Real Estate in Steamboat

DEAR BOB: My wife and I want to buy our first home, as she is expecting in about six months. However, the area where we want to buy is in a “buyer’s market” with lots of homes for sale. We notice many “price reduced” hangers on the for-sale signs, so we are in no hurry to buy. The block where we almost bought a house last weekend has three houses listed for sale out of 20 houses on the block. How can we avoid paying too much? –Ned W.

DEAR NED: Before you make a written purchase offer, ask your buyer’s agent to prepare a written comparative market analysis, or CMA. This is the same form that listing agents prepare for their sellers at the time a home is listed for sale.

Purchase Bob Bruss reports online.

A CMA shows recent sales (not asking) prices of nearby comparable homes, current asking prices of similar neighborhood homes, and the asking prices of recently expired comparable listings.

Then you and your buyer’s agent can make value adjustments for the pros and cons of each house, compared to the house you want to buy, so you can arrive at an intelligent purchase offer price.

In a buyer’s market, it is better to make a purchase offer on the low side than to offer too much. You can always come up in your offer price, but you can never come down.

Be sure your purchase offer contains contingency clauses for (a) a satisfactory lender’s appraisal of the house and (b) your approval of a professional home inspector’s report.

After the seller accepts your purchase offer, be certain you accompany your inspector to discuss any home defects he discovers, which could result in a price renegotiation.

DOES HOME BUYER HAVE RECOURSE FOR NON-PERMIT WORK?

DEAR BOB: We recently bought our first home. In the process of remodeling, we discovered the seller took out several building permits but never obtained final permit inspections. Shouldn’t the seller have disclosed this to us? If we have to tear out some of his unpermitted work to get the building inspector’s approval, do we have any recourse against the seller? –Stephanie T.

DEAR STEPHANIE: As part of the home-sale disclosure procedure, sellers are required to disclose any work they know of that was done without required building permits. This includes work for which a final inspection was not obtained.

If you incur extensive costs to obtain building inspection approval for the non-permit work that was undisclosed, you might want to take your seller to court. Please consult a local real estate attorney for details.

OWNER’S TITLE INSURANCE ALSO PROTECTS HEIRS

DEAR BOB: About a year ago, I inherited my mother’s house, which I now rent to tenants. A neighbor is claiming a driveway easement over part of the rear of the large lot. As far as I can determine, the lot doesn’t have any easements except for public utilities such as power, water and sewer. The neighbor says she used this easement for many years while my mother was alive. This is news to me. Do I have any recourse to stop the neighbor’s use of that driveway? –Nathan R.

DEAR NATHAN: If your mother obtained an owner’s title insurance policy at the time of her purchase, that owner’s title policy also insures you as the heir. Check with the title insurer to see if there was any evidence of a driveway easement in either your mother’s deed or the deed of the adjoining property.

If use of the driveway easement was with your late mother’s permission, then the neighbor has no legal right to continue using it if you revoke that permissive use. However, if use of the driveway easement was nonpermissive but “open, notorious, hostile and continuous” for the number of years required by state law, then the neighbor might have established a prescriptive easement. For details, please consult a local real estate attorney.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” 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

Question: I just moved out of an apartment that I rented for about 6 1/2 years. I had painted the apartment a terracotta color after asking the onsite manager for permission in advance. We never discussed the actual color that I would be painting, but he indicated that it was OK because the apartment would have to be painted when I moved anyway. I think the apartment looks much better in this color than the dull boring colors used by the landlord. Now I have moved out and I received my security deposit disposition statement with a deduction for $350 for repainting because I had painted the unit “dark orange.” They claim the total cost to repaint was $950, as two coats were required. I feel that being charged more than one-third of the cost of painting to be exorbitant. If he had told me that the cost would be so high I would have painted over the color myself. Is there any advice that you can give me or should I just pay the additional amount and learn a lesson?

Property manager Griswold replies:

Most owners and property managers of rental properties typically prefer to use neutral colors when painting in order to appeal to the majority of prospective tenants. And many tenants want to personalize their rental property, as it is their home. So if you indeed did paint the apartment any other color than a neutral color, it is not surprising that you would be charged. While you did live there a long time, the fact is that you did paint the apartment in a dark color and thus it is not unusual that it would take at least two coats to bring the color back to the preferred shade of bland. Therefore, the charge of $350 does not seem unreasonable, as that would generally be the extra cost incurred for the second coat of paint required to cover up the dark color you chose. Since the landlord paid for the $600 of the repainting cost, it seems that you were not really charged for the cost of painting the apartment. If you had used a light color that could be covered in one coat, then the total repainting cost would likely have been no more than the $600 paid by the landlord. I would suggest that you ask for a copy of the actual invoice to verify that the work was done and at the price quoted of $950, but otherwise, it seems like you were treated fairly. In the future, you might want to have the specific paint color approved in writing and agree to the specific repainting scope of work or charges in advance to avoid any surprises.

Question: I had a month left on my lease when I decided to move into another apartment. I told the landlord I was leaving and asked her to try to let out my old apartment. She put one ad on an online Web site advertising the place at more than what I paid, which was market rate. There were no for-rent signs on the building or anything else, just one ad. The place did not rent. Three days before the month was up, the landlord put up another ad advertising the apartment at the same rent I paid. The place rented in just two days. Am I responsible for that last month’s rent?

Tenants’ attorney Kellman replies:

When you moved out leaving one month left unpaid, you, in effect, abandoned the premises in violation of the lease. Your decision to move appears to be based on personal reasons and not due to any misconduct of the landlord or defects in the premises rendering it uninhabitable. Therefore, the landlord may hold you responsible for that last month’s rent unless she re-rents the apartment out during that month. The law requires her to make a reasonable effort to attract a replacement tenant. Failing to properly advertise the unit or taking action that causes a difficulty in re-renting the unit (i.e. by charging a higher rent) may prevent her from claiming any rent from you at all. Some landlords use lease-break situations to test the market by looking for a higher-paying tenant while holding you responsible for the time they spend doing this. The law does not favor such conduct because your lease did not promise anything but the contract rent. Here the landlord took action against the lease by trying for that higher rent. Therefore, she will probably have a tough time holding you responsible for any lost rent in that last month since when she advertised the apartment at the contract rate, it rented out right away.

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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Copyright 2006 Inman News

DEAR BOB: My mother-in-law was recently widowed at age 60. She is considering a move from her primary residence. She will owe capital gain tax on the sale and wishes to eliminate such tax. Could she move out of the home, rent it for a brief while, and then do an Internal Revenue Code 1031 tax-deferred exchange without incurring tax on the eventual sale? We are familiar with the Internal Revenue Code 121 use test for 24 of the 60 months before the sale, but how long must a home be rented before it qualifies for an IRC 1031 tax-deferred exchange? –Joe C.

DEAR JOE: Your mother-in-law should consult her tax adviser to determine her adjusted cost basis for her home. Depending on the state where the house is located, if her late husband held a full or partial title to the house, by inheritance she probably received a 50 percent or 100 percent new stepped-up basis to market value on the date of his death.

Purchase Bob Bruss reports online.

The result could be she has little or no taxable capital gain if she decides to sell her primary home. Any capital gain can probably be avoided by the IRC 121 principal-residence-sale tax exemption up to $250,000 if she meets the last-24-out-of-60-month occupancy test before the sale.

It may not be necessary to rent the house to tenants and do an IRC 1031 tax-deferred exchange for another rental property of equal or greater cost and equity (unless that’s what she really wants to do of course). IRC 1031 has no minimum rental time, but most tax advisers suggest at least six to 12 months before exchanging.

QUITCLAIM DEED MIGHT BE VALID OR WORTHLESS

DEAR BOB: A probate attorney recently notified me that I inherited a vacant lot in a small town in Illinois. It seems my late uncle, who was very “strange,” had given the attorney a quitclaim deed with my name on it to be delivered only after my uncle’s death. The attorney warned me there are about $3,600 of unpaid property taxes on the lot, but other than that it is free and clear. I seem to recall you said something about deeds delivered after the owner’s death might be worthless. I’m thinking the lot must be worth more than the $3,600 property taxes I would have to pay. What should I do? –Betty W.

DEAR BETTY: That quitclaim deed might be perfectly valid. Or it could be worthless if there are other claims against that lot’s title or against your late uncle’s estate.

The general rule is a deed delivered after the grantor’s death is not valid. However, there is an exception if the deed was delivered to a trustee, such as that probate attorney, during the grantor’s lifetime.

You don’t have to accept the title and can renounce it if you don’t want the lot, subject to its unpaid property taxes and possible other liens.

I suggest you contact a title attorney or title company in the small town to see if the lot’s title is marketable and if you can obtain an owner’s title policy. If the quitclaim deed is valid, then you can decide if you want to accept or reject that lot.

NO $250,000 HOME-SALE TAX BREAK IF YOU ARE NOT ON THE TITLE

DEAR BOB: My daughter is selling her second home, which my primary residence. She has never lived in the house. Its sale will net her about $120,000. Can she buy another house of lesser value with the profits to give to me as a gift and pay tax on the remainder of her profit? She has never taken depreciation deductions on this house because she always reported the mortgage interest and property tax deduction on schedule A of her income taxes –Sandra P.

DEAR SANDRA: Your daughter should consult her personal tax adviser. From your description, since the house was not her primary residence, she will owe capital gain tax on the entire $120,000 profit. If she wants to give you a gift of part of that money, that will have no effect on her tax situation, as she still owes tax on her entire capital gain.

Since your name is not on the title, you are not entitled to a $250,000 principal-residence sale-tax exemption either.

If you were paying rent to your daughter and if she failed to report it on Schedule E of her tax returns, she may have a big tax problem for unreported rental income and for her failure to deduct depreciation on the rental house. The depreciation she should have claimed may be subject to the special 25 percent federal depreciation “recapture” tax rate.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” 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

Peggy Lampert was a customer of the One-Half Off Card Shop at the Minges Creek Shopping Center. After she left the card shop, as she was walking to her car in the parking lot, she slipped and fell, causing serious personal injuries and damages.

She sued the shopping center owner and the card shop. The state trial court dismissed the card shop from liability because the card shop did not legally have control over the sidewalk or parking area where Lampert’s injury occurred. Chubb Insurance Co., as insurer for the shopping center owner, then settled the lawsuit for $210,000.

Purchase Bob Bruss reports online.

The shopping center owner, on behalf of Chubb, then sued the card shop’s insurer, Royal Insurance Co. Minges Creek argued that because the card shop was required by its store lease to name Minges Creek as an additional insured under its policy, that policy should pay Lampert’s $210,000 damages because she had just left that store.

But the card shop’s insurer argued its policy insured only injuries that occur inside the store, and the card shop had no control over the sidewalk and parking lot common areas, which were shared with patrons of other stores in the shopping center.

If you were the judge would you rule the card shop insurer should be liable for Lampert’s injuries since she had just left the card shop whose insurance policy named the shopping center as an additional insured?

The judge said no!

The lease between the card shop and the shopping center owner required the card shop’s insurer to name the shopping center as an additional insured under the policy, the judge began. Such a procedure is normal in commercial leases, he noted, in case an accident occurs within the store premises.

However, this accident occurred outside the card shop, the judge explained, and the card shop had no control over the sidewalk and parking lot common areas. The card shop had a duty under its lease to maintain insurance only inside its store premises and not outside that space, he noted.

An absurd result would occur if each of the store insurers were to be held liable for injuries occurring outside the stores in the common areas, the judge emphasized. This result would be unreasonable since the shopping center owner has its own insurance policy for the common areas, he continued.

The card shop insurer, Royal Insurance Co., had no duty to defend against Lampert’s claims, as the trial court determined, the judge ruled. The only reasonable result is that Chubb Insurance Co. was the proper insurance company to defend the case and the card shop’s insurer has no liability, the judge concluded.

Based on the 2006 U.S. Court of Appeals decision in Minges Creek LLC v. Royal Insurance Co. of America, 442 Fed.3d 953.

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

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Copyright 2006 Inman News

Q:I just purchased a home and have noticed that I have a major problem under the house. Water is pooling up and making it a muddy mess. There are even mushrooms growing there.

My first inclination would be to install a French drain, but I want to talk with an engineer before I do that. Do you have any recommendations for plumbing engineers, someone who can tell me how they would install a drainage system?

A: Installing a French drain is a lot of work and a lot of expense, especially if you hire someone to do the work.

A French drain requires digging a trench around the house, lining the trench with plastic, placing perforated drainpipe in the trench and backfilling the whole shebang. Imagine digging a 3-foot-deep trench around the entire perimeter of even an average home. That’s a lot of dirt to move.

There may be less drastic alternatives that will produce a satisfactory result.

Your instinct to seek professional advice is right. Spending a few dollars to get an expert opinion is often money well spent and will save money and trouble in the long run.

We must confess, we’ve never heard of a “plumbing engineer.” This brings back memories of Art Carney on the old “Honeymooners” TV series. Carney’s character, Ed Norton, worked in the New York City sewers as a “sanitation engineer.” Funny thing is that these days waste disposal workers are closer to engineers than were their counterparts of the ’50s.

There are several types of professionals you could call for help. At the top of the heap would be a soils engineer. This person should be able to analyze the composition of your soil and determine why water does not percolate through it and instead ends up under the house.

Next might be a landscape architect. These professionals are experts not only in horticulture but also in soils. He or she may well be able to suggest ways for you to redirect ground water so that it doesn’t end up under the house. Oftentimes, landscape architects double as landscape contractors.

A structural and pest control expert may also be able to help. This may sound strange, but a large percentage of the infestations they see are attributable to water. Your mushroom garden in the crawl space indicates that you certainly have water.

We’d go with the soils engineer for the consultation. He or she may not be equipped to do the work but will be able to give you a number of ways to solve the problem.

An alternative we’d try before seeking a consultation is installing some solid PVC drainpipes around the house to discharge water that collects in your gutters and runs down your drainpipes away from the house. Connect the downspouts into the pipe so that the rainwater discharges well away from the foundation. This may be enough to dry out your crawl space.

First, lay the pipe on top of the soil to see if this is the solution. If it works, bury the pipe about 6 inches in the ground, making sure that it falls about 1/4 inch for each 10 feet of run. Run it so that the water discharges into a dry well or onto the lawn. A dry well is a gravel-lined hole that accepts water discharged from the pipes and eventually percolates into the soil.

Be sure to place the dry well downgrade from the house. This could solve the problem and save you the cost of a consultation fee and a good deal of the work, time and money to install a French drain.

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Copyright 2006 Bill and Kevin Burnett

You’ve found a place in the sun, but you can’t use it all the time. If you were going to rent it out — perhaps to offset maintenance and mortgage costs — what would be the best thing you could do for the place?

“Add a hot tub,” said Bill May, whose Sunspots Inns, Resorts & Rentals owns and maintains more than 100 resort and rental properties in Hawaii and the mainland.

“It’s a four-season amenity and something people really like to have available even though they might not use it. It would probably pay for itself three times over in less than a year.”

Vacation- and investment-home sales continue to rise. Consumers are not only looking to get a foot in the door to a reliable investment, but they are also seeking ways to get a leg up on resort-home competitors.

“What people want and will remember is that the home is pristinely clean,” said Penny Taylor, May’s wife and business partner. “Renters remember crisp linens and sparkling floors and are after a spot where all they need to bring is clothes and food.”

The hot-tub addition has been a favorite since the couple bought a ski condominium a few years ago. May rented out his condo, which has a hot tub, and he was asked to rent an identical condo owned by his neighbor. The neighbor’s unit had the same floor plan, exposure and appointments — except for the hot tub.

“The figures showed the unit with the hot tub earned $14,000 more a year in rent than the condo without the hot tub,” May said. “When I showed the figures to the neighbor, he had a hot tub installed for about $4,000, and he then made close to $14,000 in additional rental income because of it.”

The Mays said hot-tub maintenance horror stories are overestimated and that high-quality tubs with basic features (“heat on, heat off — jets on, jets off”) work best. A maintenance contract from a reliable supplier ensures proper attention for both renters and owners.

The Mays got into the resort rental game about six years ago when they bought a home on a mountain lake and another in Poipu on the Hawaiian Island of Kauai, which became popular with visitors who wanted to return as renters. However, trying to offset the monthly mortgage payment by renting has become more difficult with rising home prices and skittish interest rates.

“We do think owning a second home is a wonderful prospect,” May said. “And we now hope owners approach it from the tried-and-true aspect of first having a home for their families and profiting second. That’s a sane and reasonable philosophy. No one expects values to double and triple again in three to five years — but who knows.”

According to a new second-home study released by the National Association of Realtors in May, 75 percent of vacation-home owners purchased for personal use (although one-third of those also wanted to diversify investments) and 18 percent intended that the home would become a primary residence in retirement.

Only 13 percent of vacation owners listed rental income as a reason to buy. The typical owner spends 39 nights per year at their property, and three-quarters do not rent out, the survey revealed. Of those who do rent their vacation home, the median number is 12 nights per year.

An unexpectedly high number of vacation-home owners — 21 percent — own two or more vacation homes, according to NAR. In addition, 34 percent of vacation-home owners report they own two or more investment properties.

The survey also revealed that two-thirds of vacation-home buyers wanted to be close to an ocean, river or lake; 39 percent wanted to be close to recreational or sporting activities; 38 percent wanted to be close to vacation or resort areas; and 31 percent wanted to be close to mountains or other natural attractions.

Results indicated that the median size of a vacation home is 1,480 square feet and that 29 percent were new when purchased. Owners estimated the current value to be a median of $300,000; 68 percent said the value of that property was lower than their primary residence. Sixty-five percent of owners said their vacation property was a better investment than stocks.

Now, it’s time to consider investing in a hot tub.

Tom Kelly’s new book, “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border,” was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com. Tom can be reached at news@tomkelly.com.

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Copyright 2006 Tom Kelly

DEAR BOB: We are considering listing our 48-unit apartment building for sale. So far, we have spoken with two Realtors. We would like to know what sales commission to expect to pay on a $3 million sale. The standard rate for houses in our area is 6 percent commission. One of the Realtors wants a flat commission. The other has some sort of pyramid-style system involving starting out at 10 percent and going down to 3 percent after a certain amount, all combined together. What guidance can you give? –Ellen A.

DEAR ELLEN: You need an apartment sales specialist who only sells commercial and apartment buildings. Stay away from sales agents who specialize in single-family sales.

Purchase Bob Bruss reports online.

Real estate sales commissions are negotiable, especially on $3 million income property sales. According to Real Trends, the average home-sale commission is now 5.1 percent so your commission should be less than that.

Interview at least three or four apartment and commercial property sales specialists who sell apartments in your vicinity. Listen to each agent’s listing presentation, including his/her quoted sales commission rates.

Let each agent “sell” himself or herself to you, not necessarily based on the sales commission rate alone. Check out their references of recent sellers of large properties like yours before selecting the best agent for your situation.

INFORMATION ON STUDENT HOUSING

DEAR BOB: My son is going away to college. We want to buy a two-bedroom condo for him so he can rent out the second bedroom. Do you know of a book or articles about this type of rental? The plan is to sell the condo after he finishes college. Would we get the $250,000 tax exemption just like selling a primary residence? –Edna D.

DEAR EDNA: If your son’s name is on the title, after ownership and occupancy of his primary residence for at least 24 of the 60 months before the condo’s sale, he would be entitled to the Internal Revenue Code 121 exemption up to $250,000. However, you won’t qualify because the condo won’t be your principal residence.

Although I have not yet read it, there is a new book, “Profit by Investing in Student Housing: Cash in on the Campus Housing Shortage,” by Michael H. Zaransky, which should answer your questions. It is available in stock or by special order at local bookstores, public libraries and amazon.com.

IS DEPRECIATION RECAPTURE TAX 25 PERCENT OR 40 PERCENT?

DEAR BOB: I always read your excellent articles. But I think you made a mistake a few weeks ago. You said a seller of a depreciable building, such as an apartment building, must pay a 15 percent federal capital gain tax, but there is a 25 percent “depreciation recapture tax.” That means the seller is actually paying 40 percent on the depreciation that has been deducted so the investor is taxed twice. Or am I missing something? –Patricia H.

DEAR PATRICIA: There’s only one tax on depreciation recapture. Suppose you have deducted $40,000 of depreciation on your apartment building before selling it. Also, suppose your total capital gain on that sale is $100,000.

Of that $100,000 total capital gain, you will have $40,000 “recaptured,” which means taxed at the special 25 percent federal depreciation recapture tax rate. The other $60,000 will be taxed at the maximum 15 percent federal capital gains tax rate. In addition, there may be state capital gains taxes also payable. For more details, please consult your tax adviser.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” is 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
The Fifth Edition of “The Complete Idiot’s Guide to Buying and Selling a Home” by Shelley O’Hara and Nancy D. Lewis is just as disappointing as the previous editions. Although the book’s coverage of important home buying and selling topics is very complete, the low real estate experience level of the co-authors becomes painfully obvious as the book drones on.

This is a “formula book” where the writers show little creativity and virtually no personal examples to illustrate the hundreds of topics discussed. After having five editions to correct their omissions and errors, knowledgeable readers will be disappointed with the continuing gaps in essential information home buyers and sellers need to know.

Purchase Bob Bruss reports online.

Many of the statements are confusing or misleading. For example, when discussing home location choices, the authors suggest looking for signs of a “growth spurt” where the resale value of a home is likely to go up.

Then they say: “Finally, older homes often have a better resale value than new builds. That’s because if someone has a choice of a home that’s recently new or building a brand-new home, they are likely to choose the brand-new home.” What the heck does that mean?

The home finance section seems about five years behind the times. It explains the basics of fixed-rate and adjustable-rate mortgages. But it totally fails to even mention the newest types of home loans, such as the so-called “option mortgages” where borrowers have the choice of paying fully amortized payments, interest only, or even below-interest-only monthly payments.

O’Hara and Lewis barely mention FICO (Fair Isaac Corp.) credit scores and why FICO scores are so important to mortgage lenders. The authors don’t even share how readers can check their three credit reports and FICO score before applying for a mortgage. Incidentally, the place to go is www.myfico.com.

The lack of real-world experience of the authors becomes crystal clear in the section about making a purchase offer to buy a home and handling counteroffers. There is virtually no information about negotiation strategies that can be critical to reaching a home-sale contract formation.

Although I gave up keeping track of all the misleading statements and errors, in the chapter about insurance I couldn’t ignore this totally untrue statement: “Many homeowners who live in the San Francisco Bay Area are unable to obtain earthquake insurance, for instance, and some are unable to obtain fire insurance (after the massive losses insurers took during the Oakland Hills fire in 1991). In this case, ask your agent for recommendations on how to insure your property.”

In the same chapter, but on the topic of title insurance, the authors say: “Another type of insurance that is required on all homes is title insurance. This type of insurance is purchased just before the closing and ensures clear and trouble-free ownership.” Not true. Thousands of homes change ownership without title insurance, especially when there is no mortgage and the buyer pays all cash. O’Hara and Lewis also fail to distinguish between mortgage lender’s title insurance and owner’s title insurance policies.

The last 25 percent of the book is about selling your home. These chapters are very superficial, probably an after-thought to make a few more book sales. The topic of home selling is worthy of an entire book because the vital seller subjects are much different than those that are critical to home buyers. Melding home-seller and home-buyer conflicting interests in one book, and doing a good job, is virtually impossible.

Especially weak in the home-sales section is the explanation of how primary-residence sellers can avoid tax on up to $250,000 of capital gains (up to $500,000 for a qualified married couple filing joint tax returns), showing the authors know little or nothing about the tax aspects of home sales.

Chapter topics include “How Much House Can You Afford?” “Buying a Home with an Agent”; “Selecting a Mortgage Lender”; “Deciding Where You Want to Live”; “Defining Your Dream Home”; “Financing 101″; “Applying for a Mortgage”; “Making an Offer on a Home”; “Having the Home Inspected”; “Deciding to Sell Your Home”; “Selling Your Home Yourself”; “Getting the Home Ready for Sale”; “Pricing and Marketing the Home”; and “Dealing with Purchase Offers.”

This should have been a great book for home buyers. Instead, it is incomplete, filled with misleading statements and errors that cast doubt on the balance of the book. The lack of practical real estate experience by the authors is obvious. On my scale of one to 10, this disappointing book rates only a five.

“The Complete Idiot’s Guide to Buying and Selling a Home, Fifth Edition,” By Shelley O’Hara and Nancy D. Lewis (Alpha-Penguin Group, New York), 2006, $19.95; 388 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: We are considering listing our 48-unit apartment building for sale. So far, we have spoken with two Realtors. We would like to know what sales commission to expect to pay on a $3 million sale. The standard rate for houses in our area is 6 percent commission. One of the Realtors wants a flat commission. The other has some sort of pyramid-style system involving starting out at 10 percent and going down to 3 percent after a certain amount, all combined together. What guidance can you give? –Ellen A.

DEAR ELLEN: You need an apartment sales specialist who only sells commercial and apartment buildings. Stay away from sales agents who specialize in single-family sales.

Purchase Bob Bruss reports online.

Real estate sales commissions are negotiable, especially on $3 million income property sales. According to Real Trends, the average home-sale commission is now 5.1 percent so your commission should be less than that.

Interview at least three or four apartment and commercial property sales specialists who sell apartments in your vicinity. Listen to each agent’s listing presentation, including his/her quoted sales commission rates.

Let each agent “sell” himself or herself to you, not necessarily based on the sales commission rate alone. Check out their references of recent sellers of large properties like yours before selecting the best agent for your situation.

INFORMATION ON STUDENT HOUSING

DEAR BOB: My son is going away to college. We want to buy a two-bedroom condo for him so he can rent out the second bedroom. Do you know of a book or articles about this type of rental? The plan is to sell the condo after he finishes college. Would we get the $250,000 tax exemption just like selling a primary residence? –Edna D.

DEAR EDNA: If your son’s name is on the title, after ownership and occupancy of his primary residence for at least 24 of the 60 months before the condo’s sale, he would be entitled to the Internal Revenue Code 121 exemption up to $250,000. However, you won’t qualify because the condo won’t be your principal residence.

Although I have not yet read it, there is a new book, “Profit by Investing in Student Housing: Cash in on the Campus Housing Shortage,” by Michael H. Zaransky, which should answer your questions. It is available in stock or by special order at local bookstores, public libraries and amazon.com.

IS DEPRECIATION RECAPTURE TAX 25 PERCENT OR 40 PERCENT?

DEAR BOB: I always read your excellent articles. But I think you made a mistake a few weeks ago. You said a seller of a depreciable building, such as an apartment building, must pay a 15 percent federal capital gain tax, but there is a 25 percent “depreciation recapture tax.” That means the seller is actually paying 40 percent on the depreciation that has been deducted so the investor is taxed twice. Or am I missing something? –Patricia H.

DEAR PATRICIA: There’s only one tax on depreciation recapture. Suppose you have deducted $40,000 of depreciation on your apartment building before selling it. Also, suppose your total capital gain on that sale is $100,000.

Of that $100,000 total capital gain, you will have $40,000 “recaptured,” which means taxed at the special 25 percent federal depreciation recapture tax rate. The other $60,000 will be taxed at the maximum 15 percent federal capital gains tax rate. In addition, there may be state capital gains taxes also payable. For more details, please consult your tax adviser.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” is 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 Barry,

A home inspector recently pointed out that the trees near my home are lifting one side of the house. A tree trimming company recommends removing them completely, but that would be a terrible loss. They are many years old and I’ve come to regard them almost as friends. Is there anyway to save these wonderful trees, or is it necessary to sacrifice them? –Vivian

Dear Vivian,

Property owners often resort to tree removal when less drastic measures would suffice. When root systems cause structural damage, the entire tree is mistakenly viewed as the offending party. But this warrants reconsideration since it is the roots that are damaging the property.

Most trees have root systems that are approximately equal in mass to aboveground portions of the plant. Just as it is possible to prune branches without injuring the tree, it is also possible to cut selected roots without adversely affecting the organism. With most species, the remaining roots are sufficient to supply necessary nutrients. Therefore, the way to curtail further root damage to your home, without killing your trees, is as follows: Dig a trench between the trees and building, exposing the offending roots. All roots that grow toward the building should then be severed. Be sure to remove a short section from each to prevent them from grafting. Root ends that have been separated from the tree will die, while the ones that grow away from the building will support the continued life of the trees. For additional advice, be sure to consult a tree specialist before conducting this surgery.

Dear Barry,

The heating system in our home consists of hot water pipes in the floor, connected to a gas-burning water heater. The system was installed more than 40 years ago and we suspect it is not efficient. In particular it takes about five hours to heat the house. Our first question is how can we verify the condition of the system? And second, how can we calculate the normal heating cost for a home of this size? –Lev

Dear Lev,

Old hydronic heating systems such as yours are typically not efficient because they were installed in an age when fuel costs were nominal and energy saving was not a serious consideration. The most common problem with these aging systems is leaking due to deteriorated pipes or fittings. If you have not yet experienced leakage, don’t be surprised if it occurs in the future.

To verify the condition of the system, the water heating fixture can be evaluated by a licensed HVAC contractor or plumber, but the condition of the hydronic piping probably cannot be determine because the lines are not accessible for inspection. An HVAC contractor can advise you further in this regard.

To calculate the normal expected heating cost for your home, contact your gas company. Most natural gas suppliers provide energy audits. They can advise you regarding the average heating costs for a home of a particular size, while considering the heights of ceilings, the types of windows, and the amounts of insulation in walls, ceilings, etc.

Hydronic heating systems, whether new or old, are not designed to heat a home quickly. Their strong point is maintaining a constant, even temperature once the home is heated.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.
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What’s your opinion? Send your Letter to the Editor to opinion@inman.com.
Copyright 2006 Barry Stone

DEAR BOB: My 90-year-old mother-in-law has recently moved permanently into a nursing home. She has a new reverse mortgage on her free-and-clear home to pay her living costs. My husband will inherit her house when she passes on. At that time, we plan to demolish it and build new. What are the financial ramifications of renting the house to tenants until she passes away? He is reluctant, whereas I hate to see a nice house sitting there vacant that can bring in $2,000 monthly rent. –Elaine H.

DEAR ELAINE: Bad news! Because your mother-in-law permanently moved out of her principal residence, her reverse mortgage will become due and fully payable in full after 12 months of her non-occupancy of the house.

Purchase Bob Bruss reports online.

Reverse mortgage lenders periodically check up on their borrowers to see if they (a) are still alive and (b) are occupying their primary residence (except for absences less than 12 months).

If the house is rented to a tenant, when the reverse mortgage lender discovers the owner no longer lives there, the lender can require the loan balance be paid in full or it will be put into foreclosure. For more details, read the reverse mortgage documents and consult a local real estate attorney.

JUDGE CAN’T FORCE YOU TO BUY OUT A CO-OWNER

DEAR BOB: My sister and I inherited two parcels of land. She wants me to buy her out. But I can’t afford to do so. I live on one of the parcels as my residence. She says she can go to court to get a judge to force me to buy her out. Is this true? –Josh S.

DEAR JOSH: No. I am not aware of any state with a statute allowing a judge to force one property co-owner to buy out another co-owner.

However, your sister might be thinking of a partition lawsuit. Virtually all states have partition statutes where one co-owner can bring a lawsuit to force the sale of jointly owned property. But if you want to keep the property after a judge orders a partition sale, then you would have to figure out a way to buy out your sister’s half. For details, please consult a local real estate attorney.

WHAT TO EXPECT WHEN YOU PAY OFF THE MORTGAGE IN FULL

DEAR BOB: I recently paid off my land. The sellers sent me the original promissory note marked “paid in full” and signed by the sellers along with the original deed of trust and request for full reconveyance, signed and dated by the sellers. What do I do now? Or do I have to do anything? –Kim B.

DEAR KIM: You must act to clear the recorded deed of trust security instrument from your title. This is done by taking the request for full reconveyance form to the trustee named on that document, paying the fees, and making sure it gets recorded to clear that deed of trust from your title.

If your lender had recorded a mortgage, the document to be recorded is called a satisfaction of mortgage.

Don’t let this slip by. It is extremely important to take care of this now to clear your title. If you fail to act now, when you want to sell that land you could have a nightmare on your hands if the trustee and/or your sellers can’t be found.

That happened to me when I bought my house. Fortunately, my sellers were able to locate their private party lender who failed to clear the title when the sellers paid off a second mortgage.

IF EX-TENANT CAN’T BE FOUND, GO AFTER CO-SIGNER FOR DAMAGES

DEAR BOB: My son and I own two rental houses in a college town. A property management firm handles them for us. We had “the tenants from hell” who were finally evicted after several months of no rent payment and some extensive damage. The property manager finally got around to filing a lawsuit. But the court date has been postponed because they couldn’t locate the ex-tenants to serve them. Couldn’t they have served the co-signer parents of one of the tenants? –Ken C.

DEAR KEN: If your tenants from hell were college students, they probably have zero assets. But the parents likely have assets and will probably pay up to avoid hurting their credit ratings.

Can you say “bad management company?” It sounds like that’s what you’ve got. The management company should have served the co-signer parents. Forget about trying to find those ex-tenants who are probably judgment proof.

Now you know why I recommend managing your own properties, which should be no more than an hour’s drive from your home. For more details, please consult a local real estate attorney where the properties are located.

WHAT IS BEST WAY TO PASS HOUSE TITLE TO HEIR?

DEAR BOB: What is the best way for my grandfather to pass the title to his house to me? –Chris T.

DEAR CHRIS: To avoid probate, your grandfather should have a revocable living trust, and then transfer title to his house and other major assets into his living trust. Then he maintains control of his assets during his lifetime.

After he dies, presuming he hasn’t sold the house, the successor trustee (probably you) can transfer the title without probate to whomever was designated in the living trust to receive the house. 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.

DON’T ACCEPT QUITCLAIM DEED WITHOUT OWNER’S TITLE INSURANCE

DEAR BOB: Eleven years ago, my boyfriend at the time bought a condo for my children and me to live in. The purchase was in his name because my credit was poor at the time. He bought it with the intent that someday when my credit got better I would get my own mortgage and put the condo in my name. I have paid the mortgage for the 11 years. The only thing he did was pay the $5,000 down payment and use his credit to buy the condo. We broke up in 2000. He says our agreement is still the same. I still live in the condo, making the mortgage payments. My credit is now excellent. How can I get the title into my name? I think he is expecting to make money on this. But I don’t think it is fair for him to profit since all he did was pay $5,000 and let me use his good credit. Can he give me a quitclaim deed to transfer title? –Sandra F.

DEAR SANDRA: Yes, he can sign a quitclaim deed to you. However, be sure to have this handled by a title insurance company or title attorney.

The reason is you need to buy an owner’s title insurance policy to be certain you obtain marketable title. You don’t want to get stuck with any of his judgments, liens or other obligations that might have attached to the condo. For full details, please consult a local real estate attorney.

CAN INHERITED PROPERTY BE SOLD OFF PARCEL BY PARCEL?

DEAR BOB: Several years ago, I inherited a house located on 1.25 acres of land. An appraisal was made to establish the new basis stepped up to market value at that time. The land is divided among three separate deeds. Would it be possible to sell the three pieces of land separately? How would one establish the stepped-up basis for each parcel when the appraisal was based on the totality of the property and the house? –Ed A.

DEAR ED: Yes, you can sell each of the separate parcels individually. I recommend obtaining a new professional appraisal to allocate the stepped-up basis to each of the separate parcels.

HOW TO DEED HOME TITLE BACK INTO YOUR LIVING TRUST

DEAR BOB: When we refinanced our house recently, the mortgage lender insisted on taking the title out of our living trust. How do we get the title back into our living trust to avoid probate? –Ann J.

DEAR ANN: The title attorney or title company who handled the refinance should have asked if you wanted the title transferred back into your living trust. It is usually a simple matter to execute and record a quitclaim deed from yourselves back into your living trust. A local real estate attorney can provide full details.

The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” 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