Real Estate in Steamboat

Everybody wants a bargain. Last year, good real estate deals were few and far between. This was due to the fact that inventories of homes for sale were at record low levels. And, there was an abundance of buyers, all looking for the same thing.

Today in most areas, buyers have the luxury of choice. So, there’s less of a chance you’ll overpay because you have to outbid another buyer. However, even though there is a lot to choose from, this doesn’t mean that it will be easier to buy a property at a bargain price.

One reason is that most sellers aren’t desperate to sell. Just because the market has changed doesn’t mean that sellers are slashing their prices dramatically. Many listings that have price reductions were overpriced to begin with.

Another factor is that there is usually little consistency in pricing. Some listings are well-priced, others are overpriced, and then there is the occasional listing that is actually priced below market value.

Another complicating factor is variability. Unless you’re looking at listings in a single tract development, where each house is a cookie cutter of the others, you’ll find disparities in age, condition, size and amenities. Each of these variables has an affect on market value.

HOUSE HUNTING TIP: In order to find a good deal, you need to be able to identify a fairly priced property when you see it. This requires intimate knowledge of home values in the area.

A good real estate agent can help you to develop this product knowledge. But, there is no substitute for doing your own due diligence–driving the area, researching the local economy, viewing listings online and visiting open houses. This gives you the confidence you need to make an educated decision about what constitutes a good deal.

Even though the pace of the home sale market has slowed, you may have to make a snap decision or risk losing out on a great buy. Many home sellers price their homes too high for the market. They usually sit for a while before the sellers realize the house can’t sell without reducing their price.

But sellers who understand the market and have a pressing need to speed the process along will price their properties at or under market value. If you aren’t up on current market values, you could let a good deal slip by because you didn’t act quickly enough.

Part of buying at the right price is being there when the well-priced listings come on the market. Don’t wait until a Sunday open house to see a new listing if your agent thinks it will sell quickly.

It’s possible to create a good deal. One way is to research the listings that have been on the market a while without any offers.

Find out why they haven’t sold. If there isn’t anything wrong except the price, ask the listing agent why the seller is selling and whether there’s any flexibility in the price. Sellers who have a real reason for selling, like a divorce, death in the family or job transfer, will soften on price in time.

Be sure to find out the amount of the outstanding loans secured against the property. If the sellers are mortgaged to the hilt, you might want to move on and negotiate with a seller who has a strong equity position in the property. Even if he sells for less than he’d hoped, he’ll at least sell for a profit.

THE CLOSING: Steer clear of listings that aren’t selling because they have an incurable defect, like a location on a busy street. You may be able to negotiate a bargain price, but you’ll also have to discount your price when you resell the property.

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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Copyright 2006 Dian Hymer

When a home mortgage transaction includes a provision for escrow, as most do, the borrower is required to pay a fixed amount every month in addition to the payment covering interest and principal. This escrow payment is deposited into a fiduciary account from which the company servicing the loan makes payments for taxes and insurance as they come due.

In previous articles on escrows, I gave convenience as the major advantage to the borrower, and loss of interest on the escrow account as the major cost. I also mentioned the possibility that the lender might accidentally fail to make the payment, which could result in a tax delinquency or a cancelled homeowner’s insurance policy. These are serious matters, to be sure, but I viewed the risk as very small.

More recently, however, I became aware of another risk associated with changes in required escrow payments. When taxes or insurance premiums increase, monthly escrow payments must increase as well. What happens if, for some reason (including poor communication from the servicer), the borrower fails to increase the payment?

A letter from a particularly alert borrower who noticed an increase in his tax escrow payment when he happened to know that new tax rates had not yet been posted provoked this question. He discovered that the lender had anticipated a very large increase, and had increased his escrow payment accordingly. When the borrower requested an explanation, a process that took hours of his time, the servicer had none to give, and ultimately rescinded the increase. The circumstances surrounding this incident make it extremely unlikely that it was a mistake.

What would have happened, I wondered, if this borrower, instead of investing many hours getting to the bottom of the tax escrow payment increase, which resulted in getting it rescinded, sent in his regular monthly mortgage payment including the previous escrow amount? I posed this question to Marie McDonnell, who has audited hundreds of loans for homeowners in distress, and knows more about the seamy side of loan servicing than anyone I know.

I would have assumed (and I suspect most borrowers would as well) that the servicer would credit the interest and principal payment as usual, deposit the escrow funds into the escrow account, even though it was short, and send another message to the borrower to remedy the shortage or face a tax delinquency. Not so, says McDonnell. She says that the entire mortgage payment will be placed in an ‘unapplied’ or ‘suspense’ account where it will sit in limbo until the next payment is made. The borrower will be charged a late fee, and a 30-day delinquency notice will be sent to the credit bureaus.

If the servicer does not send out monthly statements, which many do not, the borrower will have no idea about what is going on. The next month’s regular mortgage payment will also be deposited into the suspense account, which now has enough to cover one full payment, including the increased amount demanded for escrow. But the borrower incurs a second late charge and a second 30-day delinquency report.

At this point, according to McDonnell, the account is sent to the collections department where a pre-foreclosure notice is generated and a demand letter is sent to the borrower, who now suddenly finds him- or herself liable for a series of costs manufactured for the occasion. These include fees to cover a broker’s price opinion, property inspection fees, legal fees, statutory foreclosure costs, and a new high-cost hazard insurance policy that covers the lender only.

To cure what McDonnell terms a “servicer-manufactured default,” the borrower must pay the full amount necessary to bring the account current. “For consumers who do not have sufficient savings and who are living from paycheck to paycheck, the likelihood of an extended delinquency and ultimate foreclosure is very high … servicing abuse in escrow accounts … is the leading cause of premature and wrongful foreclosure.”

The impetus for this series of events is the pernicious practice of placing the entire monthly payment in a suspense account when only the escrow account is short. How widespread is this practice? McDonnell believes that all servicers do it, and she may be right, but I cannot confirm this. I also don’t know how many servicers are that quick to shift a loan into collections. There is virtually no public information available about these and many other important servicing practices.

In the months to come, I plan to remedy this. Meanwhile, when you receive a notice of an escrow payment increase, pay it. If you believe the increase is unwarranted, send the servicer a qualified written request disputing it, following the procedures outlined in the Real Estate Settlement Procedures Act. For guidance, see the article “Is There Recourse Against Bad Servicing” on my Web site.

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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Copyright 2006 Jack Guttentag

Everyone, no matter how rich or poor, enjoys saving money. For example, a few weeks ago a multimillionaire real estate investor friend took me to a lavish lunch, which must have cost him at least $100. As we were leaving the restaurant, he saw the city “meter maid” coming down the street. All of a sudden he sprinted to beat her to his Lexus with an expired parking meter so he wouldn’t get a $20 parking ticket.

Yes, even multimillionaires enjoy saving $20.

Purchase Bob Bruss reports online.

If you are a homeowner or real estate investor who enjoys saving money, a good place to start is with your insurance coverage.

Most property owners leave it up to their insurance agents to obtain the right insurance coverage at a reasonable cost. But that can be a costly mistake.

Understanding property insurance coverages and how to cut premium costs while increasing coverage can pay off with major savings.

DON’T INSURE FOR THE MORTGAGE BALANCE. Millions of homeowners make a very expensive mistake by insuring their homes for the amount of their mortgage balance. Mortgage lenders encourage this “error” by telling their borrowers to buy homeowner’s insurance for the amount of the mortgage balance.

The costly result is often unnecessary overinsurance for more than the home’s replacement cost. But lenders don’t complain and neither do insurance agents because they collect sales commissions on the unnecessary overinsurance.

Overinsurance usually occurs when high land value (which won’t burn in a fire) is included in replacement-cost insurance. For example, approximately 50 percent of my home’s market value is in the indestructible land value. Therefore, I am required to insure only for my home’s replacement cost, which is about $200,000 less than my mortgage balance.

Worse, many homeowners are vastly underinsured because they carry replacement-cost insurance for only their low mortgage balance. In the event of a major fire loss, these homeowners will be shocked to discover their insurers don’t have to pay the full loss amount.

The best way to avoid being over- or underinsured is to ask your insurance agent to estimate your home’s replacement cost. Disregard land value. To illustrate, suppose you own a 2,000-square-foot house and in your area it will cost $200 per square foot to reconstruct your residence if it burns to the ground. The result is you should carry about $400,000 replacement cost insurance, even if the market value of your property is greater.

In other words, your mortgage balance has absolutely nothing to do with the amount of homeowner’s replacement cost needed.

RE-SHOP FOR PROPERTY INSURANCE EVERY THREE YEARS. A long time ago somebody suggested I re-shop for property insurance every three years just to be certain (1) I wasn’t paying too much and (2) I had adequate insurance for my risks.

Over the years, my need for homeowner, rental property and business insurance has changed. A few times I discovered I could save several hundred dollars by switching my insurance to a different broker who was an agent for a “no name” insurance company.

But I stuck with my same agent for the last 30 years because (1) he periodically suggests how I can save on my insurance premiums or improve my coverage, and (2) on the few occasions when I had claims, he made sure I got paid in full even when he had to battle with the insurance company on my behalf.

That’s what a good insurance agent is supposed to do.

However, if I were unhappy with the premiums being too high or the lack of full payment for my few claims, I would switch to another insurer in a heartbeat. In fact, I did so a few years ago to save money on my health insurance when my premiums became outrageously high although I never had any claims.

RAISE YOUR UMBRELLA, LOWER YOUR LIABILITY INSURANCE. A few years ago my insurance agent made a wise and profitable suggestion. He said I should cut my liability coverage on each of my properties to $300,000 and take out a $2 million “umbrella policy” to give me better coverage at lower cost. Don’t tell the insurer, but my $700 annual premium for $2 million excess liability coverage is a genuine bargain.

If you have net worth over $1 million, you can probably save money by following the same strategy. Check with your current insurance agent, plus one or two others, to see if a similar tactic can save you insurance premium dollars and obtain better protection.

Incidentally, my umbrella liability insurance policy not only provides excess coverage for insured property liability, but it also provides automobile liability coverage if I should be at fault in an auto accident. Another feature I like with my present insurer is guaranteed renewability no matter how many claims I might have (although my annual premiums will probably increase).

DON’T MAKE SMALL INSURANCE CLAIMS. Another way my insurance agent saved me money a few years ago was to suggest I raise my deductible on my property and automobile insurance to $1,000. The result is lower insurance premiums, compared with my former $500 deductible amount.

If you can afford to pay small losses yourself, perhaps to replace a cracked auto windshield or your tree falling on a neighbor’s property, the insurance company saves money and you avoid the risk of a higher premium or cancelled insurance.

Of course, if you have severe damage, such as a windstorm rips the roof off your house, you should file an insurance claim for that major loss costing thousands of dollars.

A CONTROVERSIAL WAY TO SAVE ON INSURANCE PREMIUMS. Another way to save on your homeowner’s insurance is to insure for the depreciated actual value rather than for full replacement cost of personal property.

That means when an insured loss occurs, such as due to fire, theft or accident, the insurer will pay you only the depreciated value of the property loss. In other words, the insurer won’t pay the full replacement cost of the item.

For example, 14 years ago I bought a state-of-art Sony 42-inch TV for $2,300. It still has a beautiful picture. However, if I tried to sell it, its value is probably about $100 to a buyer. Actual-cash-value insurance will pay me only $100 if that TV is stolen or damaged in a fire. However, if I carry the more expensive replacement-cost insurance, I will be paid the cost of buying an equivalent TV at today’s prices.

Carrying actual cash value rather than replacement-cost insurance is a controversial way to save insurance premiums. However, if you can afford to pay for personal-property replacement, why not save on insurance premiums?

ASK YOUR AGENT ABOUT BUILDING-CODE-COMPLIANCE INSURANCE. A good insurance agent should suggest additional coverages you may want and need. To illustrate, if your house burns to the ground and you want to rebuild, in addition to the cost of reconstruction, the local building code probably requires new upgrades you don’t currently have.

For example, where I live the building code now requires new houses to have fire sprinklers. If my house is destroyed, my homeowner’s insurance will pay for that upgrade because I pay a slightly extra premium for building-code-compliance coverage.

SUMMARY: Smart homeowners and real estate investors check their property insurance coverages at least every three years by shopping rates with several local agents to be certain they have adequate coverage at a competitive insurance premium. Before filing a small claim, it pays to consider if the insurer might nonrenew or substantially raise the renewal premium.

Additional ways to save on insurance premiums include (1) raising the deductible amount to eliminate small insurance claims that you can afford to pay yourself, (2) if you have a net worth over $1 million, consider lowering your property and automobile liability coverage and raising your umbrella liability policy coverage, and (3) evaluate actual cash value instead of full-replacement-cost personal-property coverage. More details are available by consulting at least three local homeowner’s insurance agents to compare their policy coverages and costs.

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

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Copyright 2006 Inman News

If you’ve been thinking about how nice it would be to have the warmth and ambience of a fireplace but without all the hassles associated with cutting, storing and hauling firewood, it might be time to consider the benefits of installing a gas fireplace.

Freestanding and built-in gas fireplaces are available in a surprising number of sizes, styles and colors. They are powered by natural gas and if you don’t have that available most can be easily converted to burn propane. If you currently have a wood-burning fireplace, in many cases a gas unit can be retrofitted into the old fireplace without extensive changes to the hearth and other masonry.

The first step in the process is to find something you like. Given the wide variety available, your best bet is to visit at least two showrooms and see the fireplaces in person. Check out the fit and finish of each one, as well as the overall style and available colors and options.

One of the features that really adds to the appeal of a gas fireplace is the log set it contains. Manufacturers have gone to great lengths to create log sets that are as close as possible to the look of a real burning wood log, right down to the embers underneath, so when you find a fireplace you’re interested in be sure to see it operate before you make the final decision.

As with wood-burning fireplaces and woodstoves, gas fireplaces are typically used to heat one or at most a couple of rooms. Trying to heat the whole house with one will cause the room where the fireplace is located to become uncomfortably overheated well before sufficient heat reaches the rooms at the back of the house. You’ll want to have a good idea of where the unit will be located, and how much area you are hoping to heat.

Many gas units will be advertised as being capable of heating a certain number of square feet of living space, but this is usually based on 8-foot or even 7.5-foot ceiling heights. If you have vaulted ceilings, or if you have a two-story house that is relatively open between the floors, these figures can be misleading. A more accurate way of sizing the unit is to have the dealer conduct a modified heat-loss calculation for your home. This takes into consideration the actual cubic footage of the area you want to heat, as well as how good or bad the insulation, windows and other energy features of your home are. 

Two options worth looking at are a fan and a remote thermostat. Electric fans, unobtrusively built right into the fireplace, will help circulate the heat to warm the room up faster and provide a more even heat distribution. A thermostat mounted on a wall that’s somewhat removed from the fireplace allows you to maintain a preset temperature in the room in much the same manner as you would with a conventional furnace. For the dedicated couch potato, some manufacturers also offer a remote control option for activating and controlling the fireplace.

INSTALLATION

If you’re a skilled and versatile do-it-yourselfer, most gas fireplaces come with complete instructions that allow you to do the installation yourself. If that’s not something you want to undertake, most fireplace stores either employ their own installers or can arrange for a qualified person to do the work for you. Remember that the installation company must be licensed, bonded and insured.

The building codes and the manufacturer’s specifications will specifically dictate the type and size of the hearth that the fireplace sits on, as well as the clearances between the fireplace and any combustible materials behind and to the sides of the unit. Gas fireplaces also utilize specific types and sizes of flue piping, and in most instances they cannot be vented into an existing masonry chimney or utilize existing woodstove flue pipes.

Gas piping should be done be a qualified plumber. Pipe size is determined by the size and location of the fireplace, and must be done with an approved gas piping material. Do not use copper or galvanized water pipes. A shutoff valve is required at the fireplace, and the type, location and accessibility of the valve is specified by the building codes.

Remember that gas fireplace installations require a mechanical permit for the gas piping, as well as a permit for the fireplace and flue installation. Don’t skip the permit process – in addition to ensuring that the installation is safe and proper, failure to obtain the proper permits may void your homeowner’s insurance policy in the event of a fire. Consult with your dealer and the local building department for complete information before any installation work begins. 

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

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Copyright 2006 Inman News

Ask almost anyone in America to draw a picture of a house, and they will show you the familiar square with a triangle on the top — the universal symbol for a single-family house with a sloped roof. But if you ask the same person what it feels like to be inside a house, which is really the more important question if he or she is looking to buy one, you’ll get a variety of answers that have nothing to do with exterior appearance.

The responses will run something like this: a yard just outside my living space; a place outdoors where I can grill; lots of windows and natural light; sleeping and living areas on separate floors; a garage I can access directly from my kitchen; a feeling of spaciousness; and privacy from my neighbors.

These ruminations passed through my mind as I toured Pulte Homes’ Cambridge Place, a condo project in Mountain House, Calif., near the scene of the famous Rolling Stones concert in 1969.

The Cambridge Place condos, which were designed by the KTGY Group in Irvine, Calif., are organized into three-unit buildings. From a distance each one appears to be one very large house, but on closer inspection each building could best be characterized as the “Rubik’s Cube Solution.” To visualize this novel concept, imagine a huge rectangular container, roughly 70 feet long by 54 feet wide by 20 feet high. This enormous volume is first divided in half along the 70-foot side. At the ground level on one half, three oversized 2-car garages line up. A carriage unit sits above garages. The other half of the building is halved again, creating two 2-story units that are roughly square in shape. 

This arrangement does not meet anyone’s notion of how a house should look. But, when you’re inside the units, you feel like you’re in a single-family house that incorporates, with stunning efficiency, the features that buyers say they want.

With large windows on three sides and plenty of natural light, the 1,270-square-foot carriage unit atop the garages has the feel of a beach cottage without the thrown-together look, tiny bathroom and challenging kitchen that seem quaint when you’re on vacation but unthinkable on a full-time basis. In this unit, the chef will have an easy time preparing a meal while participating in a conversation with whoever might be in the adjacent living and dining area. The owners will also enjoy two bedrooms, two good-sized bathrooms and, if solitude is needed, a choice of two outdoor terraces.

With square-shaped rooms and windows on two sides, the 2-storied units on the front feel so “house like” my first reaction was to wonder what the designers had left out. The 1,800-square-foot Plan III even has the features that you associate with a larger house — a good-sized yard by California standards, which was appealingly landscaped in the model, four bedrooms and three full baths. The smaller, 1,460-square-foot Plan II is similar in ambience and features, but it has only three bedrooms.

The density at Cambridge Place is a staggering 14 to 16 units to the acre, but, owing to KTGY’s clever site plan, residents will not feel that their neighbors in the building next door are so close they can ask them to pass the salt. The prices are also staggering to non-California homeowners — and the target market is first-time home buyers! The smallest Plan I is base-priced at $404,000, the biggest Plan III based-priced at $475,000.

The second Pulte project that I visited — Terra Bella — also at Mountain House, raised different questions. Buyers everywhere say that they want a sense of community, but what, exactly, do they mean? And how do you create it?

My unscientific answer is that new-home buyers, like all homeowners, want to (1) live in a community that “feels friendly” and (2) have good relations with their neighbors. For the last 20 years or so, many planners and developers have sought to provide this with a traditional neighborhood development site plan, generally known as a TND. With this approach, big, bulky 2-car garages with their huge, ugly doors are regarded as inhibitors to social interaction, and they are banished to the rear, where they can be accessed from a rear alley. The front of the house is given over to a covered porch where the owners can sit in their rocking chairs and enjoy their morning paper, with the occasional friendly interruption from neighbors passing by on their daily constitutional.

Terra Bella takes the opposite tack. Rather than move all things car-related out of sight, the garage is on the front of the house and each group of five houses is clustered around a shared, hammer-shaped driveway. This functions like a scaled-down version of the much-maligned suburban cul-de-sac, which Phil Hove of the Hove Design Alliance in Newport Beach, Calif., the firm that designed Terra Bella, said most buyers still prefer. Its enduring popularity is not surprising to anyone, including this writer, who has never lived on one. There’s no through traffic, so your kids can play in the street, which functions as a communal living room. Even better, the cul-de-sac plan, which physically sets the houses apart from the rest of the neighborhood, creates a feeling of kinship among its residents, and they know each other well.

At Terra Bella, the owners frequently bring out their grills and lawn chairs to socialize in the driveway, and two or three clusters occasionally have a joint cookout, Hove said. The gang mailboxes out on the street offer another opportunity for neighbors to interact, he added.

Another aspect of community that many buyers want is diversity among their neighbors, and this is readily apparent in the range in price and size of the houses in each cluster at Terra Bella. The smallest house is a one-story, 3-bedroom, 1,370-square-foot ranch, base-priced at $509,000. The largest one has two stories, four bedrooms, 2,130 square feet, and a base price of $630,000.

While such a range is common in California, it would be unusual in the Midwest or East Coast. In these regions, houses within a given subdivision are similar in size and price because developers and builders think their buyers believe a new-home purchase is more likely to retain or appreciate in value if the house across the street and next-door is similar. In California, buyers have not voiced this sentiment, Pulte Vice President Merry Sedlak said, adding that at Terra Bella the only difference between houses is size. All the appointments are the same.

The range of houses offered at Terra Bella has a second advantage as well. It allows the residents to maintain strong ties to the neighborhood as their living situations change. For example, when a household has more children, it can move to a bigger house within its own cluster or move to another one around the block. An empty-nester household that wants to downsize can make a similar move into a smaller house.

The social benefits of the clustered site plan and the diverse product line at Terra Bella cannot be attributed to careful research, however. They are purely serendipitous outcomes, said both Hove and Sedlak. The driving force was high land cost and the developing firm’s desire to mask the 8.5 units per acre density that this dictated. Trimark Communities of Sacramento, Calif., wanted single-story houses in the streetscape mix (one is placed at the entry to each cluster) and a clustered site plan with half the houses placed within each block. With this arrangement, the density is not readily apparent to prospective buyers who walk or drive around the neighborhood. It will also be nicer for the people who eventually live there. 

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

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Copyright 2006 Katherine Salant

Long term rates stabilized this week, near 4.8 percent for the 10-year T-note holding low-fee fixed-rate mortgages at 6.375 percent.

Stability is likely to persist for another week. The Fed meets next Tuesday, but two weeks before election day will keep the lowest-possible profile, and there is no significant economic data due until the first days of November.

Last week and this, rates have been a bit higher than at the end of September on the theory that the economy is in pretty good shape, the Fed focused on inflation worry and not thinking at all about a rate reduction.

The all-OK thinking is brought to you by the same guys who have been howling, “Housing Bubble!” They have now decided that the worst is over for housing, and a soft landing is in process. This switch in outlook is a perfect example of the error in the bubble theory in the first place, and illustrates crucial differences between financial markets and real estate.

The all-OK discovery began by misunderstanding confusing news: starts of new homes increased 5.9 percent in September, but new building permits fell 6.3 percent. This counter-move is merely builders working at cross-purposes with the real situation, and wandering data in a huge market. Many big builders are desperate to build-out their inventory of lots to get rid of dead weight. Some are building faster than they would in a healthy market; that perversity further undercutting resale markets, especially by offering huge “incentives” to unload the market-flooding construction.

Optimists then seized on a pause in the accumulation of unsold inventory nationwide, but it is still almost 40 percent above a year ago. The sudden rise of loan delinquencies in Bubble Zones, now double rates of a year ago, is just a beginning.

This week’s Wall Street classic: a rebound in the index of prices of home builder stocks must mean that housing has hit bottom. This index has been in free-fall, down by half from a peak resembling the tech top in 2000; the home builders’ recent frozen-turkey bounce leaves it still at triple its 2002 value. Leave it to the Street to identify its own premature bottom-fishing as a sign of health in the real world.

On the Street, markets tend to resolve quickly: if there are no buyers, prices fall until buyers are found. The stock market bubble from top to bottom (with an assist from 9/11) took only 18 months. The Street was certain that housing’s bubble blew last year, and by now should have hit bottom.

Real estate is different: it has utility beyond price. You can live in the damn thing or rent it until buyers reappear. That phenomenon tends to prevent a housing bubble from dangerous implosion, and will also delay — long delay — resolution of the 2002-2005 price eruption. It is going to take time for income growth and migration to restore purchasing power under stratospheric prices. We will see panicked sales and distress in a few places, but most bubble markets should expect flat to slightly slipping prices for several years.

Meanwhile, the Fed has a problem. We are beginning to see the inflation downside from the drop in energy prices (September CPI down .5 percent), but the core rate is high, 2.9 percent year-over-year, almost double the Fed’s target and not at all guaranteed to fall politely. The Fed knows its long, painful history: inflation never falls without economic sacrifice.

The end of all that gorgeous home-equity liquidation that so greased the hip pockets and purses of consumers will suppress GDP growth by perhaps a percentage point, but by itself not enough to get core inflation back into the 1 percent-2 percent box.

I think the best interpretation of data and rates at the moment is a pause on the way to a slower economy, either baked into the policy cake now, or to be enforced by a tougher Fed later. Then we might get a further break in mortgage rates.

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

Until your home sells to a willing buyer and the sale is closed, nobody knows for sure how much your home is really worth. But there are three methods that will help guesstimate your home’s fair market value until you actually close the sale:

1. Internet market-value estimates. Don’t laugh! In the last few years, computerized Internet market-value estimates for houses and condominiums have become remarkably accurate. My first experience with an Internet appraisal was three years ago when I obtained a home equity credit line secured by my vacation-home condo. I estimated it was worth $125,000 at the time. But Wells Fargo Bank used a computerized appraisal to determine the market value was $150,000 so they approved a $100,000 credit line without a formal appraisal.

Purchase Bob Bruss reports online.

Today, homeowners can obtain free Internet market-value estimates from several sources. The newest is at www.Zillow.com. This advertiser-driven Web site seems quite accurate, based on several properties I entered where I am familiar with their market values.

However, Zillow doesn’t yet cover the entire nation so don’t be disappointed if your home isn’t included. What I found especially amazing is Zillow includes, in most situations, an aerial photo of the property and even the lot boundary lines! In another situation where I entered a condominium along with the value estimate, Zillow included a map showing the precise location.

Other free Internet residential market-value-estimate Web sites include www.HouseValues.com, www.OurHomesPrice.com, www.HomeGain.com, www.Domania.com, and www.PriceaHomeOnline.com. However, these Web sites often require you to allow a local real estate agent to contact you about selling your home.

But a $40 paid Web site offering a comprehensive CMA (comparative market analysis) is www.USHomeValue.com. These Web sites should be considered just a starting point for estimating your home’s market value. The sites don’t evaluate the most accurate condition of your residence, as you many have added recent improvements that could increase its market value.

2. Hire a professional appraiser. Especially if you are thinking about selling your home alone without a professional real estate agent, having a professional appraisal made could be money well spent. Depending on the size, location and uniqueness of your home, the cost should be in the $300 to $750 range. Be sure the licensed appraiser is experienced appraising in your community and is not from a distant area. A good source is to ask your local bank or other mortgage lender for two or three names of recommended local residential appraisers.

3. Interview at least three successful local realty agents who sell homes in your vicinity. Even if you plan to sell your house or condo “for sale by owner” (FSBO), known as a “fizzbo sale,” please interview three or more local realty agents before you decide.

They won’t mind, even if you let the agent know you are thinking of becoming a FSBO. The reason is agents know most FSBOs, within 30 to 60 days, simply give up and list their homes for sale with a professional agent, usually one of the agents they already interviewed.

The primary reasons to interview three agents are you will (a) learn what is involved with a home sale in today’s market, especially all the disclosures required by state and local law, plus the forms used by realty agents in your community, and (b) receive each agent’s CMA (comparative market analysis) form. The CMA includes at least three recent sales prices of comparable nearby homes, the asking prices of similar neighborhood homes (your competition), and even asking prices of recently expired nearby listings (which were probably overpriced).

Some agents even advertise for FSBOs, such as “Thinking of selling your home without a professional realty agent? I’ll help you sell without a listing by giving you a FREE evaluation of your home’s market value.”

The reason it is so critical to interview at least three successful local realty agents is to compare their CMAs. Watch out for any agent who estimates a high market value for your home without justification shown on that agent’s CMA. This is called “buying the listing” by estimating a high sales price. Later, when the overpriced home doesn’t sell, the agent will suggest a price reduction. However, by then you will have lost the initial sales momentum that occurs when a home listing first hits the local market.

Or, if an agent thinks you won’t be interviewing other realty agents, he or she might talk you into a low listing price, hoping to make a fast easy sale by creating a “buyer frenzy” with an ultralow asking price. Only by interviewing three (or more) agents can you compare their CMA justifications for recommending an asking price.

(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: I like your idea of using a lease-option to sell houses and condos in a tough buyer’s market. As a real estate agent, my question is do you set the option purchase price when the lease-option is signed or when the option is exercised? If the option price is set up-front, it seems to me that hurts the seller if home prices go up –Sylvia R.

DEAR SYLVIA: As a buyer and seller of rental houses and for my personal use, I’ve been using lease-options at least 25 years. I have always set the option purchase price at the time of entering into the lease-option contract.

Purchase Bob Bruss reports online.

However, as a seller I sign only one-year lease-options. At the end of each year, if my tenant isn’t ready to exercise his/her purchase option, I then have the right to “adjust” the rent and the option purchase price.

If market values and rents haven’t increased substantially, I leave the terms unchanged. However, when rents and market values escalate, then I raise the rent and the option purchase price annually.

But as a lease-option buyer, I try to negotiate the longest possible term. The best I’ve ever done was a 15-year lease-option with no change of rent or option purchase price. I exercised my purchase option in the 13th year at the option price negotiated with the seller 13 years earlier.

NO STANDARD FORMS FOR CO-PURCHASE OWNERSHIP CONTRACTS

DEAR BOB: My daughter wants to buy a house with a co-worker. Do you know of a contract form agreement to cover the possible contingencies, such as what if one is unable to pay her half of the mortgage payment and expenses? What do you advise regarding the best way to hold title? –Vincent C.

DEAR VINCENT: Your daughter should consult a local real estate attorney to discuss her concerns. There is no standard form to cover all the possible contingencies for the situation you describe.

Unless it is a long-term relationship with a “significant other” or extremely good friend, I do not recommend home co-ownership with a friend. The possible problems are endless. It’s easy to buy a property together, but it can be extremely difficult to split ownership fairly if that later becomes necessary.

WHAT IS A NEGATIVE-EQUITY HOME LOAN?

DEAR BOB: What is your opinion of a “negative-equity home loan?” I am 68 and am looking for a retirement home. But I am concerned about keeping my monthly payments as low as possible. I won’t have much cash left after the sale of my current home –Helene P.

DEAR HELENE: I am not familiar with a “negative-equity home loan.” If you meant a “negative-amortization home loan,” my best advice is to stay away.

A negative-amortization home loan can result in your monthly payment being lower than the interest earned by the lender. Any unpaid interest is added to your mortgage balance with the unpleasant result of you owing more than you borrowed.

After selling your current home, if you can pay at least a 50 percent cash down payment on your retirement home, you may be eligible for a Fannie Mae reverse mortgage for home purchase. No monthly payments are required. To find a reputable local reverse mortgage representative, go to www.ReverseMortgage.org.

The new Robert Bruss special report, “How to Sell Your House or Condo 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

DEAR BOB: I own rental properties in Las Vegas and have been calculating my depreciation tax expense by using the property tax assessor’s tax ratio between land and building value. My problem is that the depreciable building value is very low at only 36 percent to 50 percent. I think I should be taking a bigger depreciation write-off. I’ve heard of investors using an 80-to-20-percent ratio of building to land. What should I use? –Julie T.

DEAR JULIE: The exact answer depends on the type of property. For example, if you own a rental condominium, your building-to-land ratio will probably be about 98 percent to 2 percent.

Purchase Bob Bruss reports online.

The local property tax assessor’s ratio of building to land means nothing. He still gets the same market value and property tax no matter what the ratio. All that matters to him is the total property value for tax assessment purposes.

When the IRS audited me on this issue several years ago, I showed the IRS agent my property insurance agent’s replacement-cost estimate for the structures. The IRS readily accepted the insured replacement cost for allocating depreciation, with the remainder of my property purchase cost going to the nondepreciable land value.

Since then, I have talked with tax advisers and other investors who use the same method of taking the insurance replacement cost to justifiably arrive at the depreciable value of the structure. For more details, please consult your tax adviser.

HOW TO MAKE PURCHASE-OFFER CONTINGENCIES ACCEPTABLE

DEAR BOB: I am a real estate agent about to make a purchase offer on a property with a contingency. Please outline how to make this appealing to the property seller –Dede C.

DEAR DEDE: You ask a difficult question. In the current buyer’s market for homes in most cities, most home sellers are glad to receive any purchase offer.

If the seller doesn’t accept your buyer’s offer, be sure the seller counteroffers to keep negotiations moving. Don’t leave until you have a written counteroffer.

Make the contingency clause reasonable, such as a contingency for the buyer’s approval of a professional inspector’s report within five business days. Provide a similar reasonable time for a mortgage appraisal within a short time. In most cities, inspectors and appraisals aren’t too busy to meet short deadlines today.

However, if the contingency clause involves the sale of the buyer’s current home, show the seller the home is currently listed for sale with a reputable local realty agent. Include a 48-hour release clause in the purchase offer in case the seller receives a better no-contingency purchase offer from another buyer.

AVOID LANDLORD LIABILITY WITH ADEQUATE INSURANCE

DEAR BOB: I own a rental condo in Tampa, Fla. It is currently rented on a one-year lease. I live out of state. What is the best way to protect myself from liability in the event of an accident on the property? I have considered transferring title to a LLC (limited liability company). But I am concerned that will require special insurance and additional transfer costs. Would buying additional liability insurance be better? – Jeff M.

DEAR JEFF: Be sure you have adequate rental owner’s liability insurance for at least $300,000. If your net worth exceeds $1 million, ask your insurance agent about an excess liability umbrella policy for $2 million or $3 million. The cost is very cheap, usually just a few hundred dollars per year.

However, be sure your basic rental owner’s insurance and the umbrella policy are with the same insurer so there is no conflict between insurers if a large negligence liability loss occurs in your condo. Also, your umbrella liability policy will protect you against other losses, such as your negligence in a serious auto accident.

The new Robert Bruss special report, “How to Sell Your House or Condo 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

Beginning in 1989, apartment building owner Guillermo Gonzalez was repeatedly cited by city building inspectors for unsafe and unsanitary conditions in the property where he and his family reside in one of the three units.

In 1990 the court issued a default judgment to demolish certain outbuildings, which were built without permits. The $21,940 demolition cost was recorded as a lien against Gonzalez’s property title.

Purchase Bob Bruss reports online.

In 1997, the city filed an 85-count misdemeanor criminal complaint against Gonzalez, alleging violations of the building, fire, housing, plumbing and electrical codes. He was found guilty of 15 of the counts and ordered by the court to correct all code violations within 30 days. However, he failed to correct the violations and was sentenced to 30 days in jail.

In 1998, Gonzalez served an additional 90 days in jail and was later sentenced to 450 days in jail for continuing violations.

In 2001, city inspectors returned to the property and found 32 misdemeanor code violations. Finally, on Dec. 6, 2004, the city petitioned the court for appointment of a receiver to take control of the property, which had become a public nuisance.

The court appointed the receiver. He found in a single bedroom on the second floor 14 bunk beds where tenants paid to sleep. The front yard had been converted to a makeshift kitchen and the back yard was filled with inoperable vehicles.

In 2005, the receiver petitioned the court for permission to demolish the unsafe apartment building where Gonzalez and his family still resided. The receiver presented evidence to the court it would cost at least $145,000 to repair the building, which would then be worth about $450,000. However, he produced an appraisal showing if the building is demolished, the vacant lot will be worth $509,000.

If you were the judge would you authorize the receiver to demolish the apartment building to finally end this 15-year nuisance?

The judge said yes!

The receiver’s proposed demolition of the building, the judge began, is reasonable to finally end this 15-year saga where the property owner repeatedly refused to bring his property up to minimum safety and sanitary standards.

Rather than attempting to repair the structure, which is in very poor condition, he continued, it is time to put an end to this nuisance.

“Demolition of the structure and sale of the property is a more reasonable course of action under the circumstances,” the judge explained. The property receiver is authorized to proceed with demolition of the structure, with costs to be recorded as a lien against the property title, the judge ruled.

Based on the 2006 California Court of Appeal decision in City of Santa Monica v. Gonzalez, 45 Cal.Rptr.3d 84.

(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