Real Estate in Steamboat

DEAR BOB: My wife and I plan to use our home equity to purchase an investment property. We wanted to do an Internal Revenue Code 1031 tax-deferred exchange, but I recently discovered we can’t do such an exchange with our personal residence. So we now are thinking of moving out of our primary residence and renting it for a while so we can later do an IRC 1031 exchange. How long must we rent the house before exchanging it to defer the tax? –Gincy H.

DEAR GINCY: The IRC 1031 statute and regulations don’t specify any minimum rental time after converting your personal residence into rental property before it can qualify for a tax-deferred exchange.

Purchase Bob Bruss reports online.

Most tax advisers suggest renting your former home at least six to 12 months (to show rental intent) before making an IRC 1031 tax-deferred exchange.

However, if you and your wife have less than a $500,000 capital gain in your personal residence, why not just make an Internal Revenue Code 121 tax-exempt sale? When both spouses occupied the primary residence at least 24 of the last 60 months before its sale, you can claim up to $500,000 tax-free profits. Then you won’t have the hassle of a tax-deferred IRC 1031 exchange. Ask your tax adviser for more details.

PROFESSIONAL HOME INSPECTION CLAUSE PROTECTS BUYER

DEAR BOB: My daughter is buying her first house. The professional home inspection revealed a leaky roof and the garage should be either torn down or rebuilt. How does she get a repair credit for these issues? The seller is also the real estate agent –Mike McD.

DEAR MIKE: Hopefully, your daughter’s purchase contract included a professional home inspection contingency clause, as it should. That means if your daughter doesn’t approve the results of the professional inspection, she doesn’t have to complete the purchase and can get her good faith deposit refunded in full.

However, in the “real world” what usually happens is the professional inspection report is shown to the home seller and negotiations are reopened. In today’s “buyer’s market” in most cities, sellers usually will give a reasonable repair credit off the agreed sales price to keep the buyer, such as your daughter, from canceling the sale.

If the seller refuses to give an acceptable repair credit, and if the purchase offer was contingent on results of the professional home inspection, then your daughter can get her deposit back and buy another home.

NO TAX DEDUCTION IF PAYOR IS NOT OBLIGATED

DEAR BOB: I am considering taking out a home equity loan on my home to be used as a down payment on a house for my son. What are the tax ramifications? Can he claim the interest paid as a deduction on his tax returns? –James B.

DEAR JAMES: If you take out a home equity loan secured by your home, even if your son makes the payments he cannot deduct the interest because he is not on the title to your home and he has no legal obligation to make those payments.

Of course, you can add him to your home title, but that brings up new considerations you might not want to encounter.

Another approach is for you to borrow the money on a home equity loan secured by your residence. Then loan the money to your son, secured by a second mortgage on the house he purchases.

Then when he pays you interest, it is on a mortgage secured by his personal home so the interest is tax deductible to him (and taxable to you, but also deductible to you when you make the home equity loan payments to the bank). For more details, please consult your tax adviser.

The new Robert Bruss special report, “How to Sell Your Home for Top Dollar in a Buyer’s Market,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card a 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

Dear Barry,

When we had our home inspection, the seller was present during the entire process. We never felt free to converse candidly with our inspector. Shouldn’t the inspector or our agent have asked the seller to excuse himself during the inspection? –Michael

Dear Michael,

The casting of participants at a home inspection can sometimes be very touchy, depending upon the personalities involved. There are no set rules that determine whether sellers should be absent or present during an inspection, and scenarios vary widely. In most cases, to be sure, it is beneficial to buyers to have an unfettered opportunity to converse and consult with their home inspector, to ask questions freely, and to allow the inspector to discuss defects without mincing words, without fear of offending the seller.

Real estate agents, realizing the potential for misunderstandings during a home inspection, often ask sellers not to be home when the buyers and inspector are on site. Most sellers comply with this request, some without complaint, others with expressed or suppressed misgivings. Some sellers flatly refuse to have an entourage nitpick their private domain unless they are present during the proceedings, or they might insist that the listing agent be present.

The presence of sellers can be — but is not always — an impediment to the free flow of an inspection. In some cases, they may simply remain quietly at home, planted on the living-room couch or preparing the evening meal. They might engage the buyers or agents in friendly conversations, sometimes stiff and segmented, sometimes real and relaxed, on subjects ranging from mundane small talk to details of the purchase contract and from the disclosure of property defects to the purchase of onsite furniture.

On the other end of the spectrum, sellers might shadow every step of the inspector throughout the entire process, sometimes causing distractions, sometimes providing helpful information, sometimes coloring the atmosphere with quiet but palpable distress, sometimes challenging the inspector with reserved or aggravated debate. These levels of seller participation often interfere with the buyers’ need to communicate concerns to the inspector and the inspector’s freedom to fully explain observed defects to the buyers.

Regardless of these circumstances, it is not the responsibility of the home inspector to dismiss the sellers from their property. If buyers are uncomfortable with the sellers’ presence, it is wise to have the agent “run interference,” as it were, to tactfully disengage sellers from the activities of the inspector. For example, agents can politely explain to sellers that leaving home during the inspection is normal procedure — that they, as buyers of their next home, would appreciate the same courtesy. When sellers prefer to remain, agents can engage them in conversations designed to divert their attention from the inspection at hand. Unfortunately, some agents fail even to attend home inspections. But that is a subject for another article.

When seller participation prevents buyers from consulting with their inspector, the review of finding should take place away from the property. The buyers, inspector and agent can arrange to meet at the agent’s office or for coffee at a local restaurant. This can make up for communication opportunities that were lost during the inspection. The final review is a critical element of the home-inspection process, enabling the inspector to fully explain the condition of the home and for buyers to ask questions that were withheld in the presence of the sellers.

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: I liked your suggestion a few weeks ago to get a home sold in a slow buyer’s market by increasing the sales commission to 7 percent with 4 percent going to the buyer’s agent who produces an acceptable buyer. However, when I told my listing agent I wanted to increase the commission to get my property sold, she said, “My broker will not allow it. He says it’s not fair.” Is this legal? Or am I stuck with my listing agent and her broker for another 60 days until my listing contract expires? –Pat C.

DEAR PAT: I am shocked. That is the first time I have ever heard a real estate broker refuse to raise the sales commission. As you know, that suggestion to raise the buyer’s agent commission received positive responses from several property sellers and agents in this column.

Purchase Bob Bruss reports online.

Variations include offering buyer’s agents incentives such as the home seller’s car, a Hawaiian vacation, and various other special incentives to get a property sold, especially in a buyer’s market. Increasing the sales commission going to the buyer’s agent is just a variation of incentives that have been used for years to get homes sold in a slow market.

I suggest you phone the broker and discuss (1) why your listing hasn’t sold and (2) why the broker opposes raising the sales commission to 4 percent, which goes to the buyer’s agent. That is a great incentive to get buyer’s agents, through the local MLS (multiple listing service), to show and sell your property to their prospects.

Maybe the listing broker misunderstood and thought you wanted to cut the commission to 4 percent. Unless his response is satisfactory why his firm hasn’t sold your property and why he refuses to raise the commission to the buyer’s agent, ask him to cancel the listing so you can switch to a more effective listing agent.

SAME “STEPPED-UP BASIS” RESULT FOR LIVING TRUST AND A WILL

DEAR BOB: You recently answered a question about passing a property title to an heir by a revocable living trust. Does the living-trust heir receive the house at the decedent’s presumably low cost basis, thereby incurring a larger gain on sale than if title simply passed by probate to the heir by a will? –Deana K.

DEAR DEANA: The same “stepped-up basis” rule applies to the heir, whether title to the inherited property passes by probate of a will or without probate court costs and delays via the deceased’s revocable living trust.

The two primary living-trust advantages over a will are (1) avoidance of probate court costs and delays and (2) if the property owner becomes disabled, perhaps with Alzheimer’s disease or a severe stroke, then the successor trustee takes over management of the living trust assets without necessity for a court-appointed conservator.

Whether title passes through probate by a will, or without probate via a living trust, the heir receives the property title with a new “stepped-up basis” to market value on the date of the decedent’s death. 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.

CAN LIFE TENANT OBTAIN A REVERSE MORTGAGE?

DEAR BOB: My stepmother has a life estate in her house, which goes to my husband after her death. Is it possible for her to get a reverse mortgage? If so, what happens after her death regarding the reverse mortgage? –Sheila H.

DEAR SHEILA: To obtain a senior-citizen reverse mortgage, the homeowner must be 62 or older and hold fee simple absolute title. A life estate does not qualify.

When a homeowner with a reverse mortgage dies, the mortgage “matures” and the principal plus interest become due. To pay off a reverse mortgage after the homeowner’s death, the heir can either sell the property or, if he desires to keep the property, refinance to pay off the reverse mortgage balance.

TWO HOME EQUITY LOANS VERY UNLIKELY

DEAR BOB: I co-own a property with someone who is not my spouse. She now wants to take out a home equity line of credit (HELOC) to pay down her credit card debts. But we currently have an $80,000 HELOC. Can she get another line of credit secured by the property? – Ernie F.

DEAR ERNIE: I am not aware of any HELOC lender who will make a loan to one co-owner but not require the signature of the other co-owner. If you both already have an $80,000 HELOC secured by the property, no lender is likely to make a second HELOC secured by the same property.

ADD FIANCE TO HOME TITLE TO MAKE HER PAYMENTS TAX DEDUCTIBLE

DEAR BOB: Is there any way to add my fiance to my current mortgage without having to refinance? I was recently laid off my job and my fiance is making the mortgage payments. She has a much larger tax bite taken from her salary. I would like to add her to my mortgage. Would she then be eligible to take the mortgage interest and property tax deductions? –Mike T.

DEAR MIKE: To claim the itemized tax deductions, your fiance must hold title to the property and be legally obligated to make the mortgage and property tax payments she pays

If you are 100 percent certain you will get married and you will both live happily ever after together, then add her name to your title by a quitclaim deed.

After her name is on the title, when she makes the mortgage and property tax payments, although her name does not need to be on the mortgage obligation, she can deduct the interest and taxes she actually pays. She can then have her employer adjust her withholding exemptions. For more details, she should consult her tax adviser.

IS THIS A GOOD TIME TO BUILD A CUSTOM HOME?

DEAR BOB: Is this a good time to build a custom home? Or should we wait for the cost of materials to decrease? We understand there are houses on the market that are reasonably priced –Johnny B.

DEAR JOHNNY: Don’t expect the cost of building materials to decrease anytime soon. Building a custom home and buying a lot is usually far more expensive than buying one already constructed. In most areas, home builders are now offering fantastic bargains and buyer incentives due to excess inventory.

PAINTING PERSONAL RESIDENCE IS NOT TAX DEDUCTIBLE

DEAR BOB: I recently moved into a house I rented to tenants for 10 years. During that time, my tenant would not allow me to repaint because of the inconvenience to him. After the tenant moved out, I had the house painted and repaired by professionals. My accountant says I cannot deduct these expenses although I would have gladly painted the property during the tenant’s occupancy. Can I deduct these costs? –Shirley P.

DEAR SHIRLEY: Unfortunately, your tax adviser is correct. Painting and repairing a rental property is a tax-deductible expense on Schedule E of your tax returns where you also report the rental income.

However, because the purpose of the painting and repairing was to make the house suitable for your personal occupancy, then the cost is a non-deductible personal expense.

SELLING DEPRECIATED PROPERTY AT A LOSS IS VERY RARE

DEAR BOB: If I sell my rental property at a loss, can I avoid that 25 percent depreciation recapture tax or do I have to pay it regardless of the loss? –Bill K.

DEAR BILL: Selling a rental property at a loss on which you have deducted depreciation is extremely rare. That means you would be selling below your depreciated book value.

For example, suppose you bought a rental house for $100,000 and deducted $25,000 total depreciation during the years you owned it. That means its depreciated book value is now $75,000.

To sell at a loss, you would be selling below the $75,000 book value in this example. In such a situation, you have no capital gain and no depreciation recapture tax.

However, let’s say you sell this property for $90,000. Although selling below your $100,000 purchase price, you have a $15,000 capital gain ($90,000 minus $75,000), which is taxed as depreciation recapture. For details, please consult your tax adviser.

The new Robert Bruss special report, “How to Sell Your Home for Top Dollar in a Buyer’s Market,” 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

“Does a mortgage broker make more money with an option ARM than with a fixed-rate mortgage? I went to the broker looking for a 30-year fixed deal and allowed him to talk me into an option ARM — with a three-year prepayment penalty that I didn’t find out about until the closing. I have perfect credit and didn’t need the lower payment; I have been making the fully amortizing payment every month. Did he steer me into that loan because he made more money on it?”

In all likelihood, yes. The price of a 30-year fixed-rate mortgage is difficult to conceal; the borrower knows what the rate is and what it means. On an option ARM, the principal price is the margin, which most borrowers don’t understand and which isn’t a required disclosure.

The margin is the number that is added to the rate index every month, starting in month 2, to determine the new rate. Paradoxically, because margins don’t fluctuate with the market, option ARMs are the easiest type of mortgage to shop — if you know the secret, which is to shop the margin.

But if you don’t know that secret, and if you place yourself in the hands of a loan provider intent on making as much as possible from the deal, the option ARM is the perfect vehicle for such skullduggery.

For example, assume a competitive margin in your case was 2 percent. If the broker raised it to 3 percent, without any discussion with you, the price paid by the lender would rise by about 2.5 points. That’s 2.5 percent of the loan amount, and it would all go in the broker’s pocket.

Unless, of course, you were dealing with an Upfront Mortgage Broker (UMB), or a broker who adhered to upfront principles. In that case, you and the broker would have agreed on the broker compensation before selecting a loan type, and there would be no reason for the broker to steer you to an inappropriate loan. In the unlikely event that you decided you wanted an option ARM and were willing to pay the higher margin, the 2.5 points would have gone in your pocket rather than the broker’s.

When the Deal Sours, How Much of the Advance Can the Broker Keep?

“I took an advance of $500 from the customer, locked the loan, sent the loan file to the lender, and ordered the title and appraisal. Because the borrower’s credit was weak, the lender imposed numerous conditions and document requests, which annoyed the borrower and caused him to drop me and go to another loan provider. Given my investment of time and money, can I keep the $500?”

Contract law governs this type of situation. You can keep the $500 if your agreement with the borrower regarding the purpose and disposition of the money stipulates that you can. I assume, however, that you don’t have a written agreement with the borrower, and that your oral agreement was ambiguous.

If I were arbitrating such a case, I would allow you to defray any out-of-pocket costs you incurred on behalf of this borrower. On the other hand, I would not allow you to retain any payment for your time and effort. If you expect that, you should have a written agreement that states it.

Does a HELOC Adversely Affect Your Credit Score?

“Is it true that taking out a HELOC has negative impact on the credit score? More so then a refinance or second mortgage?”

A HELOC adversely affects your credit score if you are using a large portion of your total line. HELOCs are viewed as revolving credits, similar to credit cards, where there is a balance and a maximum balance. The ratio of the first to the second is used as a measure of financial strength.

The rationale for using the ratio in connection with credit cards is clear cut. Borrowers who max out their credit cards are often in, or heading towards financial distress. The case for using the ratio in connection with HELOCs is weaker, I think, because HELOCs today are often used as a substitute for single-payout mortgages where the total amount is extended at the outset.

Under the existing rules, a one-time payout loan does not affect the credit score, only the payment record does. But a HELOC taken out for the full amount at the outset will negatively affect the score at the outset. Then, as the balance is paid down over time, the score will rise.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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

Copyright 2006 Jack Guttentag

Negotiating a purchase contract isn’t easy when home sellers cling to expectations based on last year’s real estate market, and buyers refuse to overpay. Equally challenging are the renegotiations that can occur after buyers do inspections.

How do you successfully navigate the second round of negotiations? The goal is to come away from the bargaining table feeling that you’ve struck a good deal, ideally without alienating the sellers. After all, you may need to impose on the sellers for return visits to the property before closing. And, you hope the sellers will leave the place clean and tidy.

Before you begin a dialogue with the seller about who is to fix what, you should have a clear understanding of your purchase agreement. For example, does the seller warrant the condition of the property, or are you buying the property in its present condition?

Let’s say the contract states that the seller warrants the roof is free of leaks. You ask a roofing contractor to inspect the roof. He says there is evidence of past leaks and recommends replacing the roof before the next rainy season.

In this case, it’s reasonable to expect the seller to provide a leak-free roof at closing; it’s in the contract. However, this may not mean that you’re entitled to a new roof. Most sellers would seek a second opinion. Another roofer might recommend patching rather than replacing.

Transactions can break down over differences of opinion about the extent of a problem and the appropriate remedy. It helps if both parties have open minds and a willingness to cooperate on reaching a mutually satisfactory solution.

In many cases, a seller warranty is not a part of the contract. Instead, the buyer agrees to purchase the property in its present condition subject to inspections.

Depending on how the inspection contingency is written, the buyer may have the unilateral right to withdraw from the contract and have his deposit returned, without even giving the seller the opportunity to repair defects. Likewise, the sellers may be under no obligation to make repairs. If a good faith effort is not made to work out a solution to property problems, the deal is off and the buyer’s deposit will probably have to be returned.

Negotiations over inspection issues often fall apart because one party feels that the other is taking unfair advantage. A successful negotiation involves give and take.

Many people think it’s acceptable to ask home sellers to repair health and safety issues. Even so, some sellers refuse to pay if they have lived comfortably with these issues for years with no problems.

Sellers may feel a buyer is negotiating in bad faith is they ask sellers to pay to correct a defect that they were aware of before they made their offer.

Suppose you are buying “as is.” You signed a seller disclosure that said the roof needed to be replaced. An estimate to replace the roof was included with the disclosure. When you removed your inspection contingency, you made it conditioned on the sellers replacing the roof.

This kind of a request would enflame some sellers. Emotions can run high during a residential home purchase transaction, particularly if the sellers are still occupying the property.

Sellers are often offended when buyers lose sight of the big picture and insist that the seller take care of minor defects. It’s best to focus on the major issues.

Make sure you understand what happens if the sellers turn down your requests to repair defects, particularly if you don’t want to lose the house. In a popular purchase contract used in California, the seller can’t simply cancel the contract if he has a beef with the buyer.

THE CLOSING: He must issue a 24-hour notice to give the buyer a chance to perform.

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

Just in case you haven’t been paying attention, most cities are now in a “buyer’s market” for home sales. That means there are more houses and condos listed for sale than there are qualified home buyers actively in the market. Nationally, home sales volume is down about 10 percent compared to 2005.

The best way to tell if your area is in a buyer’s or seller’s market is to check the average number of days homes are on the market before selling. When this number rises above 60 days, it’s definitely a buyer’s market. That means it’s a great time to be a buyer, but not such a great time to be a home seller.

Purchase Bob Bruss reports online.

Another method is to look at the number of months’ supply of homes for sale at the current sales pace. Just divide the number of local homes sold during the last 30 days into the number of homes listed for sale. If the result is more than a six-month supply of homes, the oversupply of listed homes shows it’s a buyer’s market.

Fall is usually the second-best season to sell a home (spring is the best because that is when the largest number of prospective home buyers are in the market). But 2006 is proving to be unusual.

The number of homes listed for sale in most cities is at or near an all-time record high. The result is prospective buyers know they can negotiate hard over price and terms.

For example, a few days ago a Realtor told me about his $1 million house listing where a buyer offered $800,000. Normally, the seller would be insulted. Instead, his seller counteroffered at $950,000, a $50,000 price reduction. But, according to the Realtor, the buyer wants a bigger price reduction.

THE FIRST STEP TO A SUCCESSFUL HOME SALE. If you seriously need to sell your house or condo, and are not just “testing” to see what price you might get, the first step is to get your home into tip-top, near-model-home condition. Most buyers don’t want to buy a fixer-upper; they prefer to turn the key in the door and move in.

Cleaning, repairing and painting are the most profitable actions to take. Install new light fixtures and new carpets or flooring if needed. But don’t waste money on major renovation, which you won’t get to enjoy and buyer prospects might not like.

If you have lots of unneeded “junk” you don’t want to move, September and October are ideal times to hold weekend garage sales. Better yet, call it an “estate sale.”

THE SECOND STEP IS HIRING THE BEST LISTING AGENT. Today’s home-sale market is not a good time to be a do-it-yourself “for sale by owner” home seller. The reason is there is so much competition from serious home sellers whose listings are professionally marketed through the local MLS (multiple listing service).

Most MLS agents also put their listings on the Internet at www.Realtor.com and other Web sites where more than 70 percent of today’s home buyers begin their searches, according to the National Association of Realtors.

Before selecting the best listing agent, smart sellers interview three or more successful agents who sell homes in their vicinity. Successful home sellers should understand they are hiring an individual listing agent, not the impersonal brokerage with the well-known name on the agent’s door or the fancy franchise name with expensive image advertising.

Smart home sellers ask the agents interviewed lots of questions. Ten examples include (1) what are the names, addresses and phone numbers of your five most recent home sellers? (2) if I list my home with you, what price will you get for it in today’s market? (3) what is your minimum listing term? (4) how long have you been selling homes in this area? (5) do you sell homes full time? (6) what professional courses and designations have you completed? (7) how many listings do you have now? (8) what is your written marketing plan for my home? (9) what sales commission do you suggest? and (10) do you recommend “staging” my home?

As part of their listing presentations, each of the three or more agents interviewed should anticipate these questions. The best agents will present you with a written CMA (comparative market analysis) form showing recent nearby comparable home sales prices to justify their estimate of your home’s market value.

Sharp agents will suggest a 90-day listing. If the agent asks for a longer term, be sure it includes an unconditional cancellation clause after 90 days just in case you chose a bad agent.

As for the sales commission, although 5.1 percent is the national average according to Real Trends, in today’s market it often pays to raise the commission to get buyer’s agents to show and sell your home first. Low commissions to buyer’s agents often result in no sales.

Although agents being interviewed will be reluctant to criticize your house or condo, be sure to ask if the agent recommends “staging” the home to make it appear more attractive. Staging a home means bringing in a professional “stager” to make the home more marketable.

Stagers often suggest removing old-fashioned furniture clutter during the sales period and renting more contemporary furnishings. An excellent new book on this topic is “Home Staging” by Barb Schwarz, available in stock or by special order at local bookstores, libraries and www.Amazon.com.

THE THIRD STEP IS TO HAVE YOUR HOME PROFESSIONALLY INSPECTED. After selecting the best listing agent, but before exposing your home to the market, be sure to obtain all the customary local inspections, such as for termites, energy efficiency and building-code compliance. Your listing agent will know what’s required.

Although not required, a professional home inspection avoids surprises later. I recommend hiring a member of the American Society of Home Inspectors (ASHI). The cost is around $300 and takes two to three hours.

Be sure to attend the inspection to discuss any defects discovered. Then you can decide if you want to repair them or merely disclose them to buyers and let the buyer make the repairs.

If the repair cost is minor, it’s usually best to have repairs completed before listing the home, thus removing possible buyer objections. Local ASHI members can be found at www.ashi.com or 1-800-743-2744.

THE FOURTH STEP IS TO SET A REALISTIC ASKING PRICE. After getting your home ready to sell, hiring the best listing agent and having all professional inspections completed so you can disclose your home’s defects, it’s time to set a realistic asking price.

With the help of your listing agent, study those CMAs prepared by all the agents you interviewed. Consider whether the local market for homes in your price range is rising or falling. In most markets, prices have leveled off from what was attainable a year or two ago. If you really want your home to get sold quickly, don’t get greedy.

Asking a few thousand dollars less than your closest competitor homes can mean your home sells while the others don’t. Holding your home an extra month or two often costs far more than setting a realistic asking price.

Here’s another asking price secret: set your asking price $1,000 below threshold amounts. For example, if your home is worth around $300,000, set the asking price at $299,000 rather than $300,000 or higher. The reason is buyers who tell their agents they will pay up to $300,000 will then see your home on their MLS computer search. But if you set the asking price at $300,000 or above, those buyers might not learn about your home.

THE FIFTH STEP IS TO CONSIDER ALL PURCHASE OFFERS. Many home sellers are insulted if they receive a written purchase offer substantially below their asking price. Some sellers and their listing agents won’t even make counteroffers.

That is a major negotiation mistake. Always make a counteroffer to keep communications open with that prospective buyer. Negotiations often take several weeks, back and forth, before determining either a sale will result or the parties are too far apart in price or terms. But unless the seller counteroffers every purchase offer, even a “low ball” offer, you will never know if a sale can result.

After both buyer and seller sign a firm purchase contract, the sale isn’t over. This can be the most difficult time period. You and your listing agent must keep on top of deadlines, especially to be certain the buyer follows though on obtaining the mortgage appraisal and other essentials.

Sellers should be aware the buyer might be encountering the dread “buyer’s remorse” disease. For this reason, it is essential for sellers and their listing agents to keep in touch with buyers and their buyer’s agent to be certain the sale closes on schedule successfully.

More details are in my special report, “How to Sell Your House or Condo for Top Dollar With or Without a Real Estate Agent,” 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

From a greasy barbeque grill or a dusty car that needs cleaning to a deck or a whole house that’s ready for painting or refinishing, pressure washers can be wonderfully useful tools to speed up the process and improve results. But selecting the right kind of pressure washer and then using it correctly can seem like an overwhelming task, and used incorrectly they can damage both property and people. So, here are a few commonly asked questions about pressure washers that should help:

What is a pressure washer? Quite simply, a pressure washer is a machine that increases water pressure and then distributes the water in a controlled manner. Pressure washers have a connection for a garden hose to provide incoming water to the machine. An electric- or gas-powered pump increases the water pressure and sends it out through a high-pressure hose to a handheld gun. Attached to the end of the gun is a metal wand to help you better direct the water where you want it to go. The end of the wand is tipped with an interchangeable nozzle that concentrates the water stream in different fan patterns.

How are pressure washers rated? Whether powered by a gas or an electric motor, pressure washers are rated in two ways – water pressure and water flow. Water pressure is rated in pounds per square inch (PSI), and indicates how much pressure is available for cleaning. In general, the more pressure the machine delivers, the greater the capacity it has for breaking the bond between the dirt and the underlying surface. Of equal importance to the pressure is the amount of water being delivered, which is rated in gallons per minute (GPM). The more water the pressure washer delivers, the faster the debris that is being removing can be washed away. Both water pressure and water flow are important considerations in determining the proper pressure washer for the job, and both contribute to how quickly you’ll get the work finished.

How much pressure do I need? Here are some generally accepted guidelines for how much pressure is needed for various tasks:

• Cleaning cars, boats, bikes, outdoor furniture, lawn equipment: 1,000-1,800 PSI;
• General-purpose cleaning of siding, decks, patios, driveways: 1,200-2,600 PSI;
• Heavy cleaning, paint stripping, construction and farm equipment: 2,660-4,000 PSI.

What are the advantages and disadvantages of an electric-powered pressure washer? Electric pressure washers are smaller, lighter and can be operated without the hassle of gas cans, fumes and noise associated with any type of gasoline-powered engine. Because there is no carbon monoxide produced they can also be used indoors. On the down side, they are limited in both pressure and water flow and are suitable only for occasional, non-commercial uses. An example of a good, general-purpose electric pressure washer for around the house would be Husky’s 1800 PSI Power Washer, which is compact, portable, and easy to set up and use. It also has a convenient detergent tank as well as built-in GFI circuit protection for safety. By comparison, this unit will provide 1,800 PSI of pressure with a flow of 1.6 GPM, so it’s good for washing the car, cleaning off decks, patios and driveways without damage and other residential cleaning projects.

What are the advantages and disadvantages of a gas-powered pressure washer? Gas pressure washers offer more power and more portability, and are the more common choice for projects ranging from heavier residential uses to commercial and industrial applications. They are much more versatile and longer-lasting then electric units and can be used in heavy duty, daily operations on construction sites, farms, and other applications. Disadvantages include more maintenance and a little higher difficulty of setup and operation, higher weight and noise levels, and they are limited to exterior uses only.

You will find a lot more choices in gas-powered pressure washers then you will in electric. For residential and light commercial uses, one good example would be the Husky 2200, which is portable, compact, and sets up quickly. This washer offers 2200 PSI, and has a retractable handle and an enclosed chassis to make it more durable for transporting.

What are some of the dangers? Pressure washers are capable of delivering an extremely strong, highly concentrated stream of water. Used incorrectly, that concentrated stream can crack siding, break windows, push water into walls and other cavities, cause considerable grain damage to decks and other wood, blast out grout and mortar, and create other structural havoc. More importantly, they can seriously injure a person, and especially need to be kept away from children (who can be pretty fascinated by them). 

It is extremely important that you read and completely familiarize yourself with all the safety and operating instructions that come with the machine.  Use the lowest pressure and the widest nozzle that will do the job, and NEVER point the spray at anyone.

Remodeling and repair questions? E-mail Paul at paul2887@hughes.net.

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Copyright 2006 Inman News

The Treasury-bond market has had its best week in 18 months, the 10-year T-note today 4.61 percent, and that dragged low-fee mortgage rates below 6.5 percent. The improvement in mortgages was not as big as the Treasury move, but catch-up trading should soon take us to 6.25 percent.

The unsettling backdrop to this decline: nobody has a good explanation for why.

A drop in long-term rates at the end of a Fed tightening cycle is always associated with a slowdown in the economy, usually an abrupt one.

Consistent with that thought, the bond market broke to six-month lows Thursday instantly after the Philadelphia Federal Reserve reported a surprise contraction in business activity. The Philly Fed’s index is a minor affair, covering manufacturing in Mid-Atlantic states; it is brand-new news of September conditions, and it could reflect a brand-new downtrend in the national economy.

It could, but nothing else does. The four-week average of new claims for unemployment insurance remains rock steady, and any significant downturn in the economy has to show itself in the job market.

The housing market is in a straight-line slowdown, but even the most pessimistic Bubbleologists know that housing feedbacks into the real economy will develop slowly. Early-week news of collapse in August housing starts and permits (both down double their miserable forecasts) got the usual apocalyptic treatment in the media, but a collapse in new construction is a healthy part of the bottoming process. The last thing a market drowning in unsold inventory needs is more construction.

The twin reversals in commodities and inflation should be good news, not bad. The August producer price index fell .4 percent versus a forecast .2 percent increase, and that just on the leading edge of the general reversal in commodity prices. One could argue that the ker-plunk in energy (oil now $60, natgas $4.75, retail gasoline headed for two bucks even) has been caused by an economic fade, but a better argument is the combined effect of price-dampened demand, increased supply, reversed speculation on hurricanes, and reversed speculation in general.

A 32-year-old trader, a tad short of supervision at the $9-billion-in-assets Amaranth hedge fund, got crosswise while playing with leveraged natural gas futures. One week later, Amaranth is a $3-billion-in-assets hedge fund.

Falling energy prices are a consumer stimulant, not a contracting force.

OK, maybe this three-month bond rally is just a Fed play: maybe the Fed has overshot at 5.25 percent and will begin to ease. Fair enough, but how far are they going to ease? Bond yields in a normal universe should be 1.5 percent above the Fed; today they are almost three-quarters under … so, the Fed’s going to ease 2.25 percent, soon?

The same odd bond-market conditions prevail elsewhere: a UK 10-year “gilt” trades 4.49 percent versus a 4.75 percent Bank of England; a 10-year German “bund” trades 3.7 percent versus a still-tightening 3 percent European Central Bank; the Bank of Japan installed a .25 percent cost of money, and the 10-year JGB yield fell from 2 percent to 1.63 percent.

One alternate theory may connect the dots. We do have a reversal in a few overbought markets, but by and large, all over the world, an enormous pool of investment capital is chasing disproportionately scarce investments, and bidding investment returns into the basement. Best example: ask a commercial real estate broker anywhere what cap rates look like, and when they were last so low.

We are so conditioned to inflation as the central threat that we are slow to adjust to the new age. An alternate overall condition would explain the excess of capital, the shortage of investments, and an energy-price spike that did not go wild: in the new age, China’s new age, deflation is the predominant force.

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

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Copyright 2006 Lou Barnes

(This is Part 3 of a three-part series. Read Part 1 and Part 2.)

PROFIT OPPORTUNITY #3 — BUY AFTER THE FORECLOSURE SALE FROM EITHER (A) THE HIGH BIDDER OR (B) THE FORECLOSING LENDER IF THERE WERE NO BIDDERS.

This is my personal favorite time during the foreclosure process to buy. All the emotion is gone. The defaulting borrower is out of the negotiation picture (although you might have to evict him/her as part of your after-sale negotiations with either the lender or the high bidder).

Purchase Bob Bruss reports online.

I’ve bought both from the highest bidder and from the foreclosing lender when there were no bidders. If you offer the high bidder a modest profit, he or she is often only too happy to make a quick sale to you without having to pay any real estate sales commission.

The same principle applies when you buy from the foreclosing lender who got title to the property because no bidders showed up. If it is a local “buyer’s market,” ask the foreclosing lender to finance your purchase with a low cash down payment, such as 10 percent down with 90 percent mortgage financing and no PMI (private mortgage insurance). Most institutional foreclosing lenders want to get rid of that REO (real estate-owned) as fast as possible to cut their losses. Also, remind the foreclosing lender there will be no sales commission on a direct sale to you.

My favorite technique for buying from the foreclosing lender is to send a Federal Express overnight letter to the lender’s president or top REO official if you know his or her name. Offer to purchase the property for the amount of the lender’s opening credit bid at the foreclosure sale.

TIME IS OF THE ESSENCE! The reason is you want to prevent the lender from listing the REO house for sale with a local real estate broker because then the asking price will be marked up to full market value. Include a short, very polite letter explaining why the lender should sell to you and finance your purchase to quickly turn a bad loan into a new profitable loan. If you have good credit, include a copy of your credit report and FICO (Fair, Isaac Corp.) credit score (you can obtain one credit report and FICO score for $14.95 at www.myfico.com or a three-in-one credit report from all three national credit bureaus for about $45 at that Web site). If your FICO score isn’t at least 680, don’t bring up this FICO score topic.

Be sure to make your offer on a purchase-contract form used in your area. Also attach a deposit check for at least $1,000 ($5,000 or $10,000 would be better) payable to whomever you want to handle the closing settlement, such as a title or escrow company, real estate settlement attorney, bank, or other closing agent used in your community. Include your phone number, e-mail address, fax number and mailing address. You should receive a response within a few days either accepting your offer or making a counteroffer. If the property is in bad shape, be sure to say something like, “Incidentally, have you seen this property lately? It looks pretty bad.” If possible, include a photo or two showing the house looking its worst!

HOW TO FINANCE YOUR FORECLOSURE PURCHASES. Each foreclosure situation is different. You might discover you won’t need much cash. I know of people buying a house for only $500 plus closing costs. However, such a low-cash-down situation is unusual.

If you plan to bid at the foreclosure auction sale, you will need cash or quick access to cash, such as from your home equity credit line or an investment partner. If you own other real estate, such as your residence, you can probably obtain a home equity loan on that property to provide working capital. Frankly, like most investors, I’ve purchased my best foreclosure bargains when I didn’t have much cash available so I then became very creative with the financing.

Sometimes I borrowed hundreds of thousands of dollars, unsecured, from individuals who trusted me. They always got their money back with handsome profits. In fact, one lender phones me once or twice a year to ask, “How about borrowing a couple hundred thousand dollars?” But his terms have become too steep for me. As you become serious about investing in foreclosure properties, you will soon establish financial contacts like that. However, don’t overextend yourself financially.

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

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

Copyright 2006 Robert Bruss

DEAR BOB: About three years ago, we bought the house we were renting. We didn’t get the deed because we agreed to buy on an installment land contract. Our credit wasn’t good at the time and we didn’t have down-payment cash so we were satisfied. We have made all the payments to the seller on time. My wife recently came into an inheritance, which will enable us to pay off the seller’s land contract and obtain the title. However, he has now encumbered the property with a mortgage for more than our purchase price. He admitted he shouldn’t have done this but he didn’t expect us to pay off the land contract so soon. He doesn’t have the approximate $12,000 extra cash to pay off all his debt secured by our house. What should we do? –Bryan H.

DEAR BRYAN: Please consult a local real estate attorney. Your situation shows why installment land contracts can be so dangerous, especially for buyers when sellers can’t deliver marketable title.

Purchase Bob Bruss reports online.

Perhaps the seller has other assets he can sell to raise the $12,000 cash to pay off the mortgages, which exceed your land-contract purchase price.

One way or another you are entitled to obtain marketable title at the purchase price specified on your land contract for sale. Unfortunately, your situation occurs far too frequently when a land-contract-sale seller can’t deliver marketable title to the buyer.

MANUFACTURED HOMES ARE ELIGIBLE FOR REVERSE MORTGAGES

DEAR BOB: I applied for a reverse mortgage but was refused because I own a manufactured home in a condominium community. I own the land under my house. I have the deed. Can you tell me why I was refused? –Maggie H.

DEAR MAGGIE: Just because you own a manufactured home is not the reason your reverse-mortgage application was denied. I presume you are 62 or older.

However, you say it is in a “condominium community.” That has me puzzled.

If you are subject to a homeowner’s association, which owns the common areas of the development, but you own the land under your manufactured home, you should be eligible for a reverse mortgage. I suggest you contact the reverse-mortgage originator to find out more details.

HOW TO GIVE VACANT LAND TO A CHARITY

DEAR BOB: My wife and I have owned a residential lot in Colorado City, Colo., since 1968. We had it appraised and were informed it will be difficult to sell because of the abundance of lots for sale just like ours. It is free and clear with the property taxes paid. We were unsuccessful in our attempt to donate it to a local church and an organization, which builds homes for the needy. Is there any other way to divest ourselves of this lot? –Will G.

DEAR WILL: I presume the organization you refer to is Habitat for Humanity. They are a wonderful organization, which I highly recommend. If Habitat rejected your generous donation, there must be a problem with your lot or perhaps they have no need for it.

In most communities, the Salvation Army will accept real estate donations if the lot has any sales value. Keep trying.

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