Real Estate in Steamboat

A few weeks ago I enjoyed lunch with one of my favorite Realtors. During our conversation, she told me about a home sale she recently closed in an upscale neighborhood for thousands of dollars above any previous sale price in that area.

As I drove home from our lunch, I couldn’t help but think, “I wonder how that house appraised for a much higher sales price than any recent comparable home sales price in the vicinity?” I sure wouldn’t want to be the appraiser who got that assignment.

Purchase Bob Bruss reports online.

When a home buyer makes a small or zero down payment, the appraisal is vital to obtaining a high loan-to-value ratio mortgage. However, if a home buyer makes a large down payment, then the appraised valuation to confirm the sales price is not so critical.

WHAT IS AN APPRAISAL? A state-licensed appraiser makes professional real estate appraisals. Any other evaluation, such as a real estate agent’s estimate of market value, is not an appraisal, but rather an opinion of market value.

An appraisal of real estate market value is an estimate by a trained appraiser of the most likely price at which a property will change ownership, with neither the buyer nor seller being under pressure to buy or sell.

But the real world is much different. There are different types of appraisals, such as a “quick sale value,” “as-is condition,” “future renovated valuation,” and others. The skill and experience of the licensed appraiser play a key role in the accuracy of the appraisal.

Until there is an actual property sale, an appraisal is just an estimate of probable market value. However, even when there is a sale, the buyer might have overpaid or a desperate seller might have accepted a below-market purchase offer.

IS APPRAISAL AN ART OR A SCIENCE? During the last 10 years, there have been many attempts to make real estate appraisals more accurate, especially with automated valuation models (AVMs). Mortgage lenders would be thrilled to be able to verify the exact market value of a house by pressing a few buttons on a computer. Although that day might be coming, it has not yet arrived.

The latest attempt to eliminate the need for appraisers is the free Web site www.Zillow.com, which claims to have 60 million U.S. homes profiled. For several of my properties I checked, I found the results amazingly accurate. I especially like the aerial views with the lot boundaries superimposed.

Then I checked the house where I grew up in Edina, Minn. Zillow reports a one-bedroom, one-bathroom house worth $1.2 million. That house description sounds like a shack. If the valuation is correct, I wish my parents hadn’t sold that house. The reality is it is a very nice three-bedroom, two-bathroom house. Zillow isn’t always correct.

However, when houses and condos are relatively similar to nearby houses, AVMs can be very valuable to help estimate market values. But appraisers will always be needed to verify valuations, especially in neighborhoods of unique one-of-a-kind homes.

Although computers have changed real estate appraisals, there is no substitute for the experience of a realty appraiser to interpret the recent sales prices of comparable nearby houses and condos, which determine the market value of a specific home. Equally important, an expert appraiser is needed to evaluate if the local home sales prices are rising, falling, or “normal.” So far, computers haven’t been able to replace this judgment test.

HOW TO GET AN ACCURATE APPRAISAL OF YOUR HOUSE OR CONDO. The Internet can be used to research approximate market values of houses and condos, based on recent sales prices of similar neighborhood homes within the last six months.

But that is just a starting point because each residence is unique. Market value depends on many variables. However, there are still a few basic rules to assure an accurate appraisal:

1.) GET THE HOME INTO TIP-TOP CONDITION. If you are buying a house or condo, the seller has presumably made the residence look its best. However, if you own the home and need an appraisal for mortgage refinancing or other purpose, aim to put the home into its best “model home” condition before the appraiser arrives.

Because appraisers often inspect three or more houses each day, and can’t possibly remember each home’s special features, it is best to hand the appraiser a list of the residence’s special features, especially those that add market value. Also, if you know of recent nearby home sales prices, be sure to hand that information to the appraiser.

A Realtor friend of mine, who never has problems getting an appraisal to match the home’s sales price, tells me, “I practically do the entire appraisal to be sure the house appraises for the sales price.”

2.) ALWAYS ACCOMPANY THE APPRAISER. Either the real estate agent or the homeowner should always accompany the appraiser to facilitate the inspection and answer the appraiser’s questions. Be sure to point out the home’s special features and benefits that the appraiser might miss during the inspection.

3.) INSIST THE LENDER WILL PROMPTLY PROVIDE THE BORROWER WITH A COPY OF THE APPRAISAL. Technically, the appraisal belongs to the mortgage lender who hired the appraiser, even when the homeowner or home buyer is paying for the appraisal.

Borrowers should insist their lender agrees to promptly provide the borrower with a copy of the appraisal. If the appraisal comes in low, the home buyer, realty agent, and homeowner should have immediate access to that appraisal to correct any errors.

For example, when I refinanced my home last year with Wells Fargo Mortgage, I was very impressed when the lender sent me an overnight FedEx copy of the appraisal.

If the appraisal comes in low, and you see the appraiser made an error evaluating your house or condo, don’t hesitate to promptly request a correction or a “review appraisal” by another appraiser (to be paid for by the lender).

CONCLUSION: Although appraisal is still very much an art, rather than an exact science, computers continue to help make residence value estimates more accurate. However, licensed appraisers will always be needed to verify the facts and use them to arrive at expert valuations. More details are in my new special report, “How to Get the Best Appraisal of Your House or Condo,” 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

One of the all-time great spring and summer projects is building a fence. Fences define your space, accent your home, and can do wonders to dress up the exterior of your property. They are also relatively easy, offer a wide range of design opportunities, and provide lots of personal satisfaction at the end of the weekend.

If a new fence might be on your list of projects this year, there are a few preliminary considerations to research prior to buying any lumber:

• If the fence will be on the dividing line between two properties, do you know exactly where the property lines are? Research city or county property records, talk with your neighbors, and even hire a surveyor if necessary.

• Are there any restrictions you need to know about? Some municipalities and homeowner’s associations have rules about heights, design, materials, and other aspects of fence building, so check with all the local authorities first.

• Have you talked to your neighbors? There’s an old adage that “good fences make good neighbors,” so discuss your design ideas and intentions with adjacent property owners prior to getting started.

DESIGN IDEAS ABOUND

There are literally hundreds of ways to design and construct a fence, so once you have the preliminaries out of the way, the fun can really begin. With so many possibilities out there, you might want to take the time to drive around different neighborhoods and get ideas, visit your local lumber yard or home center, and maybe grab a fencing book or two at your local library or book store. Here are a few suggestions:

• Split rail: Split-rail fencing is easy to build and looks great even as it weathers. In the traditional, “Abe Lincoln” style, 8-foot long rails simply stack on top of one another, with the rows of rails laid out in slightly alternating angles to give the fence stability. A more updated version uses short, predrilled posts set in the ground, with the rails then slipped into the holes. Split-rail fences are especially well suited for low, decorative fences up to about 3 feet in height.

• Open rail: Open-rail fencing is another easy and attractive fence. Use 4×4 square or 4-inch round pressure-treated posts set in the ground, and then construct the fence using 2×6 lumber nailed horizontally to the face of the posts, with approximately 6 to 10 inches of space between the rails. Open-rail fencing makes a nice decorative low fence, or can be built up to about 5 feet high for horses and other animals. For dogs and other smaller animals, you can add a wire mesh over the rails.

  Open-rail fences look really great painted white, but they require periodic maintenance. You might also consider using brown pressure-treated 2×6 rails, which cost a little more initially but are more attractive and weather much better then standard fir lumber. Another alternative is white or colored vinyl fencing, which has the same open-rail look with virtually no maintenance.

• Picket Fences: Picket fences offer some wonderful design and decoration possibilities for creating a low fence. Traditionally, narrow boards–called pickets–with pointed, angled, or other decorative tops or cutouts, are installed vertically over horizontal rails. The boards have a space between them that is equal to approximately one-half to one full-board width, and the fence is typically painted white. There are lots of pre-cut wood and vinyl pickets available, or you can make your own out of any suitable lumber.

• Solid Fences: This is the traditional “backyard fence,” typically 5 feet in height and with solid fencing to provide privacy. Ideas abound for this type of fence, but the basic design includes round metal or 4×4 pressure-treated wood posts set in concrete approximately 6 to 8 feet apart, horizontal rails of cedar or pressure-treated 2×4 or 2×6 lumber, and vertical or diagonal cedar or treated lumber fence boards. Many lumberyards carry pre-built fence sections, which include the rails and fence boards and are simply attached to posts set in the ground.

• “Good-Neighbor” Fences: A variation of the solid fence, “good neighbor” fences are designed to be equally attractive from both sides–an especially important consideration if you’re sharing the cost of the fence with a neighboring property owner. With the traditional style of solid fence board attached to rails, you can simply alternate the fence boards so that one section faces your property, and the next section faces your neighbor’s, etc. Another variation utilizes posts and rails that have a slot running down the center. The fence boards fit into the slots, locking them firmly in place and centering them between the posts so that the fence looks the same on both sides. Fences of this type, with the slotted 2×4 rail, can have a tendency to sag between the posts, so a short post extending down vertically from the center of each rail will do wonders to keep the fence sturdy and attractive over time.

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

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Copyright 2006 Inman News

Last August, the FBI raided San Francisco’s Department of Building Inspection and arrested an official for allegedly taking bribes from a contractor. It was yet another embarrassment for an organization that, rightly or wrongly, has long suffered from a reputation for favoritism and improprieties. At the time of the arrest, the department had been under FBI investigation for five years.

This event got me to thinking about the nature of corruption in building and planning departments, regardless of where it occurs. It would be easy to blame a few bad apples for this not-uncommon problem, but in fact, the process may deserve as much blame as the personnel.

Bribery is, of course, one way of circumventing normal channels that don’t function adequately. In the days of the old U.S.S.R., for example, staple foods like chicken, beef and pork were often very scarce. Not surprisingly, corruption flourished under these conditions. While ordinary Russians routinely stood in line for hours for the chance to buy a few scraps of meat, people with money and influence could easily obtain fine wine, caviar, chocolate, or anything else they fancied.

Thankfully, in the United States, we don’t have to bribe the butcher to score a few pork chops–we can just pick up a package, pay for it, and leave. If only getting a building permit were so simple. Instead, it’s become one of the most exasperating processes in all of government. Despite the best efforts of officials in many cities, obtaining a permit often still takes more time than constructing the actual project.

Now, generally, we Americans are a very patient people. We don’t mind jumping through our fair share of hoops to get what we’re after. Yet there’s a point at which a process become so onerous and complex that even reasonable people try to circumvent it–not because they have criminal minds, but because each and every one of us has a limit of tolerance for unreasonable red tape. This isn’t necessarily a bad thing, either. After all, the American Revolution grew out of what normally law-abiding people saw as unfair taxation by the Crown. This kind of rebellion against unfairness is, if anything, a classic American trait.

The unfairness inherent in many big-city building permit processes is this: Thanks to a labyrinthine bureaucracy, homeowners with ordinary resources must struggle for permission to build simple and innocuous home additions, while big-league applicants who are savvy, well-connected, and able to afford elaborate lobbying measures (whether legal or otherwise) can typically prevail with projects of far greater impact on the public.

It’s evident that if the approval process weren’t so convoluted, fewer ordinary citizens would be tempted onto the dangerous path of foregoing permits altogether. Neither would well-connected applicants look for special treatment, nor would building officials be tempted to grant such favors in return for compensation.

If we’re still shocked–shocked!–to find bribery in some of our building departments, we shouldn’t be. When a process becomes as Byzantine as this one has, attempts to circumvent it are inevitable. And as we already know, people with means can always get their caviar, while the rest of us wait in line for scraps.

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Copyright 2006 Arrol Gellner

DEAR BOB: I read your recent item about property “stepped-up basis” with great interest, but I wish you had taken it further. Suppose an owner deeds you a house purchased for $100,000, which is now worth $300,000, and you live in it the rest of your life. Won’t you be paying taxes on $100,000 and be way ahead of the game? –Martin A.

DEAR MARTIN: You seem to be confusing apples with oranges. “Stepped-up basis” to market value refers only to the adjusted-cost basis for inherited property. In other words, the owner died and you inherited the property. Stepped-up basis is very important when the heir decides to sell the inherited property.

Purchase Bob Bruss reports online.

For example, if your basis for a property is $100,000, but it is worth $300,000 on the date of your death, your heir’s stepped-up basis is $300,000. When the heir sells that property, his taxable capital gain is only the amount exceeding $300,000.

This is a huge tax savings over a lifetime gift. Instead, if you give the same property to someone before you die, that person takes over your low $100,000 adjusted-cost basis in this example. If the donee then sells that property for $300,000, there is a $200,000 taxable capital gain.

Depending on local property tax assessment laws where the real estate is located, and the relationship of the person receiving the property, that person might be able to take over your current below-market property tax assessment. However, that has nothing to do with “stepped-up basis” for inherited property.

HOW TO TRANSFER YOUR HOME LISTING TO A BETTER AGENT

DEAR BOB: We are not happy with our listing agent, but we have a signed listing contract. How can we change agents or sell for sale by owner (FSBO)? –Leah M.

DEAR LEAH: I hope you didn’t sign a long-term listing beyond 90 days.

If you are unhappy with your listing agent, your best recourse is to contact the agent’s brokerage owner or manager. Explain the situation and ask that your listing be transferred to the firm’s top sales agent for your area to complete the listing term.

Transferring a listing means the original listing agent will get a referral commission when your home sells, typically 10 percent of the office’s gross commission. A listing transfer keeps everybody happy at that brokerage so the firm will actively promote your listing, especially your new listing agent.

In today’s slowing real estate home sales market, you definitely don’t want to risk become a FSBO. If you want to receive top dollar, don’t even consider selling FSBO because you need all the professional help you can get.

LIVING TRUST AVOIDS PROBATE COURT COSTS AND DELAYS

DEAR BOB: I have a living trust. After I die, what does the final beneficiary have to do, such as filing court papers? I have followed your column for many years and have done very well investing in real estate. –Gloria T.

DEAR GLORIA: Congratulations on your successful real estate investments.

When your revocable living trust “matures” after you pass on, your successor trustee (such as a surviving spouse, trusted friend or relative, or bank trust department) will distribute your living trust assets according to the terms of your living trust.

No probate court action is required. It is that simple. More details are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” 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

Question: I live with my boyfriend in a loft apartment where we have signed a two-year lease that is actually a sublease. The original tenant has a long-term lease with the landlord but moved when he bought a home eight months ago. The building is not secure, and the building management is not doing much to keep the building safe or in good repair. The area seems to be becoming more dangerous so we want to move out. How binding is our sublease? What rights do we have? Does the guy we are subletting from have any legal right to keep the deposit we gave him if we break the lease? Please let me know. I feel frustrated and stuck in a bad situation.

Property Manager Griswold replies:

Your sublease is just as binding as the master lease since, legally, there is no real difference in the duties of your “sub-landlord” (the master lease holder) from if you had a lease directly with the actual owner of the building. The only exception is if the actual lease and sublease documents contain different rental rates or clauses, but generally speaking, they should be the same for most of the basic terms. Just as if you had a lease with the actual owner of the property, the burden of proof would be on you if you were to break the sublease claiming the issues you present in your question. You should put your “sub-landlord” on notice of your concerns about the building and the area so that if it becomes worse, or if you need to move, you have at least put him on notice. Yes, your “sub-landlord” does have the right to keep your security deposit if you breach the lease, but also has to return or account for the security deposit as required by law.

Question: A coworker of mine said I could move into his apartment. My name was not on the lease but I was paying him rent. Three months later he told me he wanted me to move out and also said I owed him $150. Since I owed him the money I agreed to leave my belongings there until I paid him. Due to circumstances, it was close to four months before I could get him the money. I then found out he sold or gave away all my property. Is there anything I can legally do? I was not on the lease but friends and family knew I was living there.

Landlords’ attorney Smith replies:

I first note that you had a bona fide sub-tenancy in the premises, even though you were not a tenant of record with the landlord. Your possession of keys and payment of rent together with continuous occupancy established your right to co-possess the unit with your coworker roommate. Keep in mind that both of you could be in trouble with the landlord, since this sublease or roommate addition was without permission.

As to your personal property, it is difficult to predict with precision the legal outcome of this case–your agreement with the roommate is both verbal and vague. On the one hand, you acknowledge the $150 debt. There apparently exists some kind of agreement to hold your items as security for repayment. However, given the nature of this relationship, I do not believe the security agreement to be valid.

When you paid the balance due, you found out that he had sold or given away your property. He did not have the right to do this. Nothing in the verbal security agreement permitted him to suddenly dispose of all the items. He should have followed a specific procedure, giving you notice before giving them away. Since he has failed to do this, he is responsible to you. Your measure of damages would be the fair market value of the converted items. Further, he has illegally locked you out without due process.

As stated, your right to possession on the sublease may not be terminated without proper procedure. Since he’s tossed out your possessions, it’s too late to retrieve them and your only remedy will be a money damage claim against him for the value of the goods. In small claims court, you may sue for claims such as this. Once you obtain a judgment, you will have to collect it. Make sure you pick your roommates carefully in the future, and maintain your standing directly with the landlord as a tenant of record.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of “Property Management for Dummies” and co-author of “Real Estate Investing for Dummies,” and San Diego attorneys Steven R. Kellman, director of the Tenant’s Legal Center, and Ted Smith, principal in a firm representing landlords.”

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com.

Questions should be brief and cannot be answered individually.

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

Copyright 2006 Inman News

Q: I tried to sell a house for the appraised price and was unable to sell at that price. I understand that property will not sell when it is priced too high but the offers I received were $5,000 to $8,000 less than the appraisal.

I was under the impression that if I advertised the property for the appraised price, it would move quickly. I told one real estate agent when she made me an offer from a client that I was going to have the house appraised again and that I would provide the appraised price to the potential buyer so he could adjust his bid.

The agent didn’t go for that at all. Can you give me some suggestions as to what I did wrong? When I couldn’t sell the house, I finally rented it.

A: I think you made a few basic mistakes. First, the appraised value is not necessarily the same thing as the market value.

The appraised value of the home is what an appraiser thinks the home is worth based on the sales of other similar homes in the area. The market value is what someone will actually pay for the house.

 In your case, either because of the condition or location of the home, the market is telling you that your home isn’t worth what the appraiser thinks it should be worth–it’s worth $5,000 to $8,000 less.

Getting a new appraisal doesn’t change what someone will pay for the home. You’d be better off buying some cans of white paint and repainting the interior of the property. Then, you might get more money for it.

Renting the house is fine. Eventually, prices will rise in your neighborhood and you’ll get your price, but not today. And only you can decide if waiting for prices to rise in order to get the extra $5,000 to $8,000 is worthwhile.

Q: My father died late last year and left a piece of property to my two sisters and me. Ownership is to be divided equally. The property is a house on Lake Michigan on the eastern shore, about due east of Chicago.

Local real estate agents have told us the property is worth $1.2 to $1.5 million. We all live too far away to use or manage the property and have decided to sell. However, one sister insists on doing nothing this year and waiting until next spring to sell. She says she heard one should wait at least a year to sell inherited property and that it “feels right” to wait.

Can you give me some reasons why we should either wait or sell immediately? My own feeling is that the taxes for this property are going to be very high once my father’s “grandfathered” tax rate lapses.

A: First, I’d like to offer my condolences on the loss of your father.

Although I’m sure you and your sisters are missing your dad, I can’t think of any reason why you wouldn’t want to put your dad’s house on the market now–when vacation homes are selling like hotcakes. The carrying costs (taxes and maintenance) on a house that expensive could be costly, especially if none of you are near enough to use it regularly and make sure that small problems don’t turn into big issues.

I think the advice your sister is remembering refers to individuals who have experienced a huge trauma, like the death of a spouse or partner. In those cases, if the individual can afford to wait, it is a good idea to let a year go by while he or she adapts to the new circumstances of a new life.

In your case, you won’t gain anything by waiting a year to sell this property. You have inherited the property at the current market value (which may even be able to be adjusted to whatever price you sell it for this spring). That means you would pay no capital gains tax on your inheritance when you sell.

And after the expense of selling it (broker’s commission, transfer taxes, etc.), you would each pocket a significant amount of cash.

I think that you should sell now, especially since interest rates might rise significantly in the next year, which could dampen interest in an expensive vacation property. But it doesn’t really matter what I think.

You and your siblings need to talk this out so everyone is comfortable with the plan. If you’re having trouble agreeing, ask an estate attorney to mediate.

Contact Ilyce through her Web site, www.thinkglink.com.

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

Copyright 2006 Ilyce R. Glink

DEAR BOB: My wife and I are selling our first home. What is the average sales commission? I don’t want to overpay. Can we negotiate the broker’s fee? –Anthony W.

DEAR ANTHONY: Great questions. Before signing a listing to sell your home, please interview at least three successful agents who sell homes in your vicinity.

Purchase Bob Bruss reports online.

Each agent should give you a written comparative market analysis (CMA) showing recent sales prices and photos of comparable nearby homes, current asking prices of neighborhood homes (your competition), and asking prices of recently expired similar homes (usually overpriced).

Don’t be fooled by each agent’s estimate of your home’s market value, based on his or her CMA. Some agents estimate high. That is called “buying the listing.” Other agents estimate low, hoping you won’t interview other agents so they can make a quick, easy sale.

After interviewing three or more agents, suppose you learn 6 percent is the customary local sales commission. It is usually not smart to negotiate the listing commission downward at this point.

However, be sure the listing contract says the buyer’s agent will receive 50 percent of the gross commission. This is extremely important to get your home shown by buyer’s agents through the local multiple listing service (MLS).

The only time to negotiate reducing a sales commission is when an agent produces a purchase offer far below the listing agent’s recommended price. Then you can say, “This is a very disappointing offer. But if you cut your commission by 1 or 2 percent, we can probably accept.”

Also, never sign a listing longer than 90 days, just in case you select a lazy agent. If your listing agent does a great job, but the home is unsold when the listing expires, you can then extend the listing by 30 days.

CAN INVESTOR MOVE FROM HOUSE TO HOUSE TO AVOID SALES TAX?

DEAR BOB: My wife and I own our residence in which we would have a substantial profit upon sale. We are thinking of selling it, claiming the $500,000 tax exemption, and then moving into one of our two rental houses for two years before selling it, claiming the exemption again, and then moving on to our third house and again taking the tax exemption after another two years. Is this feasible? –Bill C.

DEAR BILL: Yes. It seems like you have done some creative tax planning to claim up to $1.5 million in total tax-free profits.

To qualify for the Internal Revenue Code 121 principle residence sale tax exemption up to $500,000 for a married couple filing a joint tax return (up to $250,000 for a single home seller), you and your wife must have owned and occupied your principal residence at least 24 of the 60 months before its sale.

After the first principal residence sale, you can use IRC 121 all over again by moving into the rental house, living there at least 24 months before its sale, and again claiming up to $500,000 principal residence sale tax-free profits. However, when you sell the former rental property, Uncle Sam will tax the amount of depreciation you deducted at the special 25 percent “recapture” tax rate. For full details, please consult your tax adviser.

SHOULD HOMEOWNERS PAY OFF $30,000 HOME LOAN AT 6.75 PERCENT INTEREST?

DEAR BOB: My husband and I have owned our townhome about 12 years. It has a mortgage around $30,000 at 6.75 percent interest. We have aggressively paid it down with extra principal payments each month. There is no prepayment penalty. We will soon receive a large amount of money and could pay off this loan. Would that be wise? My husband earns only about $70,000 per year and I don’t work. We have two elementary-age children. Should we pay off this mortgage? –Andrea D.

DEAR ANDREA: Unless you have other higher interest rate debts, such as credit cards, and if you will still have sufficient cash reserves, paying off your home mortgage can be very wise. The only reason not to do so would be if you would then be short of cash for an emergency or investment opportunity.

After you pay off your home mortgage, I highly recommend you obtain a home equity line of credit at your bank for at least 70 percent of your home’s market value. The interest rate should be the prime rate, or lower.

Your annual cost will be $50 to $75. But there is no interest cost unless you use the money. Personally, I have several equity lines of credit. It is a great feeling to be able to write a check if I have a sudden need for emergency cash.

The new Robert Bruss special report, “How to Get the Best Appraisal of Your House or Condominium,” 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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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.

Copyright 2006 Inman News

John S. Keck went to the home of his ex-girlfriend Karen Adams to demand she choose between him and her new boyfriend Andrew Slentz. Adams chose Slentz.

Keck left and returned 30 minutes later with a rifle. He shot at Adams several times from close range, wounding her. Then he chased Slentz and eventually shot him. Keck then killed himself.

Purchase Bob Bruss reports online.

Adams and Slentz sued Keck’s estate, along with Continental Insurance Co. with whom Keck had a homeowner’s insurance policy. Keck’s estate settled. Continental then sued for a declaratory judgment, asking the court to decide if the company is liable to Adams and Slentz under Keck’s homeowner’s insurance policy.

Continental submitted its policy, which says the insurer is not liable for intentional acts even if the insured person lacks the mental capacity to govern his or her conduct. The policy also says this exclusion applies whether the insured is charged with or convicted of a crime.

If you were the judge, would you order Continental Insurance Co. to pay damages to Adams and Slentz for their injuries?

The judge said no!

“Here, the evidence as to Keck’s actions was uncontroverted. There was no question of material fact as to whether Keck acted intentionally when he retrieved the rifle, returned to Adam’s home, and shot both Adams and Slentz at close range,” the judge explained.

“A claim that the shooting was somehow unintentional would be unsound,” he continued.

“The insurance policy’s plain language unambiguously precludes coverage for losses incurred through an insured’s intentional act, even if the insured lacks the mental capacity to govern his own conduct,” the judge emphasized.

Homeowner’s insurance policy clauses limiting liability to unintentional acts, irrespective of mental capacity, have long been enforceable, the judge ruled. Therefore, Continental Insurance Co. has no liability to Adams and Slentz for the intentional shootings by Keck, the judge concluded.

Based on the 2006 U.S. Court of Appeals decision in Continental Insurance Co. v. Adams, 438 Fed.3d 538.

(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

Q: I am restoring a 1917 Craftsman bungalow. It’s a basic house that was painted all white on the inside. Everything was painted white–all the Douglas fir moldings, baseboards, everything.

I have been stripping the paint for years. Fortunately, a lot of the built-up layers were painted over varnish, making removal a little less time-consuming, since the paint never became part of the wood.

But now I need to know how to remove the residual paint, the little specks here and there. I hate the idea of a chemical stripper.

The original wood under all that paint has sort of been preserved. Would you recommend a light sanding once the wood is revealed and then re-varnishing or shellacking? Or would you stain the Douglas fir? Painting is not an option after all that stripping.

A: Sometimes we receive a question that particularly jogs our memory banks. This question brings to mind the countless hours we both spent stripping multiple coats of paint off doors and trim in hopes of getting down to the natural wood.

Here’s to you for being willing to roll up your sleeves and get after it. You’ll be rewarded not only by the finished product but also by the satisfaction you get from doing it yourself.

Short of removing all the trim and taking it to the dip stripper, we’ve always found it difficult to remove all of the paint from doors or moldings. The toughest part is to clean the line where two pieces of wood join.

If you want to preserve the finish, we suggest you use a heat gun to soften the specks of paint and a dental pick to flick off the specks. Some of the varnish or shellac will bubble, but it can be sanded and recoated just fine. The job is tedious, but it sounds as if you’ve already done most of the work. Push on to the finish line.

We do not recommend trying to re-stain fir trim if the existing color is acceptable and uniform. The process is long, with at least a couple of extra steps involved, including bleach and lots of sanding. Bill went through this process at a Craftsman he owned in Alameda, Calif., with great results, thanks to hours and hours of help from our mother, Lois.

After stripping all the paint, the wood must be bleached and a sanding sealer applied for uniform penetration of the stain, then the stain and two coats of clear finish must be applied.

Rather than go through this, if the color is OK, sand and tack the wood, then apply two coats of clear finish in the sheen of your choice. Compatibility may be an issue, so start with a small test piece. The test strip will tell you if the finishes are compatible. Usually, it’s no problem. If the sample works, go for the rest of it.

And don’t forget, when it’s done, enjoy some time off–you’ve earned it.

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

Copyright 2006 Bill and Kevin Burnett

DEAR BOB: My husband and I own a three-unit apartment building. We live in one of the apartments. We’re planning to sell and buy a single-family house as our residence. What are the tax implications if we buy a house for more than what we sell the building for or if the new house costs less than the current building? –Jane D.

DEAR JANE: The purchase price of your personal residence house is irrelevant. You don’t need to buy another replacement principal residence to avoid capital gains tax.

Purchase Bob Bruss reports online.

You can use the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing a joint tax return) for the profit from the sale of your personal residence apartment.

To determine this amount, before the building sale closes, you should obtain a professional appraisal to allocate the sales price between the two rental apartments and your personal residence unit.

But the only way to avoid capital gain tax on the sale of the two rental apartments is to make an Internal Revenue Code 1031 tax-deferred exchange for another rental property of equal or greater cost and mortgage debt.

Thanks to Internal Revenue Procedure 2005-14 you can use both IRC 121 and IRC 1031 for the same sale, such as your residence-rental building. For details, please consult your tax adviser.

NO STEPPED-UP BASIS UNLESS THE PROPERTY IS INHERITED

DEAR BOB: My grandmother is 80. I have been paying her home utilities, insurance, and property taxes. But I have not been able to deduct these expenses because I am not on the title to her home. She wants to sign the house over to my wife and me. What is the easiest way for her to gift the house to us? Must a title company be involved? Will the stepped-up basis to market value apply in this situation? –Tim F.  

DEAR TIM: The easy way to transfer property title is a quitclaim deed. Yes, you should buy an owner’s title insurance policy to be certain you receive marketable title.

But the bad news is, as a gift donee, you must take over your grandmother’s presumably very low adjusted-cost basis.

The only way to obtain a stepped-up basis to market value is to inherit property. That means somebody has to die first.

A better approach might be for your grandmother to deed you a joint tenancy interest in the property so you can deduct the property taxes you pay for her. Please consult your tax adviser for full details.

HOW CAN HUSBAND GET WIFE TO ADD HIM TO HOME TITLE?

DEAR BOB: When we purchased our house, I signed a quitclaim deed relinquishing my interest in the house to my wife. Now I want my name and co-ownership of the house back on the title. What should I–or my wife–do to accomplish this? –Joseph N.

DEAR JOSEPH: Presuming you have been behaving well and are in good standing with your wife, she can sign a quitclaim deed giving you a 50 percent interest in the house.

However, that deed should state how you wish to hold title together. I recommend holding title in a revocable living trust to 1) avoid probate costs and delays when one of you dies, and 2) provide management if one of you becomes incapacitated. Please consult a local real estate attorney for details on the best way to hold joint title.

More details are in my special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” 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