers wonder if it's worth the effort to fix their homes up for sale, particularly in a hot market where almost every listing that comes on the market sells. Most real estate agents will tell you that the listings that sell the fastest and for the most money are the ones that are in the best condition. Even in a hot market, buyers pay a premium for homes they can move right into. In most cases, however, it's not recommended that you do a major renovation of a home simply for the purpose of making it more salable. The reason for this is that, in most cases, you can't immediately recoup a major renovation investment. Your money should be spent on giving your home an economical cosmetic facelift For example, let's say you have an older kitchen. Rather than gut the kitchen and spend $40,000 to $50,000 on a completely new kitchen, it makes more sense economically to paint, replace the floor covering and change the countertops. This, and a general cleanup, is usually all it takes to give a tired-looking kitchen a fresh new look. First impressions are very important in the home sale process, so you should pay attention to how your home looks from the street. If you are on a limited budget, concentrate your efforts on sprucing up the front and entry of your home first. Your home should look inviting and well maintained, so clean up the yard, plant new sod if the lawn is dead, fix leaning fence posts and paint the front door. FIRST-TIME SELLER TIP: Most homes are packed with too much furniture and too many personal possessions after years of ownership. Get rid of anything you no longer want or need before you put your home on the market. Your home will appear bigger and tidier, which will make it more appealing to buyers. And it doesn't make sense to pay to move things you no longer want. Sellers who have outgrown their homes are wise to rent storage space for possessions they want to keep that don't fit comfortably in the home. Avoid the temptation to simply stuff things in closets or the garage. This will defeat your purpose. Your aim is to present your home as a desirable place to live. If every inch of storage space is stuffed with your possessions, your home will appear to be too small and without adequate storage space. Buyers appreciate a clean, tidy interior, so remove clutter from the countertops in the kitchen and bathrooms. A home office is an attractive feature, but not if the desk is covered with papers. Clean up your home office so that buyers get the impression that it's a comfortable place in which to work. Every room in your home should look like it serves its intended purpose well. Make the most of all the available living space in and around your home. Many people cannot visualize how a space will look, so you're wise to leave nothing to the imagination. For example, if you have a deck, set up outdoor furniture to show buyers that you have an area suitable for outdoor entertaining. A room in the basement might be made into an exercise or hobby room with minimal effort. THE CLOSING: Have your home, including the windows, professionally cleaned. Be sure to keep your home clean and tidy during the marketing period. Bright interiors are appealing, so leave the lights on during showings, even though it may seem like a waste of money. |
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| Unpaid HOA fees boost foreclosure risk By Benny Kass DEAR BENNY: I am three months behind in my homeowner's association payments. Can the condominium foreclose on my unit? My mortgage payments are up to date, and I called my lender who said no, they cannot foreclose. What do you say? I wrote a letter to the board asking for a payment plan in January of this year, but no response as of yet. I know I owe the money, but I was sick for a period of time. I am planning to pay the back fees with my taxes. --P.S. DEAR P.S.: Your lender is wrong. Review your legal documents carefully and you will see that the board has a number of remedies if an owner is delinquent in his/her condominium fees. The board can bring a lawsuit for collection; in many cases can restrict access to common areas, such as exercise rooms or swimming pools; and can ultimately, unless your state legislature has enacted restrictions, foreclose on your unit. I am surprised that your board has ignored your request for a payment plan. Such a plan makes sense -- especially in today's economic situation. What does the board want to do: foreclose and then possibly be stuck with your unit if no one buys at the sale? I suggest you keep pressing the board for a decision. DEAR BENNY: After 25 years, I'm tired of being a landlord and was thinking of selling my rental house and carrying back the loan. Where can I get more information on what's involved? –Gina DEAR GINA: When you sell property and take back financing, you are no different from any other commercial lender. You want to be as sure as possible that your buyer is financially able to make the monthly payments (which include principal, interest, taxes and insurance -- which we call "PITI"), and you also want to make sure that the loan is properly secured with the house as collateral. This means that you record the mortgage document among the land records where the property is located. There is a lot of information on the Internet -- just type in "seller take back financing" at your favorite search engine. However, as helpful as the Internet will be, you will need specific assistance. Your buyer/borrower will have to sign a promissory note, and a deed of trust (called a mortgage in some parts of the country). Don't rely on the buyer's attorney or title (escrow) company to assist you. Retain your own attorney to draw up all of the necessary papers and to help you determine if your potential buyer is a good candidate for a seller take-back loan. DEAR BENNY: My friends have a home they are allowing their daughter to live in rent-free. We were discussing selling the home, which they moved out of three years ago. Since they have gone past the three-year period, what is their capital gain amount or tax liability on this home? Is the entire amount that they sell it for taxable? Or does the IRS still deduct the amount paid for the property and call that part untaxable? –Patti DEAR PATTI: If I understand your question, your friends moved out of their principal residence three years ago, and now want to sell it to their daughter. Since there is a time limit on their right to exclude up to $500,000 of their gain if they are married and file a joint income tax return (or up to $250,000 for single filers), what are their tax consequences? In order to take advantage of the exclusion of gain, you have to own and live in the house for two years out of the five years before the property is sold. The two years do not have to be continuous; you just have to be able to prove that you did live in the house for a total of two years. If you fail to meet what is known as the "ownership and use" test, you have to pay capital gains tax. The tax is based only on the profit you made. Example: You bought the property for $200,000, made no improvements, and sold it for $300,000. Although you can deduct such items as closing costs and real estate commissions in determining profit, for this example you have made $100,000 and will have to pay capital gains tax. The current rate for this federal tax is 15 percent. You may also have to pay state and local income tax. Here's a suggestion, however. If the daughter was living rent-free, it could be argued that this is an extension of the family and thus your friends may be able to tack on the daughter's use so as to permit the family to claim the exemption. I cannot provide specific legal advice and recommend that the family consult a tax attorney or accountant for more information. Clearly, any legal way that one can avoid having to pay taxes is acceptable to the IRS. DEAR BENNY: I have an odd situation regarding the residence that I am currently leasing. I entered into a one-year lease with a very affluent couple. A few months later, the couple disappeared. More investigation on my part concluded that the husband was an owner of an investment fund and disappeared once the banking industry went awry. Millions of dollars of investors' money allegedly disappeared with the husband CEO. The wife kept in touch with me and I worked out an agreement with her, whereby she would transfer the deed over to me for a lump sum amount and I would continue payments on the home, until I am able to obtain a new loan or work out an assumption with the bank. She agreed, we noted everything in writing, and we're living in the home with our names on the deed but the mortgage in the owner's name. What will the bank do when they find out that the owners transferred ownership? Is there anything we can do to make sure that our rights as a bona fide purchaser are protected? –Charmaine DEAR CHARMAINE: Wow! Another fraudulent financier. When will this madness and corruption stop? My first question is whether you really own the house. If the house originally was in the name of the husband and wife, and the missing husband did not sign the deed, you do not own the property. You must immediately retain a real estate attorney in your area to investigate. If you do own the house, are you in a financial position where you can refinance and get a mortgage loan in your name -- and pay off the old loan? Interest rates are very low now, so you should seriously explore that option. Alternatively, come clean with the bank that holds the mortgage and I suspect that they will work with you. But, the first question must be answered immediately: Do you really own the property? DEAR BENNY: Condominium owners don't realize until it's too late that they are at the mercy of their boards. What can the community do when the board doesn't follow the bylaws and rules and regulations? –Del DEAR DEL: That's a tough question. There are times when a board has to make value judgments as to whether they should follow the legal documents -- even though they realize they are legally obligated to do so. One example that is very current deals with rentals of condominium units. Many association bylaws put restrictions on renting -- such as either no rentals allowed or only a certain percentage of units can be rented at any one time. However, in today's economy, many owners who must leave the area for whatever reason find that they are unable to sell and must rent -- despite the fact that the quota spelled out in the bylaws has been met. What should a board do in this case? Obviously, the first choice is to try to amend the legal documents. But that's not always easy. More importantly, when the economy gets better, the association wants the leasing restrictions to remain in place. I have told my condominium clients that the board should hold a public meeting, and advise the owners that based on the circumstances, and despite the clear language in the bylaws, the board will just not enforce the leasing restrictions for the foreseeable future. If the members do not object, then the board can "close their eyes" to the violation. But if there are objections, the board would have to consider whether the costs involved in litigation are a worthwhile expenditure, and they still may opt not to enforce. Don't get me wrong. I am not advocating that boards have the right to ignore the clear dictates in the legal documents. In general, they do not have this right. What should owners do if their board is ignoring the rules? I tell everyone that they have the following options: (1) initiate a recall proceeding, so as to try to "throw the rascals" out of office (the bylaws should spell out the legal requirements for this process); (2) run for the board and try to change the system; (3) a number of unit owners should retain a lawyer who can file suit to force the board to comply with the documents; (4) accept the situation and live with it; or (5) move out of the community. 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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| Homeowner's insurance hang-ups By Dian Hymer After paying out huge settlements to clean up mold damage, homeowner insurers pulled back from issuing new policies on homes where a water damage claim had been made within the last five years. They also minimized their exposure to mold claims by excluding mold coverage altogether or limiting their coverage. Currently a common cap on such claims is $5,000, although this can vary from one company to the next. Some insurers are less concerned about water damage claims today. However, they are concerned about the profile of the insured. Homeowner insurers want to insure people who don't have a history of making claims. Some companies won't write a new insurance policy for someone who made a claim within the last three years. Insurer guidelines for coverage vary from company to company. And, individual companies' policies change over time depending on their loss history and the marketplace. Some homeowner's insurance companies may cease writing policies altogether for new customers in certain states or in specific areas within states. However, those companies may write new policies for current policyholders. If your house is insured with one of the companies that is not writing new policies, and you sell it and buy another home in the area, that company may write a homeowner's policy for you on your next home as long as the house meets certain criteria, for example. HOUSE HUNTING TIP: More and more homeowners are selling first and renting for a time before buying their next home. In this case, if the homeowner is insured with a company that isn't writing new business in your state, it would be prudent to carry renter's insurance through this company. The company would then be likely to cover your next home because you have been a continuous client. For this strategy to work there can't be a break in coverage. Renters who have never owned a home and who are having trouble finding homeowner's insurance should check with their renter's insurance company. This company will often write a homeowner's policy for an existing renter's insurance customer. If you made a claim within the last three years with your existing company and you buy another house, that company will probably insure you on the new home as long as coverage is continuous. However, if you made two or more claims during the last three years, you could be denied coverage. Or, there might be a surcharge. This is usually determined on a case-by-case basis, with leeway given to long-term customers. Even though you're gold-plated in terms of insurability, an insurer might turn you down because of the property. For example, it can be difficult to insure older homes with some companies. Outdated plumbing, electrical, heating and roof are red flags. Some companies won't insure houses with wood siding in fire-prone areas. There is flexibility with some insurers who will insure a home with older wiring as long as the buyer agrees to upgrade the electrical within a month or so of closing. When you're shopping for homeowner's insurance, make sure to compare like-kind coverage. Some companies will pay only 100 percent of the coverage amount in the case of a total loss. Others will pay 120 to 200 percent of the coverage amount. Find out what's excluded from coverage. With older homes, it's a good idea to pay for a code upgrade rider. This doesn't cost much when you consider what it would cost to upgrade an older home to meet current code requirements in case of a catastrophic loss. THE CLOSING: Because it's risky to make a lot of claims, consider increasing the deductible. This will reduce your annual insurance premiums. Dian Hymer is a nationally syndicated real estate columnist and author. |
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| Buying to flip not smart in today's market By Dian Hymer There are deals to be made in the current real estate market. Home buyers in many areas finally have the upper hand. Ironically, buyers tend to pull back when the market is soft and buy when the market is high. Savvy investors attempt to buy when the market it low and sell when it's high. But, it's impossible to time the market, so there is always an element of risk involved. Here are some guidelines to keep in mind if you're considering buying a home in the current market. Short-term investing paid off for many investors a few years ago. In most cases, this strategy should be avoided today. Although the home-sale market is localized, generally the current housing market is soft and is expected to take a year or more to recover. You don't want to be caught having to sell in a year or two when the value of your house might be less than or equal to what you paid for it. After taking into account the costs of sale, you could find yourself selling at a loss. With this in mind, don't buy unless you're economic future is secure, and you're sure you won't be relocating during the next five years. Also, don't base your decision solely on price. You might be able to buy a small two-bedroom, one-bath home for a low price in this market. But, if this won't suit your long-term housing needs, don't buy it. Not too long ago when the market was racing upwards, many first-time buyers bought small starter homes. They stayed in these homes for two or three years and then sold for a profit. This helped fund the purchase of a larger long-term home. This strategy could get you into trouble today. You might be better off waiting to buy until you can afford a home that will provide a long-lasting solution to your housing needs. Avoid houses that could be hard to resell. These are usually houses that lack broad-based buyer appeal, like houses that are too small or that are located next to a freeway. If you do buy one of these houses, make sure you get it for a good price. Keep in mind that unless you sell in a hot market, you could have difficulty selling in the future. HOUSE HUNTING TIP: Some home buyers are so anxious to move that they will settle for less than they need. Or, they buy a home that doesn't quite work with a plan to remodel it to correct its deficiencies. This home-buying scheme is not for everyone. For example, some Oakland, Calif., homeowners purchased several years ago and subsequently completed costly renovations. They sold recently for more than they paid, but not for enough more to cover the renovation costs. The finance markets have been in turmoil. Many mortgage companies have had to shut their doors due to fallout from the subprime lending crisis. Some of these companies left buyers in the lurch when they failed to fund loans just before closing. It might be wise to submit applications to two lenders so that you have a fallback, if necessary. Don't skimp on inspections. Property condition has a big affect on property value. If you buy a property that has deferred maintenance, make sure you buy it for a good price. Plan to take care of correcting defects, many of which will worsen over time. THE CLOSING: Financial planning for a home purchase should include factoring in the cost of curing deferred maintenance, as well as the cost of ongoing maintenance. |
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| How to divvy up mortgage-interest tax deduction Couple seeks fair way to reward each one's share of loan payments By Benny L. Kass DEAR BENNY: I purchased a townhome in January 2005 with a very low, interest-only loan, and have been paying approximately 20 percent extra towards the principal each month. My fiancée moved in about 15 months ago and has been paying $600 a month. The monthly interest-only payment is $1,600. Recently we decided to double the monthly payment in addition to paying an extra $10,000 towards the principle to lower the interest portion of the monthly payment. My fiancée has asked about taking advantage of the interest deduction on her tax returns. What is the best way (if any) for us to divide fairly the interest towards our yearly tax returns? I am thinking about giving her a quitclaim deed with her name on it in addition to mine. Is that a viable option? –Chuck DEAR CHUCK: Even if your fiancée is put on title, since she is not named on the mortgage document (also called deed of trust), she will not be able to legally claim any deductions. According to the IRS, "to be deductible, the interest you pay must be on a loan secured by your main home or a second home." The word "secured" means that the mortgage was recorded among the land records in the county where your house is located. So, the only way that she will be able to claim any deductions is to put her name on title and refinance your existing loan. That may not be a bad idea, depending on whether your favorable interest-only loan will someday become an adjustable loan with much higher monthly mortgage payments. Too many people who obtained interest-only loans are now waking up to learn that their favorable loan will not last forever. And while I do not want to get involved in your domestic situation, if you decide to put your fiancée on title before you get married, I strongly recommend that you enter into a form of "partnership agreement." This agreement would include provisions on what to do with the property should you decide to break up, what happens if one of you is not able to pay his or her share of the house expenses, and how to divide the proceeds should you decide to sell the house. DEAR BENNY: I put my home (paid for) into a limited liability company (LLC) on the advice of an attorney for asset protection. I have since been told by other lawyers that doing so provides no protection. How do I transfer it back into my name, and do I need an attorney to do so? –David DEAR DAVID: I would be curious to learn why these other attorneys claim that the limited liability company does not provide you with protection. One of the primary reasons that LLCs became so popular in recent years is to provide protection. Oversimplified, most state statutes authorizing the creation of an LLC specifically state that the member (or members) of that organization have no personal liability should there be claims against the LLC. In order to hold the member responsible, lawyers have to "pierce the corporate veil," and that is not always easy. If you keep separate books for the LLC, do not commingle your personal funds with those of the LLC, and always sign documents by adding the word "member" after your name; you should be personally protected. One problem that does arise is when two or more properties are put into the same LLC. Both properties are now subject to any liability associated with either of the properties. My recommendation: If you own more than one investment property, put them into separate LLCs. I suggest that you get another opinion from a real estate attorney. But if you do want to transfer the property back into your name, it would be a simple deed from the LLC to yourself. However, there may be steep recordation and transfer taxes imposed by your state, and there may also be tax consequences. You do need a tax advisor to guide you before taking any further action. DEAR BENNY: I have a current 1-year-old mortgage with a balance of about $197,000 at 6.5 percent fixed for 30 years. I desperately need about $60,000 for repair/remodeling! Is it a good idea to refinance at 6.375 percent fixed for 30 years, or what else might you suggest? –Adrian DEAR ADRIAN: You did not tell me if you have enough equity in your house to pull out another $60,000. If you do, then I would think it's a no-brainer to refinance at the lower interest rate. Your alternatives will most likely cost you more money. For example, if there is equity in your home, you can take out a home equity loan, but the interest rate will probably be higher. You may find some local or state government program that will lend you low-interest money if you are doing some environmentally sound improvements. You may also be able to take out a straight bank loan, but if it is not secured (i.e., recorded among land records) you will not be able to deduct the interest you pay. I suggest that you contact three or four mortgage lenders and see what they have to offer. My guess is that the refinance would make the most sense. However, you must also "do the numbers" to determine what closing (escrow) costs you will have to pay for that refinance. Homeowners do not always understand that a refinance -- for all practical purposes -- is treated as a brand-new loan, and you will have to pay all associated costs -- such as appraisal, underwriting, loan preparation, lender's title insurance, and settlement (or escrow) fees. DEAR BENNY: I've a question that I hope you can answer: Who owns the strip of land between the sidewalk and the street? Can the residential property owner prevent you from letting your dog do his business on that strip of land (provided you comply with the ordinance to clean up after the dog)? –Robert DEAR ROBERT: That's a great question and I don't have an answer. In my area (District of Columbia) that strip of land is owned by the city. You would have to check with your local authorities to confirm ownership. When you bought your house, you may have obtained a survey. If so, the survey will give you guidance on where your property lines are. If the property in question is owned by the local government, my guess would be that the property owner cannot stop you from letting your dog "do his business." But putting legality aside, why do you want to do this if a neighbor objects? Put yourself in your neighbor's shoes. Clearly, you would object if someone did that to you. DEAR BENNY: My neighbors have a large, old tree that is just feet from my garage, and whose roots have caused the concrete floor of the garage to crack and become uneven. Lately, however, it has gotten so bad that dirt is pushed up through the cracks and needs to be shoveled out every few months. The garage is almost to the point of being unusable and dangerous. I want to ask the neighbors to remove the tree but I am certain that they will ignore my request. Do they have any legal responsibility for the damage their tree is causing? –Carrie DEAR CARRIE: Tree law differs from state to state. In some states, the so-called "Massachusetts rule" applies, which basically means that your only remedy is to trim any overhanging branches and cut the tree roots on your side of the property line. Other states have adopted the "Hawaii rule," which states "while it may be an inconvenience for the neighbor if the trees cast shade, or drop leaves, flowers or fruit, this is not actionable at law." However, "when they cause actual harm or pose an imminent danger of actual harm to adjoining property," the neighbor may require the tree owner to pay for the damage and cut back the endangering branches or roots. And if this is not done within a reasonable period of time, the neighbor "may cause the cutback to be done at the tree owner's expense." The law is evolving. Recently, the Virginia Court of Appeals reviewed the issue, and adopted the Hawaii rule. Their reason was simple: We are no longer an agricultural society but an urban one, and the Hawaii rule is more suitable for today's homeowners. I would find out from your attorney what law applies in your case, but in any event, I would not hesitate to ask your neighbors to inspect the damage their tree is causing and request that it be removed. |
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| Is buying a second home a wise tax strategy? Homeowners aim to save big on sale of first home By Robert J. Bruss DEAR BOB: My wife and I bought a house in 1995 for $180,000. Since then, we have taken out home-improvement loans and now owe $320,000. Similar nearby houses sell for $600,000. In 2004, we bought our current home for $640,000 and rented out our former home. We have been told if we sell our first home within three years after buying our second home we won't owe any capital gains tax. Or should we try to sell it now although the local home sale market is a bit slow? --Manuel A. DEAR MANUEL: You received incorrect tax information. Buying a replacement home is irrelevant. Also, the mortgage balance on your old home doesn't matter. To qualify for the Internal Revenue Code 121 principal-residence-sale tax exemption up to $250,000 for a single person (up to $500,000 for a qualified married couple filing a joint tax return), you must have owned and occupied the home at least 24 of the last 60 months before its sale. That means you have up to 36 months after moving out of your principal residence to claim your tax-free sale profits. If you rent it longer than 36 months, you lose your exemption. However, since you rented the house after vacating, the depreciation you deducted on your tax returns will be taxed at the special 25 percent federal tax rate for recaptured depreciation. For full details, please consult your tax adviser. WHAT IF 81-YEAR-OLD MOM STOPS PAYING DAUGHTER'S MORTGAGE? DEAR BOB: My 81-year-old mom recently co-signed a 40-year mortgage for my "derelict" sister. The loan is in my mom's name but the house deed has both her name and my sister's name on it. My sister has really bad credit. Although she can afford it, she refuses to pay the mortgage monthly payment to my mom, so mom makes the payment. My dad, age 79, is worried about his credit rating. I say, at their ages, does it really matter? My mother also has dementia so my sister and the bank took advantage of her. What should she do? --Dee G. DEAR DEE: If your mom stops paying the mortgage payments, the bank will foreclose on the house. Should it not sell for enough to pay off the mortgage, the bank could come after your mom for any deficiency loss (although that is highly unlikely). Of course, if that happens, your mom's credit will be ruined. But, as you say, at age 81, who cares? This extreme situation shows why an individual should not co-sign for credit to primarily benefit another person, especially a "derelict." If you and your father knew this was going on, you should have stepped in to stop your mother from co-signing for your sister. AFTER YOU QUITCLAIM TITLE, YOU CAN'T GET IT BACK DEAR BOB: A few weeks ago you had a question from a man who wanted to add his girlfriend to the title to his house. You suggested use of a quitclaim deed to convey a half interest. My question is after quitclaiming your title, how can you get it back again? I'm asking because in two years I plan to add my boyfriend's name to the title of my home we will share as our primary residence before selling it two years later --Jeanne S. DEAR JEANNE: When a property owner signs a quitclaim deed, he conveys whatever interest is desired, such as 50 percent or 100 percent, has his signature notarized, and the deed is recorded to complete the conveyance. After title is transferred, the grantor can't get that title back again. Before you transfer a partial interest in your property to your boyfriend, please consult a local real estate attorney to determine the best way to hold title. Also consult your tax adviser to discuss the tax consequences. NO WAY TO GET YOUR NAME OFF MORTGAGE AFTER A DIVORCE DEAR BOB: As part of my divorce settlement two years ago, I signed a quitclaim deed on the house that was in both our names. The mortgage is still in both our names. He has since remarried and is still living in the house. He says he can't refinance and isn't sure when he is going to sell the house. If something were to happen to him, it is my understanding I will still be responsible for the mortgage payments. Would I get the house? Or would it go to his wife? Can I make him refinance? I really want my name off the mortgage and the house --Teresa B. DEAR TERESA: If you had a decent divorce attorney, he or she would have resolved these issues in your divorce agreement. Because you signed that quitclaim deed, your ex-husband now owns the house in his name alone. But your name will always remain on the mortgage obligation. The lender is 99 percent certain to never release you from liability, and you can't force your ex-husband to refinance. It's a shame this wasn't handled as part of the divorce. If your husband dies, his living trust or will determines who receives title to his house. By signing that quitclaim deed, you are out of the picture to receive the house unless he wills it to you (very unlikely). Sorry to be the bearer of bad news. But there is nothing you can do to force your ex-husband to refinance or sell the house to get your name off the mortgage. WHAT IS BEST TAX STRATEGY TO RECEIVE RENTAL HOUSE? DEAR BOB: What is the best tax strategy for my mother to give me her rental house? Initially, we bought it together, but when it was refinanced my name was taken off the title --Jan B. DEAR JAN: The best way for you to obtain title to that rental house is to inherit it after your mother dies. Then you get a new stepped-up basis of market value on the date of her death. If she gifts the house to you now, then you take over her presumably low depreciated adjusted cost basis for the rental property. Also, she must file a federal gift tax return. But no gift tax will be due unless she has given away over $1 million in lifetime nonexempt gifts exceeding $12,000 each. For full details, please consult your tax adviser. SHOULD HOMEOWNER SWITCH FROM ADJUSTABLE TO FIXED MORTGAGE? DEAR BOB: I am 64, single, and retired. I have a $125,000 mortgage with an adjustable interest rate currently at 6.3 percent (it can go up to 11 percent). My home is worth about $550,000. I am not planning to sell, but am thinking of refinancing at a 6.375 percent fixed interest rate. It would cost me $2,000 in fees ($1,000 in lender fees and $1,000 in title and escrow charges). Do I really need to spend $2,000 to avoid any future interest-rate increases? --Richard L. DEAR RICHARD: It's up to you to decide if spending $2,000 to lock in your interest rate at 6.375 percent is worth the $2,000 expense and hassle. I can't give you a payback analysis because you won't be saving anything. But you won't have to worry about rising interest rates. NO LIABILITY IF TREES AREN'T DAMAGING NEIGHBOR'S PROPERTY DEAR BOB: After I moved into my home, the neighbor insisted my trees are cracking her patio foundation. The seller knew about this but didn't tell me. I then hired an arborist. According to his report, my trees are not directly affecting the neighbor's home. I do not want to remove my three trees because they make my home secluded. There is a PUD (planned-unit development) association. What are my rights as a homeowner? --Lori K. DEAR LORI: Depending on the exact facts, it sounds like you have no liability if your trees are not damaging the neighbor's house or patio. The PUD association probably has no involvement because the homeowner's association just manages the common areas, not the individual homeowner lots. For more details, please consult a local real estate attorney. |
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| Buying house? Think long term By Dian Hymer Now would seem like a rotten time to sell. The economy is in recession and many housing markets around the country have suffered serious downturns. However, if you're a seller who will also be a buyer in a market where prices have declined, it could be a good time to both sell your current home and buy a new one. You sell for less than you would have in 2004, but you also pay less than you would have then. To be successful selling in this market, your home needs to be in good condition. Most buyers are bidding on a home they can move into without having to do a lot of work. Also, your home must be priced for the market. If you've been transferred and need to relocate, there are a couple of options. One is to sell your current home and buy in the new location. Some employers offer relocation assistance that covers many of the selling and moving expenses. Another option is to rent your current home to a tenant and rent another one in the new location. There are benefits to renting in a new area before buying. It gives you an opportunity to learn about the neighborhoods before committing to a long-term investment. Transferees who think they could return to their current location within a year or two might be better off renting their current home. However, renting your home can have its drawbacks. Tenants usually won't care for your home the way you would. Set aside a fund for making improvements after the tenant leaves. Also, retain a gardener to care for the landscaping and make sure you have a property manager or handyman locally who can take care of problems when they arise. HOUSE HUNTING TIP: Buyers are at an advantage in many marketplaces today. Generally, prices are lower than they were several years ago. And, interest rates are low. Jumbo financing is pricier. Five-year fixed-rate jumbo mortgages cost less. At some point interest rates will go up, particularly if inflation takes hold following the recession. If you buy using short-term fixed-rate financing, look for a good time to refinance before interest rates go up. It's not a good time to buy if you think you might be transferred or if your marriage is on the rocks. Buying a new house usually won't solve marital problems unless you're living in a house that's much too small to provide suitable living space. The unknown factor that keeps many buyers on the sidelines is that prices could drop further before they stabilize or turnaround. So, the house or condo you buy today could be worth less in six months. But, it could be worth more in a few years. However, if you had to sell between now and then, you'd take a loss. It's impossible to time the market. You'll either buy before or after the market bottoms out. Some people get lucky and buy at the bottom. But, you'll know that only through hindsight. If you buy after the market hits bottom, you'll be faced with more competition from other buyers and probably pay more. Don't buy unless you know you won't have to move again soon. This includes making sure you buy a home that will accommodate your needs for years to come. Home buying always involves compromises. It's better to buy a home that's too big than one that's too small. THE CLOSING: Buy for the long term. Dian Hymer is a nationally syndicated real estate columnist and author. |
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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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| Top home-buying mistakes revealed By Dian_Hymer The first rule of inspecting a home you want to buy is to stay intimately involved in the process, and to leave no stone unturned. If you're busy or traveling during the time period, you have to complete your due diligence investigations by enlisting the aid of a friend you trust to stand in on your behalf -- someone who will keep you well informed as inspections proceed. Buyers want to be sure they get a good deal on the home they buy. This is especially so if they're buying in a soft market. Whether a property is a good deal depends on its condition, its location and the price paid. Most buyers don't take the inspection process far enough. They hire a home inspector to do a general home inspection to make sure that all systems are in working order and that there aren't any serious defects that might affect their decision to buy or not. For some buyers, this constitutes their due diligence inspection of the property. But, in many cases, simply having a home inspection done is not enough to ensure that you don't end up regretting you bought the property. Most home inspectors recommend further inspections. Some buyers take these admonitions seriously and some don't. A recommendation that is often overlooked is to research the permit history. If you don't check the permit history, you could find out later, when you want to take out a permit for a renovation, that there are expired permits for work that never received a final approval from the city inspector. You might be required to reinstate the expired permits and finish the job to the building department's satisfaction before you can take out a permit for a new project. This could be expensive, take time, and at the least, be a hassle. Another item buyers ignore is the cost of routine home maintenance. Some homes cost more to maintain than others. Well-maintained homes will be easier to maintain because you'll have little deferred maintenance to repair. Ask the sellers for information about how much they pay per year for tree trimming, painting, and servicing house systems such as the roof, furnace and drainage systems. Also ask how much the utility bills run in an average winter and summer month. All of this will factor into the cost of owning the home. Buyers usually focus on the price they'll pay upfront for a house. How much it will cost them over time should also be factored into the total cost of home ownership. HOUSE HUNTING TIP: Buyers tend to pay more attention to the condition of the home they're buying than they do to finding out all they need to know about the area in which they'll be living. The home you buy is not a good value if you find out a year later that the neighborhood is declining. Make sure you find out if homeowners are moving in or out of the area. If you see a lot of remodeling going on in a neighborhood, this is a good sign that the homeowners plan to stay put. Another good sign is if there are few listings and the ones that come on the market sell quickly. This indicates a high demand for the neighborhood. You'll also want to find out about crime in the neighborhood, and whether or not there is development planned in the area that might have a positive or negative impact on the neighborhood. And check into the general state of the local economy. THE CLOSING: Are businesses hiring new employees or issuing pink slips? |
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| Pre-approval vs. pre-qualification By Inman News Is pre-approval a general endorsement by a bank? No, when you are pre-approved, it is for a specific loan program from a specific lender. Not all lenders offer all loan programs. You may need to get approved with a different lender or for a different loan program with the same lender, depending on your financing options at the time you buy a house. Check with the agent or broker who helped you gain loan pre-approval before you write an offer. If you think you will need to get re-approved for a loan, make sure to allow enough time for this in the purchase contract. Is the pre-qualification a guarantee that I will get the loan? No. The lender or mortgage broker is under no obligation to grant you a loan. Most pre-qualification letters state that a buyer appears to be qualified for a certain loan amount. There is usually a disclaimer to protect the lender or broker in case you fail to qualify. Before a lender will actually loan money, you must complete a loan application. Is there anything official about a pre-qualification? No, loan pre-qualification is an informal process. After a review of your financial status, a loan agent or broker will issue a letter stating that if the information provided is accurate you should be able to qualify for a loan of a certain amount. Often, these letters are form letters. Even if a pre-qualification letter is personalized, it usually contains disclaimers to protect the loan agent. Consequently, some real estate agents feel that pre-qualification letters are worth little more than the paper they're written on. |
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| Reducing the stress of buying or selling a home Buying or selling a home ranks high on the list of stress-provoking situations. Here's some advice for making things a little easier. It's disrupting, uncertain, unsettling and time-consuming, not to mention expensive. Sellers whose homes sell quickly worry that they sold too low. Sellers whose homes take months to sell wonder if they'll ever sell. Buyers agonize over paying too much. And both buyers and sellers complain that the process takes too long. People move for a variety of reasons, sometimes by choice but often not. Frequently a move is forced on a family because of a death, a divorce, a job loss or an unanticipated transfer. So the reason for the move can be stress-provoking. And since most people dislike change, the very act of moving is bound to be stressful. What can you do to ease the pain? Pick your real estate agent carefully. A good agent will go out of his or her way to make the move easier for you. Make sure that your agent will communicate with you regularly, and will be available to consult with you on short notice. The unpredictability of the real estate experience can be unnerving. Your agent should review the buying and selling process with you so that you know what to expect. Buyers moving to a new area should find an agent who has experience working with buyers who are relocating. Your employer can probably provide you with a good recommendation or ask the agent who is helping you sell your home to refer an agent to you. Be sure to ask for a relocation package. It should include information about your new community as well as sample listings of homes for sale. The Internet is a great source of information. For example, Realtor.com (www.realtor.com) lists 1.3 million properties across the country that are for sale. It includes maps, photos and community facts. So it's possible to preview listings long distance. Buyers who are buying locally can also cut down the time they spend looking at new listings by viewing homes on the Internet. Getting your home ready to sell can be a huge task. If you're short on time, consider hiring help if you don't have family or friends who can help you out. Showing your home to prospective buyers is an invasion of your privacy. Furthermore, it's best to leave your house when it's shown. It may make life easier if you plan to eat out when the home is new on the market and is getting a lot of showing activity. FIRST-TIME TIP: If you're buying or selling a home with a partner, divide the workload so that you don't duplicate efforts. Perhaps one of you can preview new listings and the other can arrange the financing. Make good use of modern technology to lighten your load. Use email, voice mail and facsimile rather than lengthy telephone communications to exchange messages. Moving always seems to come at an inconvenient time. But even though you feel pressed for time, don't eliminate stress-reducing activities like jogging or cycling from your schedule. Staying involved in your favorite hobbies and sports will add some semblance of order to your chaotic life, as well as provide needed relaxation. Plan time outs for you and your family. Take day trips or go away for a weekend. If you've been looking for a home for months with no luck, take a break and enjoy yourself. THE CLOSING: There will undoubtedly be times when you feel stressed out or depressed. Understand that these feelings are normal and they will pass. |
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| Cancel impound account? There's a fee By Benny Kass DEAR BENNY: Can you explain how a bank can legally charge a quarter of a point of the loan to opt out of an impound account? We have always paid our property taxes twice a year and always on time and have excellent credit. It feels like extortion to me. –Jerry DEAR JERRY: It may not be legal extortion, but it's close. For years, lenders argued that it was necessary to collect escrows for taxes and insurance (also called "impound accounts") in order to make sure that the real estate taxes and insurance policies would be paid and kept current. This argument persuaded the feds to allow mortgage lenders this right. When Congress enacted the Real Estate Settlement Procedures Act (RESPA) back in the 1970s, it put a limit on the cushion that lenders could take from homeowners. If the lender is covered under RESPA -- i.e. is a federally related or insured lender -- it can not take more than approximately two months of additional escrows per year. Some states also limit the amount of escrows that can be taken by mortgage lenders, and indeed it is my understanding that a few states actually require lenders to pay interest on the moneys they are holding in escrow. But the basic argument that lenders make still remains: We want to make sure that our borrowers keep their real estate taxes and insurance current. So if that's their position, then why will they allow borrowers to pay their own taxes if they pay a little extra interest on their loan? There is only one answer: Lenders use these escrowed accounts to their advantage. They get interest on these funds -- which for many lenders can be a lot of money -- or they use the funds as compensating balances to satisfy regulators' requirements. Many lenders will let you pay your own taxes and insurance and will not demand the escrow or a higher interest rate. My suggestion to my readers: Negotiate hard with your prospective lender and see if they will allow you the right to pay these expenses on your own. After all, no one wants to lose their house at a tax sale. DEAR BENNY: What is your opinion of reverse mortgages? We have a home assessed at $157,000. Our nest egg is being eaten away and I was wondering about the benefits and pitfalls of a reverse mortgage. –Richard DEAR RICHARD: Recently Congress put some restrictions on the costs that lenders can charge for reverse mortgages, so it is too soon to learn the results of that legislation. A reverse mortgage is an interesting concept. You can tap the equity in your home and take out your money in three different ways. You can get a lump sum; you can get monthly or quarterly annuities; or you can use the mortgage as a line of credit, writing checks when you need the money. But there are a number of negatives. While you do not have to pay any money to the lender, the interest will accrue on a monthly basis. That means that over the years, the equity in your home will disappear. When you die or decide to sell, the lender will be paid off in full. Because the lender runs the risk that at that later date, there may not be enough equity to be paid off in full, the charges are higher than if you obtained a conventional mortgage. I suggest you do your homework first. There is a lot of good material on the Internet (just type in "reverse mortgage" at your favorite search engine). I recommend going to the AARP Web site because they are continuously examining these types of loans, and they are not lenders and thus try to be completely objective. DEAR BENNY: Our neighbor has planted some fast-growing bushes on her land, close to the boundary between our lots in order to provide some privacy between our swimming pools. These bushes grow upwards and outwards, overhanging our land, which we do not like. She sometimes has them trimmed back, but they very quickly grow again and, as we do not like to keep asking her to have them trimmed again, we do the work ourselves. She objects to that and suggests that we are not allowed to trim her overhanging bushes. What's the legal position? –Richard DEAR RICHARD: It is my understanding that in all 50 states, homeowners have the absolute right to trim overhanging branches and bushes, and to cut off roots that trespass on your property. Whether you can force your neighbor to trim her own shrubbery depends on your specific state law. You may also have the right to file a lawsuit against your "neighbor" based on a private nuisance theory. You would have to explore this concept with your own attorney. DEAR BENNY: Several years ago we purchased a house, and the seller provided financing. We now plan to refinance the loan with a third party. The seller/lender is named on all of the legal documents (i.e. deed of trust, insurance, etc.). What documents do we need to use to remove the lender's lien position? Do we bring the documents to the county recorder's office? Basically we want to get the official records to indicate there is no longer a lien holder. –Kim DEAR KIM: You have to get a payoff statement from your current lender, and make arrangements with him that you will exchange your check in the amount of the full payoff with a release of your present deed of trust (in some states it is called a mortgage). You should also contact your insurance company and change the name of the "beneficiary" from the current lender to your new one. But let me make a suggestion. Your new lender -- whether it is a private person or a commercial company -- will want its loan to be documented properly. The lender will also require a title search, to assure it that it will be in first place position, with no earlier liens ahead of it. So your best approach is to retain a local real estate attorney who should be able to assist you throughout the entire process. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
| How do lenders qualify borrowers? Lenders look at three basic factors before they will approve you for a mortgage. First they look at your ability to repay the mortgage. This involves analyzing the sources and stability of your income as well as the amount of debt you've acquired. Second, lenders examine your credit record to determine your willingness to repay debt. A credit report that's littered with late charges is a red flag that the borrower might not be a good credit risk. Finally, the lender looks at the property that will be the security for the mortgage to make sure that the property appraises and that the seller can deliver clear title to the property. Your repayment ability determines what size mortgage a lender will give you. A borrower with high income and low debt will qualify for a larger mortgage than a borrower with high income and high debt. Debt reduces your borrowing power. Lenders use two ratios when they qualify borrowers for loans. Both ratios express your expenses as a percentage of your income. The first ratio is the ratio of your anticipated monthly housing expense to your gross monthly income. The housing expense is made up of the principal and interest payment on the mortgage, property taxes and insurance. This is called PITI and it's prorated on a monthly basis. Your gross income is your monthly income before deductions are made to pay income taxes. Most conventional lenders--that is, lenders whose loans aren't federally insured--don't want the borrower's PITI to exceed 28 to 33 percent of the borrower's gross monthly income. Borrowers with a low cash down, say 10 percent of the purchase price, are usually qualified at the lower ratio, or 28 percent. With a larger cash down payment, lenders will usually allow a higher expense-to-income ratio. So if your anticipated PITI is $1,700 and your gross monthly income is $6,500, divide $1,700 by $6,500 to arrive at a ratio of 26 percent. This ratio is lower than the minimum required, so your loan would be approved, if all other aspects of your application, like the credit report, are acceptable. The second ratio lenders use is the ratio of a borrowers total monthly debt (including their housing expense) to their gross monthly income. Lenders usually don't want this ratio to exceed 33 to 38 percent. To calculate this ratio, add your current monthly debt obligations, like car loans, to the PITI, and then divide this number by your gross monthly income. FIRST-TIME TIP: A high debt load can curtail your ability to qualify for the size mortgage you may need to buy the home you want. One way to increase your purchasing power is to pay down your debt before you attempt to qualify for a mortgage. Another way is to consolidate your debt into one lower interest rate loan. This may make a big difference if you have high outstanding balances on several credit card accounts that each charge 18 percent interest. Yet another option, if your expense-to-income ratios are high, is to talk to a portfolio lender. Since portfolio lenders don't package their loans for resale on the secondary money market, they can be more flexible about approving mortgages. Mortgage qualification also depends on the amount of cash you have available for a down payment (usually 5 to 25 percent of the purchase) and closing costs. THE CLOSING: The amount of closing costs varies depending on where you live and on what kind of mortgage you apply for, but they can run as high as 5 percent of the purchase price. |
| Are home warranties a good deal? By Dian Hymer When something malfunctions in your home, wouldn't it be wonderful if you could pick up the phone, request a service call, pay a nominal service charge and have the problem fixed? In theory, this is how a home protection plan works. A home protection plan--also called a home warranty-is an insurance policy that insures homeowners against defects in the major systems of their home. Precisely what is covered will vary from one company to the next. Most policies cover the heating, plumbing and electrical systems as well as built-in appliances like the stove, dishwasher and garbage disposal. Some companies will cover movable appliances like the refrigerator, washer and dryer for an extra charge. And some policies even include roof coverage-if you pay an additional fee. Policy terms are usually for one year and they are renewable. The annual cost of a policy varies but you might expect to pay about $250 for a moderate-size home. Protection plans are available for both single-family residences and condominiums. The plans are offered in most states. Home protection plans are popular in the home sale industry because they provide a relatively inexpensive way to take care of home defects that develop soon after the home sale closes. For example, let's say the water heater quits working the day after closing. Depending on the terms of the purchase agreement, the seller may be responsible for replacing the water heater. A new hot water heater can cost several hundred dollars. However, if there is a home protection plan in place at closing, the hot water heater will probably be replaced for the nominal cost of a service charge. Home warranty service charges vary but they are often in the range of $30-35 per call. Some sellers offer to pay for a home protection plan to cover the home for the buyer for one year. If problems arise during that year, the buyers simply call the warranty company and pay the service charge. The warranty company pays for the repair or replacement. FIRST-TIME TIP: Be sure to read the policy carefully because there are exclusions from coverage. For example, pre-existing conditions are not usually covered. So if the furnace hasn't worked properly for years, it probably won't be covered by the buyer's home protection plan. Also, there are limitations on coverage. For instance, some policies offer roof coverage, but only up to $1,000 of work. Seller coverage is also available to cover the home during the listing and sale period. Seller coverage works the same as buyer coverage except that there are usually more limitations on the coverage. For example, the furnace is usually covered under both buyer and seller coverage. But, the amount of coverage offered under seller coverage is often less than the amount that's available to the buyer if the furnace breaks down after closing. One seller who had signed up for seller coverage was able to have some of the defects that were discovered during the buyer's inspections fixed by the home protection plan company for the cost of a service charge. This was a great deal for the seller because it saved him money and he didn't have to pay the policy premium until closing. Seller coverage is usually charged by the day. The cost varies, but it can run about 75 to 85 cents a day. THE CLOSING: If the seller of a home you're buying does not offer to pay for a home protection plan, you can pay for one. Be sure to order it before the closing date. Dian Hymer is a nationally syndicated real estate columnist. |
| Top mistakes today's sellers make By Dian Hymer Low interest rates could spark a pickup in the home-sale market in some areas. If you're inclined to sell, here are some mistakes you'll want to avoid. The biggest mistake sellers make is listing at an unrealistic price. If you want or need to sell, your home must be priced at or under current market value, particularly in places where prices are declining. To avoid pricing too high or too low, carefully research your local market before selling. If you can't get the price you want, and you don't have an urgent need to sell, wait for a better market. Some sellers want to price under the market to stimulate multiple offers. In some price ranges, such as low-end foreclosures, this can be an effective strategy. However, in higher price ranges, this approach could boomerang. It's not a good idea to list your home for a lower price than you're willing to accept. HOUSE HUNTING TIP: Sellers who need to sell because they can no longer afford their mortgage payment should check with their lender about reworking the loan to make it more affordable. It could be fruitless to put your home on the market for the price you need in order to pay off your mortgage if that price is above market value. Consider the benefit of having presale inspections done on your home. It can be beneficial to the sale process if buyers know as much as possible about the property's condition before they make an offer. Recently, a home seller in the hills of Oakland, Calif., decided not to have a presale home inspection done. The house was priced right and beautifully prepared for sale. It sold for more than the asking price with multiple offers. Then the buyer's home inspection revealed a problem with the foundation. This started a round of renegotiation that ultimately resulted in a canceled sale. It's a mistake to refuse to entertain any offer from a qualified buyer. In a soft market, it's natural for buyers to make low offers. Many sellers would rather set a price and say take it or leave it. But, you'll never know what price the buyer will pay unless you negotiate. Make sure to select a listing agent who has good negotiation and communication skills. A lot can be accomplished through verbal communication between the buyer's and seller's agents, even though a real estate agreement is not binding unless written. Be wary of working with an out-of-the-area agent. Especially in the current market, you need an agent who specializes in your local market. The status of the housing market varies significantly from one niche market to the next. An agent who works in an area with a high percentage of foreclosures will have a very different opinion of the market than one who works in an area that is low on inventory. Don't get into contract with a buyer who isn't financially qualified. A prequalification letter isn't enough. You need to know who the lender is. The buyer should have underwriting approval within a number of days of acceptance. Make sure this is written into your purchase contract if the buyer isn't already lender approved. Sellers who are fortunate enough to receive more than one offer usually go with the highest price. But, the highest-priced offer isn't always the best offer. The turmoil in the home mortgage business has resulted in an increase in failed home-sale contracts due to financing issues. Consider accepting an offer in backup position in case the first deal falls apart. THE CLOSING: An offer from a buyer with a large down payment but a lower price is often a more solid deal than one with a higher price and a 10 percent cash down payment. Dian Hymer is a nationally syndicated real estate columnist and author. |
| Cooling off with Ceiling fans Paddle fans offer something for just about every home, taste and budget. Shopping When shopping for a paddle fan, there are several things to take into consideration. Perhaps the most basic decision is one of size, which is governed by the size of the room and the intended use of the fan. A small bedroom with a low ceiling, for example, might only need a three-blade, 30" fan (the size refers to the overall diameter of the fan blades), while a large living room with a high vaulted ceiling might be better served by a fan that has five blades and is 48" or even larger. Along with your decision on the size of the fan is the choice of overall length, which is the distance that the fan hangs down from the ceiling. The shortest fan is the ceiling-hugger, which mounts close up against the ceiling in rooms that don’t have much ceiling height. For taller ceilings, the fan can be mounted on an extension pole – common pole lengths are six and 12 inches, although other lengths are available as well. Except for some fans at the low-end of the price spectrum, almost all of today’s units feature a reversible motor. Reversible motors allow the fan to rotate clockwise or counterclockwise – since the fan blades are angled, like an airplane propeller, that means that the fan has the capability of either pushing air down or pulling air up. Suppose, for example, that you have a home with a high vaulted ceiling and operable clerestory windows. In the winter, you can use the fan to push trapped heat at the top of the vault down into the room. In the summer, the motor is reversed to pull warm air up toward the ceiling and out the windows. Another desirable and increasingly common feature is a multiple or variable speed motor. This allows you to adjust the speed that the blades rotate, increasing or decreasing the amount of air being moved by the fan. Hand-in-hand with the multiple speeds is the type of control that the fan comes with. The simplest controls are pull chains, one of which turns the fan on or off and also increases rotation speeds, while a second chain activates the lights if so equipped. Motor rotation is selected with a switch mounted directly on the motor. More expensive fans typically have wall-mounted controls, which allow you to turn the fan on and off, control speed and direction, and activate and even dim the lights – a real advantage for fans that are mounted high up on a vaulted ceiling. Another choice is whether or not you want a light kit. Most fans are sold without a light attached, but are prewired for the light kit to make installation easy. You can add the light immediately, or at any time in the future – several sizes and styles are available, ranging from a basic one- or two-bulb drum light to three, four or five lights on individual arms. With all that decided on, the final selection comes down to one of appearance. You’ll find fans in polished brass, antique brass, chrome, and any of a variety of colors. The blades can be purchased in white or any of several wood tones, some with wicker accents. There are lots of different light styles available, and you can also get specialized fans with football or baseball lights, cartoon pictures, and lots of other styles to fit any type of room. Installation Lighter-weight fans can be mounted directly to standard ceiling boxes in place of the original ceiling light. Larger fans, especially ones with light kits attached, can be quite heavy, and are often too much weight for a standard box. In those cases, specially reinforced or braced boxes need to be used – consult with the dealer where you buy the fan for their recommendations on the proper type of box to use. Fans with multi-function switches may require multiple wires between the fan and the switch so consult the instruction booklet or talk with your dealer before completing any wiring installations. |
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| Cygan Southland Realty http://www.orangecountyhomeguide.com |
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