Real Estate in Steamboat

DEAR BOB: In a recent article you said, “Now you know why I never recommend negative-amortization adjustable-rate mortgages (ARMs).” Does that mean you changed your advice? I recall your many articles recommended the COFI (cost of funds index) ARMs, which have negative amortization. –Tom C.

DEAR TOM: ARMs that use the COFI do not always have negative amortization where the borrower’s monthly payment increases slower than the interest index increases. The result can be the unpaid interest is added to the mortgage balance, thus creating negative amortization.

Purchase Bob Bruss reports online.

I have never recommended negative amortization ARMs. Personally, I have had several COFI adjustable-rate mortgages that didn’t have negative amortization.

The key question to ask is how often the ARM monthly payment and the index change. If the index rate can change faster than the borrower’s monthly payment changes, then negative amortization results, thus increasing the mortgage balance by the unpaid interest amount.

I have not changed my viewpoint. I do not recommend negative amortization ARMs, which can be a very bad deal, especially when the home buyer made a low- or zero-cash down payment.

CAN THREE OWNERS EACH QUALIFY FOR $250,000 HOME-SALE TAX BREAK?

DEAR BOB: I read in your column that two principal residence co-owners (who are not spouses) can each qualify for up to $250,000 of tax-free sales profits under Internal Revenue Code 121. Can three owners of one house qualify? Would $250,000 be available to each co-owner, or is $500,000 the maximum exemption per home sale? Is there any limit to the number of co-owners who can qualify for this tax exemption? –John S.

DEAR JOHN: There is no limit in Internal Revenue Code 121 to the number of $250,000 principal residence sale exemptions if each co-owner qualifies.

However, when the co-owners are not husband and wife, then all their names must be on the title at least 24 of the 60 months before the sale and the property must be the principal residence of each owner for the required 24 of the last 60 months before sale.

An example would be three sisters who own and occupy their principal residence for the required minimum time before selling, thus qualifying for up to $750,000 tax-free sales profits. For further details, please consult your tax adviser.

DON’T GET A REVERSE MORTGAGE UNLESS YOU EXPECT TO LIVE IN THE HOME AT LEAST FIVE YEARS

DEAR BOB: I am way over 65 and live in my condo that is worth around $300,000. The life expectancy of males in my family is only 50 years. I am considering a senior citizen reverse mortgage, or I might sell my condo and invest the sales proceeds. Which option do you feel is best for me? –Wally D.

DEAR WALLY: If you are in reasonably good health for your age, and expect to remain in your home for at least five years, I suggest you seriously consider the benefits of a reverse mortgage.

The reason you should plan to stay in your home at least five years is to amortize the reverse mortgage up-front loan fees. To illustrate, if you are in poor health with a life expectancy of two years, a reverse mortgage would not be a smart decision.

More details are 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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Copyright 2006 Inman News

In 1999, Jimmy Jen purchased a dilapidated single-family house. Based on prior experiences with the local building inspectors, he applied for a permit to do only $2,500 of minor dry-rot repairs.

Instead, Jen added a two-room extension, plus a second-floor addition, altered the basement to create four habitable rooms and a garage, constructed new decks on the roof, and installed extensive new plumbing and electrical wiring.

Purchase Bob Bruss reports online.

The building inspector learned about the work that was not authorized by the building permit for dry-rot repairs. A “stop-work notice” was posted at the house, but Jen continued work. He also ignored a second stop-work notice and continued construction.

In 2000, Jen submitted another building permit application. But the building inspection department and the city-planning department ruled the non-permitted work was a public nuisance that had to be removed.

Jen was ordered to remove the entire three-story addition and obtain a new building permit to rebuild. But he refused to comply.

In late 2000, the city filed this lawsuit against Jen, alleging a public nuisance (there were no fire-stops between floors in the construction), violation of state housing laws, failure to comply with an abatement order, and unlawful business practices.

If you were the judge, would you impose a civil fine on Jen and order him to pay the city’s legal expenses to enforce its building permit rules?

The judge said yes!

The evidence in this case is overwhelming, the judge began, that Jimmy Jen did not comply with city building requirements to obtain a permit before beginning construction work.

Even after being cited for building permit violations, Jen continued construction and he was cited again, the judge explained.

When a property owner fails to obtain building permits before beginning construction, the city is entitled to order the illegal construction demolished, the judge emphasized.

Because Jen was such a flagrant law violator, he is ordered to pay a $150,000 civil fine plus the city’s attorney fees of $837,000, the judge ruled.

Based on the 2006 California Court of Appeals decision in City and County of San Francisco, 37 Cal.Rptr.3d 454.

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

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Copyright 2006 Inman News

If you are getting ready to move out of your longtime home and into more sunshine, you can actually gift your home to a child or friend but that gift will come with a few strings attached.

In many countries around the world, once the parents die, the children simply move into the home and take over the master bedroom. While that progression still occurs in the United States, estate taxes, rising home values, job transfers, and the desire for a separate space and different environment have changed the use of the traditional family home.

The bottom line is that the home has evolved from basic shelter to the average person’s most valuable possession. It needs to be carefully protected, guarded, and even nursed along–much like the responsibilities that took place within the home itself. And the financial value is usually accompanied by priceless memories and experiences, making the family home beyond doubt the ultimate asset.

First and foremost, your child or friend’s basis in the house will be what you paid for the property, plus major improvements. Because this cost you paid years ago is probably much lower than today’s soaring home value, there’s a chance tax will be owed on a subsequent sale.

For example, if you purchased your home in 1970 for $60,000 and it is now worth $450,000, your child’s basis would be $60,000 if you chose to transfer the home to the child as a gift. If the married child sells the home 10 years down the road for $760,000, their tax liability would be on $200,000 ($760,000 minus the $60,000 basis, minus the $500,000 exclusion for married couples). Taxpayers in the 15 percent tax bracket would thus owe the Internal Revenue Service approximately $30,000 in capital gains tax.

The actual gain is the difference between the adjusted sales price (selling price less selling expenses) and the adjusted basis. The adjusted basis is the original cost plus capital improvements. Capital improvements are the cost of improvements having a useful life of more than one year. Examples include the new roof, dock, deck, remodeled bathroom, and finished basement. Generally, an expense is a capital improvement if it adds value to the property or extends its useful life. If these criteria are not met and the expenditure is considered necessary to maintain current usefulness, it is a maintenance cost.

The outright gift would also reduce your lifetime gift tax and estate tax exemptions. While the limits on both the lifetime gift tax and estate tax used to be the same (there was one overall exemption, and the individual used it up by making gifts during life and at death), the 2001 legislation set the gift tax and estate tax on different roads beginning in 2004. Both were combined into a “unified” exemption because gifts made during life also counted against the total. The overall, or unified, exemption remains for the entire estate, but a gift exemption limits the amount that can be given during a lifetime.

Once the unified exemption is used up, the tax rates that apply are quite high. The estate tax is being phased out over a 10-year period, but the gift tax will remain in place. The gift tax exemption is $1 million in 2006, but the estate tax leaps to $2 million. In future years, the gift tax exemption will remain at $1 million, while the estate tax exemption rises until the estate tax is fully repealed in 2010. At that time, the top gift tax rate again will equal the top income tax rate.

If you are going to gift your home to an individual, it’s best to offset the amount by first using your annual gift tax exclusion of $11,000 per gift. You can gift $11,000 (this amount will rise and is tied to inflation) to any one person in any year. Hence, if you and your spouse each make a gift to both your child and her spouse, you can offset $44,000 of the home’s value. Then, as long as the home’s net figure is less than $1 million, you won’t owe any current tax (unless you made substantial gifts earlier that reduced your remaining exemption).

Take the time to check with a tax attorney or an accountant before making any major moves. Be certain that goals are shared and discussed. You’ll find it saves time, money and anxiety.

Tom Kelly’s new book, “Real Estate for Boomers and Beyond: Exploring the Costs, Choices and Changes for Your Next Move,” (Kaplan Publishing) is available in retail stores, on Amazon.com and in local libraries. Tom can be reached at news@tomkelly.com.

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Copyright 2006 Tom Kelly

Q: Our home was built in 1927 on a flat lot in Alameda, Calif. We bought the property in 1960 and had flooding in the garage in the winter because of the slope of the patio toward the back door of the garage.

Several years ago we had an aluminum box installed at the door opening inside the garage with a pipe set at an angle to carry the water away from the garage. This eliminated the flooding in the garage, but we still have a puddle in front of the door when it rains.

How can we eliminate this problem?

A: We have a couple of ideas for getting rid of the puddle.

You could install a floor drain from the low point of the concrete to channel water into the aluminum box installed inside your garage.

The other option is to level the low spot in the walkway with vinyl concrete leveling compound, which will eliminate the dip where water collects.

Neither solution is pricey, but installing a new pipe is more work than leveling out the dip in the walkway. Leveling the dip will get rid of the puddle. But that water will go somewhere–maybe not where you want it to go.

The aluminum box that is installed inside your garage door is a drywell. A drywell is a hole in the ground where water collects. The pipe installed in the box channels the water away from the box. This is similar to a septic tank and leach lines. The pipe is probably drainpipe that is perforated with holes. This allows the water to percolate into the soil. Alameda, Calif., has very sandy soil, which allows the water to percolate easily into the ground.

INSTALLING A DRAIN

The diagram you provided shows that the distance from the puddle to the box is only a few feet. We suggest you install a floor drain with a 3-inch polyvinyl chloride pipe (PVC) running from the low point of the sidewalk into the drywell.

To extend a pipe from the walkway into the box, you’ll have to cut and chip out a bit of concrete.

To cut the concrete, attach a diamond-studded blade to a circular saw. Cut parallel lines about 8 inches apart from the low point in the concrete toward the box. Make the cuts about 1 1/2 inches deep. Stop the cuts at the threshold of the garage door.

Then, with a hammer and a cold chisel, chip out the concrete and dig a shallow trench, 6 inches or so deep, to the box. Cut a hole in the aluminum box for the pipe to enter the drywell.

Glue a floor drain to a 90-degree sweep elbow and extend a piece of PVC from the other end of the elbow into the box. To prevent dirt from leaching into the box, seal the opening around the pipe with plumber’s putty. Backfill the hole, making sure to tamp the soil firmly.

Then cover the drain with tape to prevent concrete from entering the pipe when you replace the concrete over the trench. Mix and pour enough Redi-Mix concrete to cover the trench. Smooth the concrete with a steel trowel.

LEVELING THE WALKWAY

An alternative to installing a drain is to flatten out the low spot with a vinyl concrete compound especially made for leveling concrete. This product is available at home centers and at well-stocked hardware stores. You’ll need the leveling compound, concrete adhesive and a wood float.

The material must be applied to a clean surface. Wet the area, scrub it with a stiff brush and allow the surface to dry. Using adhesive is necessary to ensure a stable bond between the old concrete and the patch.

Apply the adhesive to the low spot according to manufacturer’s instructions. Finish by mixing the leveling compound and float it into the depression, making sure to finish it even with the surrounding area.

Because applying leveling compound is quick and inexpensive, we suggest you try this route first. If that doesn’t work to your satisfaction, try installing the drain.

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Copyright 2006 Bill and Kevin Burnett

DEAR BOB: About two years ago, we refinanced our home mortgage and obtained a 5.25 percent fixed-rate mortgage. We loved the low monthly payments. Then, about six months ago, my wife inherited enough money to pay off our mortgage in full, which we did. Next, I received an excellent buy-out offer from my employer to take early retirement, which I did. But now my former employer drastically cut my retirement pension and eliminated health care coverage. As I am only 63 and my wife is 57, we are not yet eligible for Medicare. I took early Social Security, but that doesn’t help much. We are rapidly eroding our savings, which were drawn down when we paid off our mortgage early. We “maxed out” our home equity credit line and can barely afford the payments. What can we do? –Richard R.

DEAR RICHARD: Your situation shows why I constantly recommend not prepaying a mortgage in full unless you have so much money you will never need to borrow on your home equity. Obviously, that is not your situation.

Because you have insufficient income to qualify for a new home mortgage, except perhaps from a “loan-to-own” mortgage shark, your only viable alternative is a senior citizen reverse mortgage.

However, there is one little problem. Your wife is too young. To qualify for a reverse mortgage, she would have to quitclaim her half of the house to you.

Because you are only 63, with a long life expectancy, you won’t qualify for much monthly lifetime reverse-mortgage income. I wish I could be more positive, but now you know why I do not recommend prepaying mortgages unless you have lots of spare cash.

NO TAX DEDUCTION FOR CO-OWNER WHO DOESN’T PAY THE BILLS

DEAR BOB: I own our home with my wife. We added our adult son’s name to the title so we could qualify for the mortgage. But we take the standard deduction and do not claim the mortgage interest and property tax deductions. My son has his own house. Can he claim our home’s mortgage interest and property tax deductions for a second home although he does not pay anything and his name is on the mortgage and the deed? –Kisan C.

DEAR KISAN: If your son did not pay the tax-deductible expenses of mortgage interest and property taxes, although his name is on the title to your home, he cannot claim those itemized deductions on his personal tax return. For full details, he should consult his personal tax adviser.

CASH TAKEN OUT OF A TAX-DEFERRED EXCHANGE IS TAXABLE

DEAR BOB: If we sell our investment property for $600,000, and net $300,000 after paying the mortgage and expenses, does our replacement property have to cost $300,000 or $600,000 to qualify for tax deferral? We would like to sell our investment property and use the $300,000 cash to buy a single-family rental house to own free-and-clear. –Susan L.

DEAR SUSAN: To qualify for an Internal Revenue Code 1031 tax-deferred exchange, you must trade equal or up in both price and equity. That means if you sell your investment property for $600,000, you must acquire a replacement investment property costing at least $600,000 without reducing the mortgage balance.

Buying a single-family rental house for only $300,000 means you will owe tax on approximately $300,000 capital gain. If you take any cash out of the exchange that is taxable “boot” because it is “unlike-kind” personal property. More details are in my special report, “How the New Tax-Deferred Real Estate Exchange Rules Can Make You Very Wealthy,” 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.

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Copyright 2006 Inman News

Dear Barry,

When we bought our home, the home inspector included estimated repair costs in his report. At the conclusion, he stated that the problems found were “minor in nature” and that “actual repair costs may vary widely from one contractor to another.” One of the so-called “minor” problems in the report was rotted wood at the front door threshold, estimated to cost between $500 and $700. The sellers gave us a credit to cover this repair after we moved in. But the contractor who is now making these repairs found further rot in the adjoining wall and floor, with repair costs now exceeding $3,000. Our inspector says he told us the costs could vary and that he could not see conditions within the wall or the floor. Is his position reasonable and responsible according to normal home inspection practices? –Janet

Dear Janet,

Some home inspectors include cost estimates in their reports, but most do not. When estimates are included, they are typically nothing more than “best guesses” and should not be relied upon. The primary function of a home inspector is to identify apparent defects and to recommend evaluation and repairs by qualified specialists wherever needed. In the case of rotted wood, the appropriate recommendation would be “further evaluation by a licensed pest control operator,” commonly known as termite inspectors. This what your inspector should have advised.

Pest inspectors are responsible for evaluation and repair of conditions involving wood-destroying organisms. This includes fungus damage, commonly known as dryrot. Your home inspector should have seen the rot as a red flag indicating the likelihood of further damage in adjoining, inaccessible areas. Minimizing the problem with a low-cost estimate and labeling is as “minor,” rather than recommending further evaluation was not the proper course for a qualified inspector. This also raises the question of whether there was a pest inspection as part of the purchase transaction. If so, that inspector may be liable for the lack of adequate attention to this condition.

A particular fault of your home inspector was his conclusion that all defects were “minor” in nature. Conclusions of that kind are fool-hearty for any home inspector, unless there is absolute certainty that all findings are trivial in nature. For a home inspector to draw that conclusion where rotted wood is at issue is not justifiable in most situations.

Dear Barry,

We have a mysterious leak in our kitchen ceiling, and our plumber can’t seem to figure it out. But we have a suspicion that it may be coming from the clothes dryer vent that runs between the ceiling and the upstairs floor. Does this sound plausible? –Virginia

Dear Virginia,

It is possible that moisture condensation in the dryer duct is the moisture source. However, rain intrusion at the exterior vent outlet is also a possible cause. You’ll need to keep track of when the ceiling surface is moist to see if it coincides with wet weather or with use of the dryer. It is also possible that rain leakage is occurring at the drain vent flashing on the roof. Beyond this, there is little that can be determined without having the property professionally inspected.

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

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Copyright 2006 Barry Stone

“The Landlord’s Survival Guide,” by Jeffrey “Mr. Landlord” Taylor (Kaplan Publishing Co., Chicago), 2006, $18.95, 191 pages; available in stock or by special order at local bookstores, public libraries, 1-800-245-2665, and www.Amazon.com.

If you own residential rental property, or are thinking about investing in rentals, you will benefit from reading “The Landlord’s Survival Guide,” by Jeffrey Taylor. Known among residential rental owners as “Mr. Landlord,” Taylor has created a business of helping landlords prevent costly management mistakes. His Web site, www.MrLandlord.com, receives over 1 million visitors each month.

The author realizes most of his readers will be new and part-time investors in residential rentals, both houses and apartments. He well understands these investors want to enjoy the ownership benefits while minimizing the property management hassles and drawbacks created by “tenants and toilets.”

As a long-time investor in residential rentals and frequent speaker to realty investment clubs around the nation, Taylor has a good understanding of problems amateur landlords encounter. As a property owner, he shares the techniques he has found to be successful and profitable.However, as a long-time residential landlord, I question some of the methods Taylor recommends. Maybe they work for him in his market (Norfolk, Va.) but they sure won’t work for me.

For example, Taylor suggests residential landlords rent their units without appliances such as stoves and refrigerators. In my rentals, I’ve always used modern appliances as a selling point to rent houses. I can’t imagine renting a house or apartment without kitchen appliances. Yet, Taylor suggests making the tenants provide their own appliances.

The author must be quite a salesman. He recommends maximizing cash flow by creating custom rental packages for tenants. Taylor includes a “Three-Star Resident Program” and a “VIP Program.” He suggests upgrades such as installing ceiling fans for an additional $10 per month rent, plus other extras, each at a higher monthly rent.

Although the author places heavy emphasis on screening tenants before they move in and checking references of at least two previous landlords, he admits from time-to-time tenants will go bad despite “tenant training.” If this happens, Taylor wisely recommends paying the bad tenant (especially one who won’t pay the rent) “transition money” to move out without a formal eviction.Taylor is big on having two property inspections each year to be certain the tenant is maintaining the property. As an experienced landlord, my only comment is he must have a lot of spare time on his hands (or a big staff to conduct those inspections). Also, Taylor rewards his tenants with periodic contacts such as birthday cards, gifts for long-time tenants (his average tenant stays a remarkable five years), and other recognition.

One Taylor technique, which every residential landlord can use or at least attempt to use, is to collect rents automatically each month. The author explains the automatic choices, such as charging the tenant’s credit card (just like health clubs do), automatic bank account withdrawal, and receiving direct payment from the tenant’s employer or even from the tenant’s monthly Social Security or welfare payment.

A unique program the author uses to both retain tenants and get them to pay the rent on time is his plan to “transition renters into home buyers.” He rewards his good tenants by crediting them with $100 per month to his Future Home buyers program to help tenants with home purchase costs. However, if the tenant is late with rent, they lose their accrued credits.

Mr. Landlord is no nonsense. He is certainly not “Mr. Softie.” Taylor explains how to go after deadbeats who vacate a rental while owing rent. His techniques for collecting judgments, while perfectly legal, taught me a few things about judgment collections.

Chapter topics include: “Develop the Right Mindset”; “Identify Your Landlording Success Team”; “Study What You Must Know to Survive”; “Fill a Vacancy with the Ideal Resident”; “Screen Out Problem Residents”; “Conduct New Resident Orientation”; “Get Your Money”; “Maximize Your Cash Flow”; “Keep Residents Long after their First Anniversary”; and “End All Relationships on a Profitable Note.”

Both new and “old pro” landlords will benefit from reading this innovative book, which shares unique landlording ideas. Readers can either accept or reject each suggestion and move on. On my scale of one to 10, this well-written very creative book rates a solid 10.

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Copyright 2006 Inman News

DEAR BOB: My husband and I are avid readers of your columns. We own a townhouse that we bought as an investment. Now we are considering selling it. If we agree to owner financing and retain title until the loan is paid, can the buyers deduct the mortgage interest and property taxes on their income tax returns? –Melana W.

DEAR MELANA: Yes. The situation you describe is called a land contract sale, contract for deed, contract of sale, agreement of sale, installment land sale, and a zillion other names.

Purchase Bob Bruss reports online.

The basic idea is the seller retains the legal title until the buyer makes all or an agreed number of payments to the seller. If there is an existing mortgage, the seller uses part of the buyer’s payments to keep payments current on that mortgage.

As the seller, you remain the legal owner. The buyer becomes the equitable owner entitled to the income tax deductions.

Your big benefit is you can report the sale to the Internal Revenue Service as an installment sale, paying capital gains tax on your profit over the years you receive principal payments from the buyer. You also get to pay ordinary income tax on your interest income received.

However, I do not recommend this type of sale for either real estate buyers or sellers. The potential problem for buyers is often the seller is unable to deliver marketable title after the buyer faithfully made all the agreed payments to the seller.

The potential problem for land contract sellers, in many states, is the difficulty of getting a defaulting buyer out of the property if the buyer claims an equitable interest in it.

A better alternative is to transfer title to your buyer and carry back a mortgage or deed of trust secured by the property. Then, if your buyer defaults, you can foreclose. For full details, please consult a local real estate attorney.

NO EASY WAY TO FORCE RELUCTANT REALTY INVESTOR TO SELL

DEAR BOB: Thank you for your recent item about real estate partition sales. Three of us jointly own a home; two want to sell. The third doesn’t want to sell and forces us to pay expensive monthly upkeep on the home. The property taxes have recently skyrocketed. What is the approximate attorney fee to bring a partition lawsuit? The third party is inflexible and not approachable. –Ken C.

DEAR KEN: Sorry, I have no clue how much a local real estate attorney will charge for a partition lawsuit, especially with a difficult co-owner. Try to negotiate a fixed fee, rather than an hourly fee, which might escalate if the other owner resists.

Shop around. Ask for attorney recommendations from other local real estate investors for names of superb real estate attorneys. You will probably find a wide variety of fees quoted.

TWO MARRIAGES, TWO HOUSES, FOUR KIDS, CALL FOR AN ESTATE PLANNING ATTORNEY

DEAR BOB: My husband and I each own our homes from previous marriages. We each have two grown children and need information how to list these homes in our wills. We live in my home and have never added each other’s names to our deeds. How do we handle this? –Sharel B.

DEAR SHAREL: Please consult a local estate-planning attorney. But before you do so, be sure you know what you want to do with each house after one of you dies.

Do you want each house to go to the surviving spouse? Or to your grown children from your first marriages? Be sure the attorney you consult understands revocable living trust benefits so you can avoid unnecessary probate court costs and delays.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now 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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Copyright 2006 Inman News

DEAR BOB: We are in the process of buying an older home in a great neighborhood with outstanding public schools. As you often suggest, we insisted on a professional inspection contingency clause in our purchase offer. We also accompanied the inspector to discuss the problems he discovered. Two defects that the seller did not disclose are: 1) the roof is leaking water into the attic, and 2) the foundation is sinking slightly in one corner, probably due to poor drainage, which can be corrected. But the roof will cost at least $12,000 to replace. How can we get the seller to pay for the repairs? –Josh R.

DEAR JOSH: Congratulations on including a professional inspection contingency clause in your home purchase offer. Although the seller made a good faith effort to disclose known defects, perhaps he was not aware of the roof leaks and the foundation problem.

Purchase Bob Bruss reports online.

The best approach is to reopen negotiations and ask the seller to give you a “repair credit” for the leaky roof and the foundation repairs. This is better than asking the seller to install a new roof and fix the foundation. The reason is most sellers will hire the cheapest contractors who might not do a quality job.

A repair credit usually doesn’t affect your mortgage eligibility amount or the appraised market value. If your seller refuses to give you a repair credit, you can always walk away.

In today’s slowing home sales market, you can be sure the listing agent will help with negotiations. But don’t be unreasonable. It’s a good deal for both parties if the seller agrees to credit you with half the cost of a new roof.

NO EASY WAY TO FORCE RELUCTANT CO-OWNER TO SELL HOUSE

DEAR BOB: My wife and I own a two-thirds interest in a nice house with a pool. The other one-third belongs to the occupant who is not taking care of the property, is on food stamps, and is not likely to repay us or buy us out. How can we sell our interest in this house without a partition lawsuit? Private investors suggest paying him off to get him out. They offered us only a fraction of full-market value. –John L.

DEAR JOHN: You were very lucky to find anyone who would buy a two-thirds interest in a house. Without a partition lawsuit to force the sale of the property, you can’t force the occupant to sell.

Just because the resident is “down-and-out” doesn’t mean he should be able to keep you from selling. I suggest you remind him that if he sells, he will receive one-third of the net sales proceeds.

If I were an investor interested in buying that property, I would make you a very “low-ball offer.” After you accept and taking title to your two-thirds interest, I would bring a partition lawsuit to force the sale of the property at full market value, thus making a “quick-flip” profit. For more details, please consult a local real estate attorney.

WHAT IF BUYER’S AGENT LIED ABOUT STATUS OF THE DEPOSIT?

DEAR BOB: We had a sales contract to sell our house. The buyer was supposed to pay a deposit into a trust account with the realty office representing the buyer. We expected to close with no problem. But a few days after the scheduled closing date, the buyer’s agent told us the buyer is a “fraud” and passed forged checks for the deposit and the down payment. The agent cannot locate the buyer. Does the buyer’s agency have any obligation to us to pay the deposit, which was supposed to be in a trust account? –Charles S.

DEAR CHARLES: That dishonest buyer’s agent should be reported to both the state real estate commissioner (for possible license revocation) and to the local Association of Realtors (for discipline) due to breach of fiduciary duty to you.

There is no valid excuse for not promptly telling you the buyer’s good-faith earnest money deposit check bounced.

However, I would not bother suing the buyer’s agent because proving your loss might be difficult and costly. I suggest you move on. However, your listing agent should have been monitoring the situation so perhaps he or she should share the blame too.

WHAT ABOUT THOSE “WE BUY HOUSES” COMPANIES?

DEAR BOB: I am thinking of selling my home to one of those “we buy houses” companies. They claim to buy “as-is.” They ask the seller to inform them of any repairs needed, but they also say if the seller does not inform them of any necessary repairs, they presume repairs are necessary anyway. This firm offered me a very low price. If accepted, they then perform a “due diligence” inspection before the contract is final. Does the fact that they assume repairs are necessary and that they highly discount the sales price change the seller’s legal liability for repairs? –Mark P.

DEAR MARK: Most states now have laws and court decisions requiring home sellers to disclose known defects of the residence in writing. Making an “as-is” home sale is not a method to avoid liability for undisclosed defects of which you are aware.

If you sell to those professional buyers at a price heavily discounted from market value, you should insist on a written waiver in the sales contract that you have disclosed all known defects, and the buyer has investigated and will not hold you liable for any latent (hidden) defects that might become evident later. For more details, please consult a local real estate attorney.

WHY A HOUSESITTER CAN’T OBTAIN “SQUATTER’S RIGHTS”

DEAR BOB: We recently purchased a beautiful waterfront home in the state of Washington. This will become our retirement home in three years, but we are reluctant to rent this home and are leaning towards having a housesitter live in it until we move in. This individual is highly recommended by our new neighbors. However, I read somewhere if we allow an individual to house-sit, we are granting “squatter’s rights.” Is that correct? This individual would not pay rent but will pay the monthly expenses. –Jeanine W.

DEAR JEANINE: “Squatter’s rights” (legally called a “tenancy-at-sufferance”) refers to occupancy without the owner’s permission. Obviously, your housesitter will occupy with your permission so you need not worry about squatter’s rights.

Be sure to consult your insurance agent in Washington to be certain you have adequate insurance for this unusual situation, including liability coverage in case the housesitter trips on a loose carpet, which could be considered negligence by you.

You need a written agreement with your housesitter so you can remove him or her at your will without cause. I suggest you consult a real estate attorney located near the property.

NO EXPIRATION DATE FOR $250,000 HOME SALE TAX BREAK

DEAR BOB: I read in the AARP newsletter that Internal Revenue Code 121 will expire in 2007 but that it will be extended if Congress passes President Bush’s 2007. Do you have any further information on this topic? –Helen K.

DEAR HELEN: There is no such expiration date in Internal Revenue Code 121, which provides principal residence sale tax exemptions up to $250,000 for a qualified single home seller and up to $500,000 for a married couple filing a joint tax return.

If there were such a provision in either IRC 121, or President Bush’s proposed 2007 budget, you can be sure the National Association of Realtors (the nation’s largest trade association with over 1.2 million members), the National Association of Home Builders, and other real estate groups will be extremely vocal to stop such an irrational tax law repeal.

SAVE RECEIPTS WHEN CONVERTING RENTAL TO PERSONAL HOME

DEAR BOB: I own a house that has been rented to tenants for many years. Now we want to use this as our primary residence and sell it after 24 months. What documents should I have to prove to the Internal Revenue Service this is indeed my primary residence so I can claim the $500,000 exemption of Internal Revenue Code 121? –Deb S.

DEAR DEB: Just move in. Save your utility bills and other evidence of principal residence occupancy. Be sure to file your income tax returns from your new principal residence, change your car registration, driver’s license, bank accounts, etc. to your new address.

You mentioned “we.” If your spouse is not on the title, that’s all right as long as he also meets the 24 out of last 60 months before sale occupancy test. However, if your co-occupant is not your spouse, he or she must be on the title to claim their $250,000 principal residence sale tax exemption. For more details, please consult your tax adviser.

The new Robert Bruss special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF 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

On Jan. 20, 2005, a headline in the San Francisco Chronicle stated that Bay Area home sales were down and that prices slid. If you, like many readers, scanned only the headlines, you might have thought home prices in the area had plummeted. Actually, they rose 14.3 percent between December 2004 and December 2005, according to DataQuick Information Systems.

Sensational headlines sell newspapers. Who wants to read about a real estate market that’s not as robust as it was a year ago–one in which home prices aren’t going up as fast as they were this time last year? Ho-hum news doesn’t do much for newspaper sales.

Behind the scenes of the Bay Area home sale market, the real story is not that home prices “slid” from one month to the next. It’s that the market is doing surprisingly well despite the negative press. In a nutshell, well-priced homes that are properly prepared for sale are selling for good prices and within a reasonable period of time.

While this is not the case in all markets, it certainly holds true for markets that are low on inventory. Recently, a home in a moderately priced neighborhood in Los Angeles sold with 10 offers. This miraculous event occurred in February of 2006, not February of 2005.

Areas that are flush to overflowing with unsold listings are a different story. These are areas that were overbuilt during the last five years. New home builders in these areas are offering concessions, like free landscaping and other upgrades, to encourage sales. Sellers of resale homes in over-built areas are forced to cut their prices in order to compete.

HOUSE HUNTING TIP: Regardless of where you live, there are two factors to keep in mind when evaluating news reports on current market conditions. One is that you need to evaluate what’s happening now in relationship to what came before. We’ve recently experienced several of the best years for home sales on record. If the market were to continue to escalate, we’d have a serious problem.

Already, we have affordability issues, given the recent rise in home prices. If home prices were to continue to rise unchecked, first-time buyers would eventually be shut out of the market. With no entry-level buyers, the move-up market would grind to a halt. Rather than a curse, the slow-down in the housing market is a blessing.

The other factor to keep in mind when you’re trying to make sense of changes in home prices is that, in most cases, the changes quoted in the press are changes in the median price of homes sold during a given period of time. The median price is the price that is halfway between the highest-priced and lowest-priced home sold in that period.

Changes in median price from one period to the next do not necessarily reflect changes in absolute home values. When the median price rises, it means that the number of more expensive homes sold during that period increased. Likewise, when the median price of homes sold declines, this means that the volume of lower priced homes sold increased relative to the number of more expensive properties.

Following the dot-com bust in 2000, the median home price in the San Francisco Bay Area dropped. This was due to the fact that the market for more expensive properties dried up. However, the market for properties priced under $1 million remained strong.

THE CLOSING: Before drawing conclusions about the strength of the home sale market in your area, you need to collect data at your local level. Regional, statewide and national statistics can be misleading.

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