Real Estate in Steamboat

Dear Barry,

We purchased a newly built home and are nearing the end of our one-year warranty. We’ve got some concerns about the condition of the property, but the builder always downplays the conditions we point out. Our main concern is a crack in the concrete porch. The builder says he will seal the crack when it gets bigger. Our concern is that an enlarged crack–even one that is patched–is not an attractive or acceptable aspect of a new home. Is it fair to demand replacement of the porch? –Daniel

Dear Daniel

The answer to this question depends largely upon the nature of the crack. Hairline cracks in concrete pavement are normal. In fact, they are so common they are to be expected to some degree in nearly all cases. This is due to normal shrinkage when the concrete hardens and to common expansion and contraction of the soil beneath the pavement. Whether cracks can be expected to enlarge significantly depends upon whether steel reinforcement was installed when the concrete was poured, whether the soil was adequately compacted, and whether rock and gravel base material was installed, rather than pouring the concrete directly on the soil.

If you disagree with the builder, as to the need for major or minor repairs, it would be advisable to have the porch evaluated by a licensed paving contractor, other than the one who actually performed the existing installation. It is also recommended that you have the entire property thoroughly inspected by a qualified home inspector. An experienced inspector will discover defects that are not readily apparent and that the builder will be required to repair before the one-year warranty expires.

Dear Barry,

How do I check thermal pane windows to make sure the seals are still intact? I’ve noticed moisture condensation between some of the dual panes and plan to have them replaced under the manufacturer’s warranty. The manufacturer, however, has asked me to list all the windows that are defective. The condensation is obvious at three windows, but I suspect problems at others. I’ve heard that holding an ice cube against the glass can test window seals. Does this sound plausible? –Mike

Dear Mike,

Applying an ice cube to a dual pane window will cause visible moisture condensation only if there is moisture present between the panes. If a dual pane seal has leaked in the past and all the moisture has since evaporated, then applying the ice will do no good. However, dual pane windows that have leaked and then become dry always have residual water stains on the inside surfaces of the panes. Sometimes, these stains are very faint and difficult to see. But, when light hits the glass at just the right angle, it is usually possible to discern the stains, although you may have to look very closely. Fortunately, some window manufacturers have lifetime warranties, enabling you to make future claims if other window seals should leak. Check with the maker of your windows to determine the duration of its warranty.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Copyright 2006 Barry Stone

If you want to earn the maximum sales price for your house or condominium, first read Barb Schwarz’s new book, “Home Staging.” It reveals with words and pictures how to show prospective buyers the potential your home offers with proper presentation.

The author, a professional home decorating stager, shares her secrets for making a home listed for sale show its best. In other words, her goal is to make your ordinary home into a model home.

Purchase Bob Bruss reports online.

Because most home buyers have zero imagination, until a home is staged and professionally presented, most prospective buyers won’t be able to spot the potential of a home offered for sale. Schwarz’ new book explains the tactics of presenting a home to look its best, even on a limited budget.

Until I read this book, I didn’t know there are professional accredited home stagers. Barb Schwarz is the organizer and creator of this new industry, which helps home sellers and their real estate listing agents attain maximum sales prices. In some cases, staging a home makes the difference, especially in a very slow local market, between selling and not selling a home.

Every residential real estate sales agent, most of whom have never met a professional home stager or suggested their home sellers hire a home stager, should read this eye-opening book. In addition, home sellers will benefit from a modest expenditure to buy the book and see what home stagers can accomplish to turn ugly duckling homes into swans.

Having been involved with home sales for many years, I have personally seen what home stagers can accomplish. Years ago, realty agents with a flair for home decorating advised their sellers how to make their homes more attractive. Today, this task has been taken over by professional home stagers who know how to “redo” a home at modest expense to make it more attractive to prospective buyers.

Schwarz claims to be the “inventor” of home staging in 1972. Who can challenge her? She says home staging changes lives. Perhaps a slight exaggeration, but the concept certainly changes wallets, especially for home buyers, sellers, realty agents and stagers.

Although I never staged any of my rental houses, looking back after reading this book, I now realize I probably left many dollars on the table by not making my houses show at their best. Spending a few thousand dollars on staging often results in many times that modest expense in the result of a faster sale (thus saving holding costs) for a higher sales price.

In her new book, Schwarz emphasizes both the visual changes home staging makes, and its resulting dollar benefits in the form of quicker home sales and for more money. She backs up her statements with facts rather than just opinions.

One of Schwarz’ most memorable comments in the book is about “other real estate agents” who talk to their prospective buyers about the local houses for sale. She uses the nicknames agents sometimes use to help remember the many houses they inspect.

For example, she recalls the “Pretty Red Door House” and the “Cat-Pee House.” Like it or not, that’s how realty agents and their buyers remember houses.

“The home staging system is now time-tested. It has helped sell thousands, if not millions, of homes in the U.S. and Canada, and in several other countries as well. As the creator of home staging, I have never seen it not work. Sure, overpriced properties may sit, but it’s price that holds them back, not the staging. Two things sell a house: one is price, and the other is home staging,” Schwarz modestly explains.

Chapter topics include: “So You’re Selling Your Home”; “Ready, Stage, Sell: Home Staging Guidelines That Work”; “Staging Magic: How to Stage Each Room in Your House”; “Take the Staging Magic Outside”; “Getting It Done: It’s Commitment Time”; “Tagging on a Dime”; “Showing Your Staged House: Lights, Music, Action”; “What Do You Do When You Need Help?” “Staging Tales from the Trenches”; “How to Work with Your Real Estate Agent”; and “How Home Staging is Changing the Real Estate Industry.”

Although parts of this book will bore readers, serious home sellers and their savvy realty agents will love it for its insider tips and before-and-after photos of staged homes. Is it trickery or deceit to stage a home? After reading this unique book, I think staging means showing a house or condo at its very best. On my scale of one to 10, this excellent book rates a solid 10.

“Home Staging,” by Barb Schwarz (John Wiley and Sons, Hoboken, NJ), 2006, $19.95, 205 pages; available in stock or by special order at local bookstores, public libraries, and www.Amazon.com.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

DEAR BOB: A few years ago I added my daughter’s name to the title to my home. At the time, I was very ill and she took good care of me. However, I recovered. She moved away from the area and is no longer close to me. I want to sell my home so I can afford to move into a lifecare retirement home, but she refuses to agree to the sale unless she gets half of the sales proceeds when my house sells. How can I take her off my title? –Ramon V.

DEAR RAMON: Sorry, there is no easy way to take your daughter’s name off the title to your home. As regular readers of this column know, it is usually a big mistake to add a prospective heir’s name to your home title before death.

Purchase Bob Bruss reports online.

Such an act can be a disservice to both the homeowner and the heir, as you discovered. Now you have an ungrateful daughter who demands half of your home sales proceeds. Unless you can prove fraud, duress, or mistake in a court, there is no way to undo what you did by adding her to your title. For more details, please consult a local real estate attorney.

MORTGAGE LENDER MUST APPROVE PARTIAL PROPERTY SALE

DEAR BOB: My brother bought a home in February 2006. He has about a 1/4-acre of land, which a neighbor offered to buy for $15,000. Can he sell this portion of land without notifying the mortgage lender? Does he have to record the transaction at a title company? –Rod C.

DEAR ROD: If the house and vacant 1/4-acre are on one parcel lot, it will be necessary to subdivide the property so the 1/4-acre can be deeded to the neighbor. A local real estate attorney can advise what is necessary in the locality to accomplish this.

Presuming the entire property is the security for your brother’s mortgage, the lender’s consent to the subdivision and selling off the 1/4-acre will be necessary. To obtain the lender’s consent, the lender might require a partial pay-down on the mortgage balance. Or the lender can refuse to consent at all.

Your brother’s buyer will insist the deed for his 1/4-acre purchase be recorded in the public records. The buyer should also insist on receiving an owner’s title insurance policy to be certain he owns marketable title.

SHOULD BOTH SPOUSES NAMES BE ON THE HOME TITLE?

DEAR BOB: My husband is a “macho man” who insisted on taking title to our home in his name alone. That was 18 years ago, shortly after our marriage. We are just as much in love today as the day we married. However, he refuses to add my name to the title to our home. A lawyer friend says I should insist my name be added to the title to avoid probate if my husband dies first (he had a heart attack two years ago). What would my husband have to sign to add my name to the title to our home? –Evelyn C.

DEAR EVELYN: Your husband can sign a quitclaim deed from himself to himself and you. The deed should include the method of holding title, such as joint tenancy with right of survivorship.

Your lawyer friend can prepare the deed, which must be witnessed in front of a notary public so it can be recorded. When title is held in joint tenancy, after a joint tenant dies, all that is required in most states is for the survivor to record a certified copy of the death certificate and an affidavit of survivorship.

HOW TO SELL VIRTUALLY ANY HOUSE

DEAR BOB: I believe it was one of your articles where you wrote about how to get rid of a problem house. I own a two-bedroom, one-bath house that I have been trying to sell for several months. As I recall, you said something about running a classified newspaper ad telling folks to bring their checkbook. What is the secret? –Mark F.

DEAR MARK: The “secret” to sell virtually any “problem house” is to advertise it as a lease-option. Good times or bad, there are always more lease-option buyers than lease-option sellers.

Quick story: A few weeks ago, I was in Washington, D.C. attending a conference. During a break, in the men’s room, I couldn’t help overhear a young man talking on his cell phone (perhaps to a Realtor) explaining how to sell a house on a lease-option.

Later, he told me he lives in South Bend, Ind., where there are lots of foreclosed houses, which are hard to sell. We agreed lease-options are the best way to sell virtually any house. In fact, I bought my current residence on a lease-option.

My classic lease-option ad (change the numbers for your situation) says: “$5,000 MOVES YOU IN. Lease with option to buy. Open Sunday 1-3 p.m.” Then the ad describes the house, monthly rent, and gives the address. More details are in my special report, “How to Profitably Use a Lease-Option to Buy or Sell Your Home or Investment Property,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

SELLING A CONDO WITH A TENANT’S LEASE WON’T BE EASY

DEAR BOB: Should I sell my condo? Years ago, I purchased it for $282,003. Today, it’s worth $400,000. I lived in it for two-and-a-half years. Now I rent it to a tenant, but with a $700-per-month negative cash flow. Does it make sense to keep this condo if I’m losing money? The rental agreement expires in November 2006. –Maria G.

DEAR MARIA: Selling any house or condo for top dollar with tenants living in it can be extremely difficult. However, because your renter is your logical buyer, you should first ask your tenant if he or she wants to buy it. Also, then you wouldn’t have to pay any sales commission.

Unless your condo is appreciating in market value at least $700 per month to compensate for your negative cash flow, selling the condo makes good business sense. But don’t expect to get top dollar with that existing lease.

Unfortunately, your lease expires in November, one of the most difficult months to sell residences. December is even worse.

Today is a great time to be selling. However, anyone who buys your rental condo must honor the terms of the lease until it expires so your sale might be very difficult.

SELL INHERITED PROPERTY IF YOU CAN’T AFFORD TO KEEP IT

DEAR BOB: I am inheriting a house from my landlord. My property taxes and insurance will be exorbitant. I am disabled and on Section 8 subsidized rental. I will be kicked off Section 8 and also be paying more than I did as a tenant to meet expenses. My disability income is minimal. Are there any tax breaks for disabled or Section 8 homeowners? –Helen M.

DEAR HELEN: You must have had a very nice landlord who left you that house. However, if you are unable to afford to keep it, perhaps you should sell the house and live off your inheritance in a less expensive residence.

Because you will receive a new “stepped-up basis” to market value on the landlord’s date of death, you will owe little or no capital gains tax.

Homeowners are not eligible for Section 8 federally subsidized housing vouchers.

Depending on your disability status, check with the local property tax collector to see if you might qualify for any property tax reduction benefits.

CAN BUYER GET A REVERSE MORTGAGE TO BUY A HOME?

DEAR BOB: I thought I understood senior citizen reverse mortgages. But you had a recent item from a guy who wanted to buy a home with a reverse mortgage without first living in it. Is that possible? What do you mean by a “substantial down payment?” –Dan W.

DEAR DAN: You are referring to a senior citizen reverse mortgage for home purchase, offered by Fannie Mae. The residence to be purchased must be intended as your principal residence, not as a secondary or vacation home.

This special reverse mortgage program is ideal for seniors who want to “downsize” by selling their large home and using the cash proceeds to buy a smaller home and not have any mortgage payments.

Exact numbers will vary depending on the purchase price of the home, and the buyer’s ages, but a very general rule is a cash-down payment of 50 percent or more will be needed.

However, that’s a very good deal for senior citizen buyers who then won’t have any monthly mortgage payments. You can find Fannie Mae reverse mortgage originators at www.reversemortgage.org. More reverse mortgage details are available in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

Recently, a home buyer found out after the house was his that the seller failed to tell him about a drainage problem. During rainstorms, muddy runoff accumulated in the swimming pool. The buyer found it hard to believe that the seller hadn’t known about this.

The property is in California where disclosure laws require sellers to disclose material facts about the property to prospective buyers. A material fact is one that would influence whether or not the buyer would buy the property, or the price he would pay.

It’s possible that the problem occurred for the first time after the buyer took possession. The buyer’s home inspector did not note the faulty drainage condition. Problems can arise in all houses, even new ones.

The buyer mentioned above also experienced another problem involving the roof. In this case, there was evidence that previous repairs had been made.

HOUSE HUNTING TIP: To get a clear picture of a property’s condition before you buy it, ask sellers for a list of repairs and modifications they made to the property. This should include the name of the contractor who did the work and his contact information.

It doesn’t occur to some sellers to disclose this information, probably because they figure the problems are fixed. However, repairs are often only temporary fixes. By talking to contractors who worked on the house, you may be able to determine if more repairs will be needed.

What should you do if you think the seller misled you? The first thing to do is review the seller disclosure requirements in your state; they vary from state-to-state. Your real estate agent or attorney can help you with this.

Then carefully scrutinize the seller’s disclosures and any reports on the property. Find out if there were references to the problems that may have slipped your mind. Some buyers are so anxious to buy that they overlook potential property problems. If you should have been aware of the problem before you bought, the seller may not be responsible for your current problems.

However, there are sellers who, even when the law requires them to disclose defects, choose to overlook their disclosure responsibilities. There are also homeowners who live in their homes with a blind eye to problems.

But, most sellers who fail to disclose what they should do so because they think it will keep their home from selling. This is unfortunate because buyers appreciate knowing any bad news before they buy. The problems arise when they discover defects after closing they that are sure the seller was aware of, but intentionally failed to disclose.

Once you’re sure that the problem hadn’t been pointed out to you, there are several avenues you can take. Since a full-blown legal procedure can be costly, time consuming, and the outcome uncertain, it’s usually best to see if you can resolve the issue informally with the seller.

You might write the seller a letter stating your concerns. If you feel that you lack adequate expertise to do this, consult a knowledgeable real estate agent in your area for help. You may have agreed in your purchase contract to use mediation or arbitration as your method of dispute resolution rather than suing in court. Even so, you can still consult with an attorney.

It might help to expedite a solution to the problem if you include an expert’s assessment of the situation and repair estimates with your letter. If you’re not sure if a problem is new or recurring, consult with an experienced contractor or engineer.

THE CLOSING: A trained professional ought to be able to tell you if the problem has been ongoing or not.

Dian Hymer is author of, “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Dian Hymer

(This is Part 1 of a three-part series.)

Because the mortgage market has slowed in recent months, loan providers (lenders and mortgage brokers) find themselves with excess capacity. Rather than go out of business or fire loan officers, many have taken to purchasing mortgage leads.

Mortgage leads are packets of information about consumers who loan providers can hopefully convert into borrowers. Leads have value based on the likelihood of their becoming closed loans. If you were attracted by an ad such as “mortgage rates as low as 1 percent,” and filled out a questionnaire about yourself in response, you are a lead.

The questionnaires ask about the things that matter to a lender in assessing a loan, including income, employment, credit, house price, and loan amount. They also ask for identifying information including telephone numbers and e-mail addresses. The more information given, the more valuable the lead, but lead generators are fearful of asking for so much that the prospect gets discouraged and aborts the process.

Leads Before the Internet

Before the Internet, leads were usually generated by loan providers themselves, poring over public records to find borrowers who might want to refinance. The public records would show homeowners who had mortgages carrying interest rates above the current market. The pitch to the lead was basic and often persuasive. For example, “You have an 8 percent mortgage; I can get you one for 6.5 percent, which will save you X dollars a month.”

When interest rates rose, lead activity largely disappeared. While refinancing for the purpose of raising cash (“cash-out”) continued, there was no easy way to identify in advance the borrowers who might be interested.

Internet-Generated Leads

With the development of the Internet, the lead business changed dramatically. Most leads are now generated not by loan providers, but by lead specialists who may know very little about mortgage lending. When they say, “We don’t care how bad your credit is,” they are telling the truth. They don’t care because they are not the ones who will lend you money. Of course, the loan providers who buy their leads do care.

The leads business has become specialized because the skills required to harvest large numbers of leads at very low cost on the Internet have nothing to do with mortgage lending. The effective lead generators are skilled at developing marketing pitches, at the placement of ads in search engines, and at finding ways to slip their direct e-mail messages past the surveillance of spam filters.

Where leads in the era before the Internet only targeted borrowers who could refinance into a lower rate, now Internet-based leads cover a wide range of possible consumer concerns. For example, consumers with lots of non-mortgage debt might be enticed with “Pay off high-interest credit cards,” or “consolidate into one lower payment.” Consumers struggling to make their mortgage payments might succumb to “Payment options starting at 1 percent.” Borrowers with adjustable-rate mortgages who are worried about rising future payments might be receptive to “Rates are rising, lock in a fixed rate today.” Consumers anxious about their credit may be mollified by “Credit not perfect, no problem,” or “You have been approved up to 577K at 3.92 percent.”

Whether the loan providers to whom the leads are sold will be able to deliver on these promises is wholly irrelevant to the lead generator. The purpose of their message is to generate leads, period. I am reminded of the wonderful ditty by Tom Lehrer about the rocket scientist, Wernher Von Braun: “‘Once the rockets go up, who cares where they come down. That’s not my department,’ says Wernher Von Braun.”

Why You Should Not Respond to Leads

I can envisage a business in mortgage leads where the lead generators certify that the loan providers to whom they sell leads meet certain standards of behavior. That may happen in the future, but it is not the way the leads market works now. Lead generators have no responsibility to borrowers, and offer no warranties about the loan providers to whom they sell leads.

Since the “bad guys” in the industry get few referrals from satisfied customers and business contacts, they are much more dependent on leads than the “good guys.” And that means that consumers who become leads and respond to the loan providers who contact them, face adverse selection. In responding to a solicitation, their chance of getting a predator is greater than if they opened the yellow pages to “mortgages” and threw a dart at the listings.

Next time you are tempted, instead of filling out the form, drop them a note asking what protections they offer against predatory loan providers. But don’t expect an answer.

Next week: Why is it legal to pay for leads but not for referrals?

The writer is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Jack Guttentag

Mortgage rates are still holding between 6.5 percent and 6.75 percent for the low-fee deals, but the financial world moved this week into a realm of uncertainty, inflation risk and volatility that we have not seen in a long time.

Early in the week, markets traded in happy belief that the Fed is about to halt its rate increases, perhaps concluding after a 16th hike to 5 percent at its May 10 meeting. Bonds woke to reality on news that March “core” CPI had jumped the fence, but the party roared on in stocks and commodities.

Stocks finished at a six-year high, in largest part because everybody knows that every time the Fed stops a tightening campaign, stocks have a great run. That has been true in normal Fed cycles: the Fed tightens into an overheating economy, crushes it into recession, stops tightening, and the perfect time to buy stocks has been just before the Fed begins to ease into the ensuing recovery.

Very cool, but this cycle is unlike — in many ways the polar opposite — of all preceding modern cycles. The Fed will have raised its rate 4 percent over the last two years, but has not been “tightening,” merely returning to neutral range from a 50-year-low emergency easing.

The hope that the Fed will soon pause or stop altogether was fueled by the release of the minutes of its March meeting, which contained a brief, anonymous and wandering debate about the risks of raising rates too far, reinforced by public blather this week by a Fed governor (Yellen) who might better have corked it.

I think the inflation game has changed for the worse — maybe temporarily, maybe all OK if the economy slows down quickly, but worse. In this last year, oil prices have blown almost to 1980 levels (on inflation-weighted terms, today roughly 70 percent of that all-time price) and the “core” rate of inflation has held near the Fed’s 2 percent maximum-tolerance zone. Now, for the first time in this energy cycle, March brought a monthly core CPI value annualizing to 3.6 percent, and the threat that energy costs are percolating into the rest of the economy.

It’s only a single-month reading…yeah, yeah…BUT: oil is now solidly above $70 and much more likely to go higher than to repeat the post-1980 two-thirds collapse in price and 20-year stability. Hu Jintao is in town, but nobody seems to notice the little, back-page sidebar charts of China’s near-future demand for oil. Where is the world going to get another 10myn/bbl/day, in addition to sustaining the 82myn/bbl/day we run through now? The world is going to price-up until substitutes and conservation alter today’s way-excess demand versus limited supply.

The oil shocks of 1973-1980 taught the Fed (I hope) that it cannot tolerate a little inflation; all it will get is more, and once “more” moves from prices to wages it is hell on earth to squeeze out of the economy.

The Fed’s May 10 meeting is now a setup for the return of the true, up-and-down volatility common in the bond market before the artificial stability induced by the Fed during 2003-2006. This will be the first meeting in years at which the governors will have to exercise judgment, the mechanical reversal of emergency easing now a pleasant memory. A rookie Chairman accustomed to academic debate will have to decide on action and build a consensus.

Pause at 5 percent, waiting to be bailed out by a hoped-for slowdown? Wait almost two months until the next meeting to announce a pause, before or after 5.25 percent? Take out some pre-emptive insurance by sounding tough with a new inflation warning in the post-meeting lingo? This uncertainty is a prescription for some considerable back-and-forth in a bond market that has in the last 60 days gone from grudgingly conforming to the Fed’s overnight cost of money to leading it.

If the Fed guesses wrong on the easy side, bond yields will explode.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Lou Barnes

Whether you are a first-time home buyer, or a retiree planning to “down-size” your residence, condominiums are “hot” during the 2006 peak home-buying season. In most communities, condos are still affordable for home buyers.

Condominiums are no longer the “ugly ducklings” of real estate. Now they appreciate in market value almost as fast as single-family houses.

Purchase Bob Bruss reports online.

As a longtime condo owner, I’ve witnessed their ups and downs in both popularity and desirability. Most condo owners are very satisfied. However, some condo complexes are poorly managed. Others have high monthly fees with sub-standard maintenance quality.

Worst of all, some condo complexes have become occupied mostly by renters, rather than owner-occupants, where there is little pride of ownership.

Buying a condo is not as simple as buying a house. However, if you know the right questions to ask, buying a condominium can be a profitable experience.

WHY BUY A CONDO INSTEAD OF A HOUSE?

In addition to the affordability of condos, the primary reason many condo buyers purchase is lack of maintenance concern. Condo owners don’t worry about repairs outside their condo units because that is the responsibility of the condo homeowner’s association.

Legally, a condo purchase involves very expensive air. Known as a “vertical subdivision,” each condo owner purchases the airspace to the inner walls, ceiling, and floor surfaces of a specific residence unit.

The building structure such as the walls, foundation, elevators, parking area, and roof, including outdoor grounds areas, is known as a “common area,” which is owned by, and the maintenance responsibility of, the homeowner’s association, which is owned by all the members.

In addition to affordability issues, the majority of condo buyers purchase for lifestyle reasons, such as recreational facilities, freedom from exterior maintenance, ability to lock the door and be away for extended periods, and enjoyment of luxury facilities at modest cost.

NEW OR RESALE CONDO — WHICH IS BEST?

Being the current owner of a second-home condominium, and having owned several previous condos, I am quite familiar with the many pros and cons of new and resale condominiums.

Owners of older resale condos usually have greater predictability of maintenance expenses and monthly fees because the construction defects of new units have been repaired.

However, older condo associations often have gradually increasing maintenance costs as the property ages. But a well-managed condo association will budget for such expenses and set aside adequate reserves so special assessments won’t be necessary.

Buyers of brand-new condominiums usually enjoy the latest up-to-date facilities and amenities. However, construction defects are a frequent problem unless the builder takes care of them without trying to dodge legal liability. For example, reportedly over 80 percent of California condo homeowner associations have sued their builder for construction defects.

Lawsuits by a condo association against its builder, or involving any other defendant, can greatly hurt the resale of condos in that complex. Mortgage lenders often refuse to make loans to buyers where there is any litigation involving the condo association.

Another unexpected problem with brand-new condos is the developer often sets the monthly maintenance fees too low to adequately fund reserves for repairs. After all the units are sold, the unpleasant result is the homeowner’s association has to raise monthly fee assessments to provide sufficient funds for expenses and replacement reserves.

THE FIVE KEY QUESTIONS CONDO BUYERS SHOULD ASK

To avoid buying a “bad condo,” whether it is brand-new or a resale unit, smart condo buyers ask at least these five key questions:

1.) HOW DO THE MONTHLY CONDO FEES COMPARE WITH COMPETITIVE NEARBY CONDO COMPLEXES?

Smart prospective condo buyers first ask, “What is included in the monthly assessment fee?” and then compare it with the fees charged at nearby competitive condo complexes.

However, be sure to compare apples with apples. To illustrate, the condo that I own includes winter heat in the monthly fee, but not summer air conditioning. Similar nearby condos include these major expenses, but some include neither because their condo units have individual heat and cooling units.

Closely related is the issue of adequate replacement reserves. Wise condo buyers carefully review the latest financial reports of the condo homeowner’s association. If it is an older complex, the reserves should be relatively high per unit to provide for unexpected repairs. However, newer complexes usually don’t need high maintenance reserves.

2.) WHAT IS THE FINANCIAL CONDITION OF THE HOMEOWNER’S ASSOCIATION? ARE THERE ANY EXPECTED SPECIAL ASSESSMENTS?

Before purchase, condo buyers must be given a copy of the CC&Rs (conditions, covenants, and restrictions), by-laws, rules, and latest financial reports of the homeowner’s association. In addition, smart buyers ask for and read the board of director’s minutes for the last six meetings.

A key question prospective buyers should ask is, “Are any special assessments under discussion or planned?”

For example, I recently had lunch with a very successful real estate broker who told me about a condo he recently sold for an elderly seller. He explained that only after the sale was almost ready to close, it was discovered the condo owner’s association planned to levy a $20,000 special assessment on each owner to pay for deferred maintenance.

There is no specific maintenance reserve guideline. But two general rules are a) $2,000 to $3,000 per unit, and b) 25 percent of the annual gross income of the association should be in the reserve account.

3.) IS THE CONDO ASSOCIATION PROFESSIONALLY MANAGED?

Except for very small condo associations up to six units, every condo association needs a professional property manager. Prospective buyers should be wary of buying a condo in a complex that is self-managed, often by the owners or directors living in the property.

A related question is, “How long has the complex been managed by the same company?” The longer the better. The condo association where I own my condo has had the same professional management firm for 30 years. The property manager assigned to our property has managed our property over 20 years. Needless to say, we are very satisfied.

Professional managers usually “earn” their fees from expense savings. For example, our insurance policy recently came up for renewal. The professional manager shopped among many insurers. Since he also manages other condo complexes, he controls lots of potential business for insurers. Not only did he negotiate a big reduction in our premiums with the same coverage, but he also got the insurer to lock-in the same rate for up to three years, and we are free to shop among other insurers at each annual renewal.

4.) WHAT IS THE PERCENTAGE OF RENTERS IN THE CONDO COMPLEX?

If the answer is more than 10 percent, buyers should be cautious. If there are more than 20 to 30 percent renters, that’s a very bad sign because mortgage lenders will either refuse to make loans in that complex or they will charge higher interest rates. Too many renters can hurt future condo sales.

A key reason to avoid condo complexes with more than a few renters is absentee owners often don’t care about maintenance of the property. The result can be declining quality of maintenance. Complexes with anti-renter rules are considered very desirable and often bring premium resale prices.

5.) ASK SEVERAL CURRENT RESIDENTS, “WHAT DO YOU LIKE BEST AND LEAST ABOUT LIVING HERE?”

A closely related question to ask is, “Would you buy a condo here again?”

Most condo owner-occupants are very friendly and willing to share their good and bad experiences. While you are asking questions, don’t hesitate to inquire, “How is the soundproofing here?” Poor soundproofing between condo units, upstairs and downstairs, as well as adjacent, is the number one complaint of condo owners.

Lastly, when making a condo purchase offer, be certain it contains a contingency clause for a professional property inspection. After the condo seller accepts your offer, be sure to accompany your professional inspector to determine if there are any undisclosed defects in the unit or the complex that might cause you to reject the inspection report.

More details are in my special report, “The 10 Key Questions Condo Sellers Hope Buyers Don’t Ask,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

If 70 percent of Americans would choose their dog over their spouse, it’s not surprising that many dog owners want nothing but the best for Fido when they are choosing finishes and features for a new house.

But Fido could care less, said Dr. Nicholas Dodman, a veterinarian and the founder of the renowned Animal Behavior Clinic at Tufts Cummings Veterinary School in North Grafton, Mass. “A house is not intrinsically interesting for a dog. Dogs have been domesticated for 12,000 to 14,000 years, and they cling to humans because we’re both social animals. But dogs still have a dog agenda.”

“Dogs are just not on the same wavelength of enjoying a house. A dog couldn’t care less about granite countertops. They’re not interested in furniture types or drapes. They’re not interested in aesthetics,” Dodman said. They will notice the difference between their old house and their new one, but it’s not a distinction that is meaningful to them. Fido’s owners may be thrilled with all the great things in their brand-new house and be more careful with them, but “he’ll come in out of the weather, scratch, and roll around on the carpet” just like he always did.

But, Dodman went on to say, although Fido may have no interest in the particulars of a house, he will prefer a house to an apartment because he cares a lot about having a yard to play in.

How big a yard would Fido want? An acre may seem huge to you, especially if you’re the person maintaining it, but it’s not that big to a dog — his natural roaming territory can be many miles, Dodman said. But he added, dogs are amazingly adaptive. Though Fido “would say that ‘bigger is better,’” he will happily run around and play whatever size yard you have, even if it’s only a small side yard.

Unlike a dog’s blase attitude towards a house, differences between yards will definitely register. If you actually do have an acre-sized yard, Dodman said that your dog will notice things like “there’s no next-door dog patrolling the fence, and out here in the country there’s squirrels to bark at.” Although a fence might seem unnecessary in a rural or semi-rural setting, Dodman advises owners to install one wherever they live because “bad things like aggressive dogs and coyotes can come in.” He also said that owners shouldn’t feel obliged to fence in their entire property simply for their dog’s benefit — their dog will be quite happy to run around in part of it.

A dog’s preferences for things outdoors also extend beyond the size of his own yard. “It’s in a dog’s nature to jump into a lake,” Dodman said, and most would love to live near a beach where they can play and run in and out of the water, especially in hot weather.

When a dog comes indoors, he does appreciate the basics like central heating and air conditioning. He’s glad to get in out of the rain. And there are a few things that would make a difference to him, Dodman said. If the house has a yard, a dog would like a dog door so that he can come and go as he pleases.

Dogs have preferences for certain types of spaces. They like recesses where they can feel protected, and different ones would appeal for different reasons. To a dog, a recess in a kitchen is a ringside seat to much of a household’s activity. If the new kitchen will have so many base cabinets that the owners could remove the doors from one, a small dog may take it over. A recess under a desk in a study would be a safe haven from a heated family argument or loud and obnoxious guests. If the new house doesn’t have a small cozy spot, not to worry, Dodman said. “A dog will invent one because he wants a little space he can call his own.”

A dog will like a crate. He’ll like it even better if his owners cover it with a hood because that will make it feel like a den, a private space where he can be left alone. “It’s the dog equivalent of a teenager in his own room,” Dodman said.

Because a dog wants to see outdoors easily, he will like a window seat that puts him right next to a window and French doors with glass panes that are low to the floor.

Although a dog will not care one way or the other about a room arrangement, a very open plan can be disadvantageous because “you can’t block anything off,” Dodman said. “A high-spirited dog like a Border Collie can careen around in circles and there’s nothing you can do. With a more compartmentalized house you can contain him.”

Whether a dog is high-spirited or placid, however, owners will need to create a contained space with kiddie gates when he’s a puppy being housebroken and when he’s teething and wants to chew everything in sight, a stage that generally lasts until a puppy is about eight to nine months old, Dodman said.

For the owners’ benefit, Dodman recommended a mud room where they can dry their rain-soaked dog as soon as he comes in, before he can track water and mud into the rest of the house. It’s also handy as a place to give a dog an occasional bath, he added.

With limited square footage, the easiest way to get a good-sized mud room is to combine it with the laundry into one large room, said Memphis, Tenn., architect Carson Looney. In his own house, the dog and laundry room is about 10 feet by 10 feet. He designed it to be a purely functional space where the household could dry the dogs as soon as they came in and, when they were dirty, give them a bath in the shower stall with its hand-held showerhead. But, Looney said, the dogs have turned the room into a “big dog crate” where they sleep at night, spend part of their day, and occasionally seek refuge from loud noises.

The most unusual feature in the dog and laundry room is Looney’s dog feeding station. It not only gets the food and water dishes out of the way so they won’t get knocked over, it’s is also big enough to hold two 20-pound bags of dry dog food, as well as dog treats, leashes and other dog paraphernalia.

The feeding station looks like built-in cabinetry. A shelf recess at the base holds the food dishes, and Looney installed a water line and a faucet with an automatic water attachment for pets. As the dogs drink, the bowl is automatically refilled. A pull out hamper above the shelf holds the bags of dry dog food, and a cabinet at the top holds everything else. The ensemble is about 30 inches wide and 60 inches high. In Looney’s house it fits neatly into a wall recess. It could just as easily be freestanding, and mud room or not, it would be handy addition for any dog-owning household.

The mud room has two entries. One opens onto an outdoor fenced area. The other, which opens onto the garage foyer, has a Dutch door. The lower half is closed at night and when the dogs are drying off after a bath.

With four acres, Looney had no trouble fencing off an area for his own dogs, but he said that he can almost always work one in, no matter how small a lot is. He’s even tucked them into the narrow 5- to 7-foot-wide side yards that are common in many new subdivisions now. In those instances, Looney puts the dog’s area next to the garage. Despite the proximity of other houses, he said that neighbors rarely complain because the side yard is next to their garage as well.

Questions or queries? Katherine Salant can be contacted at www.katherinesalant.com.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Katherine Salant

Q: We put a second bathroom in the basement of our home, without getting a permit. A well-respected contractor did everything to code. Our concern is what happens if and when we want to sell. Can we advertise it as a two-bathroom house? Do we face any fines? –Matt A.

A: First of all, when you go to sell a home, you are legally required to disclose anything you know about the home that might affect the new buyer. This would obviously include the new bathroom. If you fail to notify them, your lack of disclosure could easily be grounds for legal action on the part of the buyer. Also, any reputable real estate agent will not take the listing if you are not honest about the condition of the home, since the agent could be taking on legal liability as well.

Most new buyers are savvy enough to ask if any remodeling work has been done on the home, and then to ask for copies of any relevant building permits for the project. Even if the buyer fails to ask and you fail to disclose, most home inspectors are sharp enough to spot the remodel and make it part of their report on the home’s condition.

At this point, your best bet is simply to ‘fess up and get things legal. You need to contact your local building department, explain the situation, and request the necessary building, plumbing, electrical and mechanical permits. Since the purpose of a building permit is simply to ensure that a project is constructed safely–which benefits everyone–they typically will applaud your decision to comply with the law and will not penalize you unnecessarily. In most cases, you will need to pay for the permits and then they will send a building inspector to examine the project. The inspector will ask you some questions about what was done, and have you correct anything that is not safe.

Understand that the building inspectors have the right to make you open up concealed parts of the project–cut into a wall, for example–if they feel that something has been done incorrectly and might be unsafe. If you are honest in your dealings with them, treat them courteously, and don’t attempt to conceal things or mislead them in any way, it has been my experience that they’ll only make you do what’s absolutely necessary. As to fines or penalties, that’s up to the local jurisdiction. It’s not unusual for them to require that you pay double permit fees, but that’s cheap in comparison to the potential legal liability you now have.

You also should be aware that the building department will probably ask who did the work, and if a contractor was involved. That may mean that there are some consequences for the builder, but that’s the unfortunate reality of trying to skirt around his or her legal obligations. If this was indeed a “well-respected contractor,” he or she should have known better, should have advised you of what permits were required, and should never have agreed to do the work without a permit.

There is another issue here as well, even if you don’t decide to sell the house. Since the bathroom was constructed illegally, if anything happens as a result of that construction there could be some other consequences for you. For example, if there are problems with the electrical wiring and a fire results from it, when your insurance company finds out about the remodel–and they will–they might be within their rights to deny coverage of the claim. Even if they do cover the claim, they might also be able to take legal action against the contractor to recover their money.

So, all that being said, you really need to make this bathroom legal. It will make it much easier to sell your house, you’ll probably get a higher price for it, and most importantly, you’ll sleep better at night!

Q: What is the fastest and easiest way to temporarily cap off a hole in the ceiling where a wood stove flue once was? The roof has been taken care of. Thanks. –Sonya B.

A: There are round decorative plates that are made specifically to cap off unused ducts. They are available in a couple of standard sizes, and have spring clips on the back that grip the inside of the pipe and hold the plate in place. For additional protection against drafts, you can attach some self-stick foam tape against the back of the plate, which will help seal it against the ceiling. These plates should be available from most home centers and other retailers who sell stove and fireplace supplies.

If that won’t work for you, probably the next easiest solution would be to have any heating or sheet metal shop cut you a piece of sheet metal that’s a little larger than the pipe you want to cap off. Drill holes in the four corners, and use screws to attach the plate to the ceiling. Here again, you can use foam tape to create a more airtight seal.

Remodeling and repair questions? E-mail Paul at paul2887@direcway.com.

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

What is the difference between a condominium, cooperative apartment, tenancy in common (TIC), and a planned-unit development (PUD)?

As we will see, there are major differences between these types of “common interest developments.” Please be sure you fully understand the distinctions because your legal rights will vary depending on what type of unit you decide to buy.

Purchase Bob Bruss reports online.

Condominiums are just airspace within the unit surfaces. When you buy a condominium, all you are really buying is very expensive airspace! Condo owners own only the inner surfaces of their walls, ceilings and floors. The building structure is part of the “common area” owned by the homeowner association, or HOA, of which all the condo owners in the complex are automatically members.

That means the HOA owns the walls, foundation, roof, plumbing, wiring, the land (although a few condo buildings are constructed on leased land – usually a very bad situation because when the land lease expires, the condos then belong to the landowner), parking areas, hallways, elevators, and other areas shared with other condo owners. Individual condo owners often have an exclusive right to occupy part of the common area, such as a patio or balcony, and an assigned parking space or two.

In some condo complexes, the recreation area is owned by the developer who signed a “sweetheart lease” with the HOA. Due to abuses by some developers, these sweetheart leases are now either forbidden or greatly restricted by law in several states. Prospective buyers should inquire if any part of the condo complex is leased and not owned by the HOA, such as the recreation center or parking area.

A Planned Unit Development is a condominium variation. PUDs are usually townhouse developments where each townhouse owner owns their structure and the land beneath it. But the HOA owns the common areas and is responsible for exterior maintenance, such as mowing the lawns and repairing the roof. If you are considering buying in a PUD, be sure to understand what is your maintenance responsibility and what the HOA maintains.

Cooperative apartments are rare, except in New York, Florida, Georgia, California, Illinois and Washington, D.C. A co-op building is owned by a non-profit corporation where each co-op stockholder owns a proprietary lease for their apartment unit. Although co-ops involve the sale of a personal property stock certificate rather than real estate, Congress has made co-op ownership virtually the same as condominiums for tax deductions and the 24-out-of-last-60-month principal residence $250,000 exemption resale tax benefits of Internal Revenue Code 121. Up to $500,000 tax-free resale profits are available for a qualified married couple filing a joint income tax return.

Co-ops are often created because they are usually exempt from condominium ordinances. To illustrate, suppose you own a luxury apartment building that you want to convert to condominiums so you can earn huge profits. But you discover the city condominium ordinance requires two parking spaces for each condo unit and your building doesn’t have that much parking. Unless you can get a parking ordinance variance from the city, your best viable alternative is probably a co-op.

Because there is usually a master mortgage on the co-op structure, when a co-op project is new it is relatively easy for the first buyers to purchase with an affordable cash down payment, such as 10 percent to 20 percent. However, as time goes on and the master mortgage balance is gradually paid down, each co-op owner’s equity slowly rises. Except in New York and a few other areas, it is often very difficult for a co-op buyer to obtain resale financing because the lender’s only security is the personal property stock certificate.

For this major reason, many co-ops have converted to condominiums, which can be financed almost as easily as single-family houses. As a result, when a co-op converts to a condominium, the market value often rises 25 percent to 50 percent or more because of the easier marketability.

Another major drawback of co-ops is the dreaded interview of prospective buyers by the co-op board of directors. This interview is easy and painless at some co-ops. But other co-op directors demand detailed financial statements from buyer applicants. There are many co-op interview horror stories, including radio personality Rush Limbaugh, ex-President Nixon, and many others who were rejected by New York City co-op boards of directors.

No reason for the co-op rejection need be given, thus sometimes leading to subtle racial discrimination. The alleged reason for the interviews is to determine if the co-op buyer applicant can afford the monthly payments, plus any special assessments, because the remaining co-op shareholders must make up any missing payments or risk default on the master mortgage.

By comparison, most condominium associations do not have the right to approve or disapprove prospective buyers. However, some condo HOAs have a “right of first refusal” to match any purchase offer received from a condo buyer – but this right is rarely used.

Tenancy in common is jointly shared co-ownership. Residential TICs are a variation of both condominium and cooperative ownership. TICs usually involve a small group of owners buying a building together, such as a four-unit apartment building, as tenants in common with rights of each co-owner to occupy a specific apartment exclusively. There is one mortgage on the entire TIC property and all tenants in common are legally responsible for the mortgage payments. TIC owner-occupants receive tax benefits similar to other principal residence owners.

TICs have primarily arisen in jurisdictions where condominiums, cooperatives and/or PUDs are difficult or very expensive to create. Examples include San Francisco, Berkeley and Santa Monica, Calif., where rent control makes apartment conversions to condominiums very difficult.

Although most TICs work out quite well, some have fallen on “hard times” where the owners disagree, or one or more tenants in common can’t or won’t pay their share of the mortgage payments and operating expenses. If one co-owner doesn’t pay his/her share, the other co-owners must either make up the deficit or watch the mortgage go into foreclosure. Removing a non-paying tenant in common can be very difficult since it is not as easy as foreclosing on a regular mortgage borrower.

Because of the many potential problems with TICs, they are not recommended unless there is no other joint ownership alternative available. Of course, TICs require a carefully drawn agreement among the joint tenant co-owners. Consideration should also be given to resales and whether a prospective purchaser must be approved by the other TIC co-owners. Due to TIC difficulties, many real estate agents refuse to handle TIC resales, thus limiting the number of prospective buyers and the potential for market-value appreciation.

However, residential TICs should not be confused with commercial TICs, which have become very popular with real estate investors making tax-deferred Internal Revenue Code 1031 exchanges. To illustrate, an investor can make a tax-deferred exchange from an investment or business property, such as an apartment building, into a management-free TIC share, such as an office building or shopping center, which is managed by the TIC development company. Although the long-term viability of commercial TICs has yet to be proven, many commercial TIC investors are very pleased.

EXAMPLE: I’ve written before about my friends Dory and Andy who sold their California rental house about 10 years ago for around $300,000. They made a tax-deferred IRC 1031 exchange into a TIC which owns and leases an Applebee’s Restaurant in Kentucky! Now in their 70s, Dory and Andy look forward to receiving their monthly TIC rent checks with no management hassles. Their TIC co-owners are individuals they have never met.

(For more information on Bob Bruss publications, visit his Real Estate Center).

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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Robert Bruss