Real Estate in Steamboat

Q: I installed a new toilet using a wax ring with no rubber gasket. I set the new bowl on the bolts, making sure it was lined up right. But the bowl still wobbles — front to back, not side to side. When I fill the tank with water the water angles toward the wall. When I sit on the toilet, the water moves forward.

My house was built in the early 1960s and has a cast-iron flange coming out of the floor with the bolts secured to the flange, so I could not replace them. The flange is in good shape, but it sits about a half-inch above the floor. I think the base of the bowl is hitting the top of the flange. Do you recommend shimming the bowl?

A: We think you’re right, the base of the new commode is resting on top of the closet flange, which becomes a fulcrum or balance point. The weight of the water in the filled tank moves the toilet to the rear. Because you are heavier than the water-filled tank, when you sit on the toilet, the balance moves to the front.

The bad news is that the situation is a disaster waiting to happen. If the toilet doesn’t leak now, it will in short order. The good news is that the problem is easily solved.

We do recommend shimming the toilet, but that is only one step in several to solve the problem.

The standard household commode discharges into a 3- or 4-inch waste line. The line is secured to the floor by a closet flange. We don’t know the origin of this name, but we suspect it comes from “water closet,” a name for a small bathroom that has fallen out of use in the United States but is still prevalent in Great Britain.

A wax ring is placed on the bottom of the toilet where it discharges into the waste line. The wax ring has two purposes. It creates a watertight seal at the joint where the toilet discharges into the waste line. To a lesser extent, it acts as a gasket to take up slack in what might be an uneven floor.

The porcelain commode is then secured to the closet flange by two bolts with nuts called closet bolts. When the toilet is placed over the bolts and tightened down, they provide a solid connection to the flange and the floor. The two flange bolts secure the toilet, but they do not prevent it from wobbling if it does not already sit perfectly flat on the floor.

When installing a new toilet, it’s much easier to install the bowl first all by itself, then assemble the tank onto it, in place. If one decides to disassemble a used toilet, the rubber gasket where the tank meets the bowl should be replaced. In your case, since the toilet is new, the existing gasket should be OK.

Next, clean and prepare the flange. Remove any large pieces of old wax from the bottom of the commode. Place the toilet over the bolts (this is a test fit, no wax at this time) in the position you like — there is a certain amount of play possible and it lets you align the commode with the wall. Hand-tighten the nuts on the bolts to secure the commode.

Now press strongly down on the edges around the bowl of the toilet and see if you can get it to wobble. If it wobbles, and yours will, install shims to stabilize the bowl. Long cedar shims sold in bundles as door shims serve best.

Install the shims with the tapered end pointing toward the center of the toilet, then break the shim to approximately the correct length so that not too much pokes out from under the toilet. Use as many shims as necessary to level the toilet. Give the toilet a final wobble test — press hard around the rim.

Then, without disturbing any of the shims, lift the toilet straight up off the bolts and set it right next to you. Place the wax ring onto the flange. We recommend the wax ring with plastic insert as this helps to keep the ring centered on the flange. Pick up the toilet and lower it straight down onto the bolts without twisting. Be careful not to move any of the shims.

Now install the plastic cap washer, the steel washer and the nut onto each closet bolt and tighten evenly. Don’t be a gorilla. On many marginal plumbing installations, it’s possible to pull the toilet flange up out of the floor.

Now test the toilet again for wobble and adjust the shims slightly if needed. Tighten the bolts one-quarter turn more, connect the water supply and test it with five or six flushes to be sure water doesn’t show up on the floor, or worse, downstairs. Use the point of a new utility-knife blade to cut the shims right at the base of the toilet. Finally, caulk around the base of the commode but leave about 4 inches at the back clear so you’ll see any leaks. Caulk serves a couple of purposes. Most important, it keeps the shims in place. It also hides the shims and adds a little extra “glue” to keep the toilet in place. Because caulk shrinks when it dries, you may need to do it again the next day.

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Copyright 2007 Bill and Kevin Burnett

Not only has the reverse-mortgage industry left its infancy stage and started racing towards adolescence, but its next growth step apparently will be coming sooner than expected.

While reverse mortgages for second homes have been available through a handful of small regional banks, they will soon be offered by at least two national lenders. Bank of America, which recently announced an agreement to acquire the reverse-mortgage business of Seattle Mortgage Co., is expected to roll out the second-home wrinkle as soon the purchase is completed next month. BNY Mortgage, which last week introduced the industry’s first jumbo fixed-rate product, also will allow reverse mortgages on second homes under certain guidelines.

“The demographics of our seniors and the upcoming boomer group indicate there are multiple tentacles of financial planning tools that could be used in the long run,” said John Nixon, executive vice president and COO of Reverse Mortgage of America, a division of Seattle Mortgage Co. who will be moving over to BofA. “One of those tools would be helping people with significant equity in the second home to help tap that equity to make their lives more comfortable.”

Historically, reserve mortgages have been made to homeowners age 62 or older and exclusively on a primary residence. Rapidly appreciating and long-held second homes have become surprisingly valuable, providing another possibility for older homeowners to draw funds to supplement their income for monthly expenses, health care, family reunions and investments. There are no restrictions on how reverse-mortgage funds are used.

Sarah Hulbert, executive director for BNY Mortgage’s western regional center, said the New York-based lender would allow its new Prime Advantage fixed-rate jumbo reverse mortgage on a second home, provided the owner did not already have a Prime Advantage loan on the primary residence.

Reverse-mortgage funds can be distributed either in a lump sum, regular monthly payments, line of credit or in a combination of those options. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can’t owe more than the value of the home.

Fixed-rate mortgages had been absent from the reverse-mortgage scene for more than decade until earlier this year. In the past, lenders relied primarily on adjustable-rate mortgages insured by the U.S. Department of Housing and Urban Development. These mortgages, known as Home Equity Conversion Mortgages (HECMs), account for nearly 85 percent of the reverse market. The HECM program has insured more than 240,000 reverse mortgages since 1990, while private “jumbo” reverse plans also have been available.

A reverse mortgage on a second home could be an appealing alternative for an individual or couple wanting to keep a family vacation home a few more years. Often, the parents would like to leave a cabin or getaway to their children yet need the equity from the cabin for their retirement years.

With a reverse mortgage, the parents could receive a needed monthly draw, lump-sum payment or helpful line of credit. When the parents die or transfer title to their children later in their lives, the kids could sell the property and pay off the reverse mortgage with the proceeds or refinance the property and continue the second-home use. When a child reaches the age of 62, the child would become eligible to take out a reverse mortgage on the vacation home.

There is no credit report or income qualification required. The only critical requirements are age and significant equity in the home. With the recent announcements regarding second homes, it’s now possible for a homeowner to have two reverse mortgages at the same time — one on the primary home and on the second home — thereby having two sources of tax-free income. (As mentioned, more than one BNY Prime Advantage reverse mortgage is not permitted, yet homeowners could have a Prime Advantage and another reverse product).

The ability to secure a reverse mortgage on a second home also creates interesting exit options for older investors. If an investor would rather keep a property for more personal use in the future yet needs some cash from a sale, the property could be converted to a second home and the cash could be produced by the reverse mortgage. The move would eliminate the need to refinance, all future monthly payments and the need to prove you had the income necessary for the refinance.

If the second home, or primary residence, plummets in value, owners would see their equity evaporate even faster by using a second mortgage. That’s because the amount spent, plus interest, would further reduce any loss in market value. While reverse-mortgage costs and distributions can be “washed” in appreciating markets, they can quickly erode the bottom line in a down market.

To get even more valuable advice from Tom, visit his Second Home Center.

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Copyright 2007 Tom Kelly

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, July 2, 2006.

Just in time for the peak summer season for buying and selling vacation cottages, Douglas Hunter wrote the ultra-complete “The Cottage Ownership Guide.” When I first spotted this well-designed book in a major bookstore, I thought perhaps it was about architectural styles of small homes. Wrong. Instead, it explains virtually every aspect of buying, owning and selling summer waterfront cottages.

Never having owned a summer home, but having enjoyed many visits to cottages owned by friends and relatives, until studying this book I didn’t realize all the possible pitfalls buyers can encounter unless they understand the major considerations of buying a summer home. Equally important, sellers of vacation cottages can learn from this book what smart buyers will demand before purchase.

Purchase Bob Bruss reports online.

Although the book primarily takes the viewpoint of prospective cottage buyers, heavy emphasis is placed on the income-tax aspects for both buyers and sellers. The book begins with buyer “needs” and “wants” lists, including driving-distance considerations, and even possible plans for permanent, year-round living during retirement.

If the book has a flaw it is that author Douglas Hunter is Canadian and he constantly over-emphasizes the Canadian taxation and ownership laws. While it is interesting to learn the differences between U.S. and Canadian laws, by the end of the book the U.S. reader becomes thoroughly convinced owning a Canadian vacation cottage offers few benefits and many drawbacks for U.S. citizens.

However, most of the book applies to buyers and sellers of virtually all vacation cottages. Approximately half of the book is devoted to locating a suitable area for acquiring a vacation cottage. After the search narrows down to a specific area and a specific cottage, Hunter explains details of what to look for because buying such a property is much different than purchasing an urban house or condominium.

The author warns cottage buyers to be aware the listing agent primarily represents the seller and, unless buyers hire their own buyer’s agent, they are unrepresented. He also notes the potential problems with buying direct from a seller who might not be aware of all the defect disclosure requirements.

Heavy emphasis is placed on the buyer obtaining a current survey of the property to be certain there are no encroachments or other undisclosed problems. Then the investigation moves on to having a professional inspection of the cottage, with special attention to the water supply and septic system. The author even explains the pros and cons of buying a “tear-down” cottage and the frequent difficulty of building new to comply with today’s local zoning and construction requirements.

Unique methods of financing the purchase of a vacation cottage are explained, but without great detail. Hunter suggests contacting local mortgage lenders who are familiar with the area and are often anxious to originate local mortgages. He even explains the tax consequences of deducting mortgage interest on a second home.

Unexpected in this book are the very complete discussions of sharing cottage ownership with friends or relatives, possible pitfalls to anticipate and resolve, and even the pros and cons of renting the cottage to tenants when it is not being used by the owner. The book also contains unanticipated discussions about using a cottage as a year-round retirement home, and the possible drawbacks of passing a vacation cottage on to adult children.

Chapter topics include “Getting Started”; “Choosing Your Lake or River”; “The Property Search Process”; “Taking a Test Drive”; “The Property Survey”; “Inspecting the Cottage”; “Buying a Lot or Tear-Down”; “Financing the Cottage Purchase”; “Sharing a Cottage”; “Renting Out Your Cottage”; “Selling Your Cottage”; “Relocating to Vacation Country”; and “Handing Down the Cottage.”

This one-of-a-kind book reveals virtually everything a vacation-cottage buyer needs to know before making a purchase offer. It is a well-designed book, which is easy reading. Yet it is very complete in its coverage of the unique considerations vacation-cottage buyers need to know. On my scale of one to 10, this outstanding book rates a solid 10.

“The Cottage Ownership Guide,” by Douglas Hunter (Cottage Life Books, Buffalo, N.Y.), 2006, $35.00; 248 pages; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.

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

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

Copyright 2007 Inman News

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, July 2, 2006.

DEAR BOB: My friend owns a condo and is paying a high $300 per month homeowner association fee. But the garden and maintenance of the building has gone to pot. I told her to call someone to audit the books. What should she do? –Elaine F.

DEAR ELAINE: Don’t jump to conclusions. Your friend should attend the monthly homeowner association board of directors meetings to politely ask why the garden and other maintenance is so poor. Maybe there is a good reason, such as unexpected high costs for roof repairs.

Purchase Bob Bruss reports online.

For example, I own a second-home condo where an old rock retaining wall recently collapsed. The unexpected replacement cost will be $26,000. Fortunately, our well-managed association has several times that amount in reserves so a replacement retaining wall can be built without affecting other budgeted maintenance expenses.

Your friend should politely investigate first, then complain only if the homeowner association management seems out of line. If she doesn’t attend the monthly directors meetings to keep informed, she shouldn’t complain yet.

CAN HOMEOWNER FORCE NEW NEIGHBOR TO MOVE THE FENCE?

DEAR BOB: I bought my home 13 years ago. My neighbor’s fence is on my property by approximately 2 feet. I allowed the original neighbor to leave the fence there. However, when my new neighbor purchased about a year ago, I asked her to move the fence, according to my survey. She has not. What recourse do I have? –Julie H.

DEAR JULIE: From your description, it appears the fence is on your property. Therefore, it is your fence. You can remove it if you wish.

But you can’t force the new neighbor to pay the cost of tearing down your fence and rebuilding it on the other side of the boundary. For more details, please consult a local real estate attorney.

WHAT EXPENSES MUST LIFE ESTATE TENANT PAY?

DEAR BOB: You recently had a question involving a disabled daughter for whom the parents wished to provide their house after they pass on. You wisely suggested the parents leave the house to their three adult children but with a life estate in the house for the disabled daughter who now lives with the parents. What if there is a mortgage on the house? Will the payments be split among all the siblings? –Laura A.

DEAR LAURA: As I recall that question, it was a free-and-clear house so the disabled daughter would not have any mortgage payments.

However, if there is a mortgage, the life tenant has the legal obligation to pay the property taxes, repairs and mortgage payments. For more details, please consult a local real estate attorney.

The new Robert Bruss special report, “Probate Property Profit Secrets Revealed,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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 2007 Inman News

Dear Barry,

The other day, my father mentioned that if he sells his house he will not allow a home inspector on the property. This sounded pretty rash to me. If he forbade a home inspection, what would he be required to disclose? If defects were discovered after the sale, wouldn’t he be liable? –Mary

Dear Mary,

Home inspections have come to be regarded as a reasonable and routine procedure when buying a home. In fact, most real estate purchase contracts specify inspections as a buyer’s option, thereby obligating sellers to accommodate this normal disclosure process. If your father were to refuse a home inspection of his property, he would not only violate that contractual provision but would foster an air of suspicion in the minds of most buyers. Even if he had nothing to hide, his position would appear suspect.

Worse yet would be his legal posture if undisclosed problems were to arise after the close of escrow. Even if he had no prior knowledge of existing defects, who would trust the denials of a seller who had stood in the way of the standard discovery process.

If your father wants to conduct an as-is sale, this can be done without prohibiting a home inspection. In fact, the safest approach would be to hire a home inspector of his own to provide thorough disclosure of defects and to demonstrate that there are no intentions to withhold vital information about the condition of the property.

As to which conditions he, as seller, should disclose, the best practice is to tell all. Anything and everything that could possible warrant concern on the part of a buyer should be fully divulged. This is the best way to avoid liability after the deal is consummated.

Dear Barry,

Our home has an addition, built without a permit before we owned it. Until recently, there were no problems, but lately we’ve noticed settlement cracks in the foundation and a slight sloping of the floor. My husband says this is not a big deal, that most homes in the area have cracks because of the clay soil. If we paint the house and sell it, do you think the small cracks in the foundation would hinder the sale? –Linda

Dear Linda,

In today’s litigious business environment, the last thing you want to do is paint and sell. Foundation cracks and an uneven floor may or may not be signs of serious structural problems. But a definite determination should be made prior to selling the property. If you were to sell the house, and a major foundation problem were later discovered, you could spend three years and large numbers of dollars in needless litigation. The safe and sensible approach is to hire a licensed structural engineer to fully evaluate these conditions. If the cracks and sloping indicate no significant problem, you’ll have engineering documentation to assure buyers and to protect yourselves from future liability. If a serious problem does exist, you’ll be able to disclose it to buyers or have it repaired prior to sale.

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 2007 Barry Stone

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, July 2, 2006.

DEAR BOB: About two years ago, I set up a revocable living trust and placed my checking, savings and stock brokerage accounts in it. But I recently realized the title to my condominium is not in my living trust. What must I do to place my condo into my living trust to avoid probate when I pass on? –Larry T.

DEAR LARRY: You are not alone. Millions of homeowners create their revocable living trusts to avoid probate costs and delays for their heirs but they forget to “fund” it with title to their homes.

Purchase Bob Bruss reports online.

This is especially important if you own real estate in more than one state, otherwise probate will be required in each state where your properties are located.

The easiest way to transfer title to your condo into your living trust is to sign a notarized quitclaim deed in recordable form from yourself to yourself as trustee of your living trust. Then record it with the local recorder of deeds.

To be recordable, the quitclaim deed must usually include the legal description of your property, the local parcel number and your notarized signature. The easiest place to find your condo legal description and parcel number is on your owner’s title insurance policy.

SHOULD HOME SELLER REPLACE STAINED CARPET?

DEAR BOB: We plan to sell our home, which has worn and stained carpet. Professional cleaning won’t remove the stains. A friend suggests we just clean the carpet as best we can and offer a credit to the buyers so they can select their own carpet color. But I worry that is not putting the best face on our house and the carpet might turn off potential buyers. What do you suggest? –Penny S.

DEAR PENNY: You are correct. Replace that worn, stained carpet. Your friend is mistaken. Always get a house or condo into its best possible condition before offering it on the market for sale. Painting, cleaning and repairing are the most profitable.

Discounts don’t work. But don’t go overboard with major renovations. Spending a few hundred, or even a few thousand, dollars on new carpet will pay off.

Most home buyers have zero imagination about how nice your home will look with new carpet. Avoid what I call “cheap-spec-house dark brown” or any other color except light beige carpet.

You don’t have to buy top-of-the-line new carpet, but don’t install the cheapest carpet either. Most important, be sure to install a good-quality, new rebond pad, which makes the new carpet comfortable to walk on to put your prospective buyers in a good mood.

MUST HOME SELLER DISCLOSE REPAIRED DAMAGE?

DEAR BOB: I own a condominium that suffered water damage about six months ago from the upstairs condo when a pipe in the wall sprang a leak. The condominium homeowner’s association paid for extensive repairs to my bathroom. Do I have to disclose this to my buyer? –Derek S.

DEAR DEREK: No. Unless the damage was not completely repaired, or there is evidence of the need for additional repairs, you don’t have to disclose what happened in the past. If homeowners were required to disclose all past repairs, the list for most homes would be a mile long.

All you must disclose are current defects and problems that have a material effect on the market value or desirability of your home. For more details, please consult a local real estate attorney.

WHY DOES EACH MORTGAGE LENDER HIRE ITS OWN APPRAISER?

DEAR BOB: I am in the process of buying a house. The seller accepted my purchase offer but the sale won’t close for 60 days because the seller needs extra time to move her “stuff.” However, that’s good for me so I can shop for the best mortgage. The first lender, the bank where I have done business at least 10 years, was very arrogant. They insisted on a $250 appraisal fee, which I paid. The appraisal came in at exactly the sales price. When I questioned the loan officer, he said appraisers are instructed never to estimate a market value higher than the sales price (although I know I got a bargain price below market value). Because I have plenty of time, I continued mortgage shopping and found a much better deal with another lender. But the second lender refuses to accept my copy of the first appraisal and insists I pay $300 for a second appraisal from a different appraiser. Is this legal? –Beth W.

DEAR BETH: Congratulations on being a savvy mortgage shopper. As you have discovered, mortgage lenders hire the appraisers, not the borrower. A second mortgage lender will rarely accept an appraisal ordered by the first mortgage lender because of nonsense professional appraisal rules.

The result is you, the borrower, get stuck paying a second appraisal fee. However, if you found a much better mortgage, paying a $300 second appraisal fee is very worthwhile.

REALTOR DOESN’T SET HOME VALUE, THE MARKET DOES

DEAR BOB: We are in the process of selling our home. Now I see why you suggest interviewing at least three successful local Realtors before listing with the best one. So far, we interviewed three Realtors and they each provided us with CMA (comparative market analysis) forms, as you said they would. However, they used mostly different comparable recent home sales in our area. We have a “run of the mill” house with nothing unique but in a very desirable neighborhood. The Realtors set the market value of our home at $475,500, $560,000 and $625,000. These are all experienced, longtime local Realtors. How can they set the market value of our home so far apart? –Joseph H.

DEAR JOSEPH: That is amazing. But you should be aware the Realtor doesn’t set the market value for your home — the local market does.

Something is seriously wrong with those CMAs, especially if they didn’t use the same recent sales prices of similar nearby homes in your vicinity.

You should be aware it is possible one of those agents tried to “buy” your listing by estimating a high market value and another estimated a low market value, hoping to make a quick easy sale. I suggest you keep interviewing more agents before selecting the best agent to receive your 90-day listing.

NO TAX-DEFERRED EXCHANGE FOR A PERSONAL RESIDENCE

DEAR BOB: My house, which I now want to sell, was rented to tenants between 2000 and 2004. I moved back 26 months ago. Can I still do a Starker tax-deferred exchange? If not, would there be any benefit to carry back the mortgage for my buyer? I am single, if that makes a difference –Lisa Z.

DEAR LISA: Sorry, you don’t qualify for an Internal Revenue Code 1031 tax-deferred exchange. The reason is the property is your personal residence, not a rental or business property.

To make the property eligible for a tax-deferred exchange, you must move out and rent the property to a tenant.

However, because your property is currently eligible for an Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 for a single homeowner, that might be your best choice.

If you carry back the mortgage for your buyer, that is called an installment sale. It will spread out your profit tax over the life of the mortgage payments you receive.

The capital gain portion of each payment you receive will be taxed at the current federal 15 percent tax rate, plus applicable state tax. Of course, the interest income you receive is taxable as ordinary income. For full details, please consult your tax adviser.

INHERITING REAL ESTATE IS BETTER THAN RECEIVING IT AS A GIFT

DEAR BOB: I saw in a recent item you said it was bad to inherit real estate because of the reduced cost basis. Are you saying inheritance is a bad thing? Please explain why you said “stepped-up basis” is better –Chandler B.

DEAR CHANDLER: You misunderstood. I often say it is better to inherit real estate than to receive it as a gift before death. The reason is when you inherit real estate from a deceased owner, you receive it with a new “stepped-up basis” of market value on the date of the decedent’s death.

If you receive a pre-death gift, as the donee you take over the donor’s usually much lower basis than the current market value.

For example, suppose your mother’s basis for her house is $50,000. It is worth $300,000 today. If she gives you a gift deed, your adjusted cost basis will be $50,000, the same as her basis.

However, if you instead inherit that same house after she passes on, your adjusted cost basis is the date of death market value at $300,000 in this example. Obviously, stepped-up basis is much better because when you eventually sell that property your capital gain tax is payable only on the increased sales price above the stepped-up basis. For full details, please consult your tax adviser.

The Robert Bruss special report, “Probate Property Profit Secrets Revealed,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, Calif., 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 2007 Inman News

Buyers tend to want listings that are in move-in condition. For that reason, sellers often put a lot of time and money into prepping their homes for market to realize the largest profit possible from the sale. But, is it worthwhile to fix a property up before selling if it is in a dismal state?

It’s usually worthwhile to fix up a needy property in a good location that has great potential and that can be improved considerably with cosmetic improvements. The reason why it makes sense to go through the effort is that most people don’t have good imaginations and can’t envision what a house might look like with work done to it. They simply relate to what they see.

For example, last year a grand old home sold in Oakland, Calif. Neighbors went directly to the sellers and asked if they could take a look at the house before it was fixed up for marketing. The sellers agreed and showed them the house. The buyers didn’t like what they saw.

The house was subsequently improved by removing wall-to-wall carpet and refinishing the original hardwood floors that were underneath the carpet. The entire interior of the house was painted in beautiful decorator colors. Light fixtures were updated; the yard was spruced up; and the house was staged for sale. The transformation was stunning.

The property sold with multiple offers for considerably over the asking price. The buyers who had turned the property down before the house was fixed up were one of the four bidders; they weren’t the ultimate buyers.

HOME SELLER TIP: There’s a tip to be gleaned from this experience that’s relevant to all sellers. Don’t let a prospective buyer look at your home until it has been prepared for sale. Buyers remember what they see, not what you tell them the house will look like when you’re done with the prep work. You could lose a good prospect by showing your home before it is ready.

Circumstances may not permit you to do much to a fixer property before you put it on the market. You might be short of funds or have a pressing deadline. In this case, the best approach can be to take advantage of the fact that the property you’re selling is a fixer-upper. In other words, market it as a fixer.

Some sellers bridle at the notion of calling their home a fixer-upper. But, it can make good marketing sense. A certain segment of the market is looking for fixer properties that can be improved to increase value. In fact, these buyers sometimes overpay for the perceived potential.

Even though you might get lucky and sell a loser house for more money that you thought was possible, don’t lose sight of the fact that you’re marketing to a limited pool of buyers. Most buyers won’t even look at a fixer because they don’t have the time, expertise or resources to turn a property around. Listing a fixer at an enticing price is an important part of selling it for a good price. The list price should reflect concessions made for work that needs to be done.

To attract a fixer buyer, make sure you get broad marketing exposure. It’s also a good idea to have pre-sale inspections done. Make the reports available to buyers to review before they make offers. This will help to minimize the chance of a deal falling apart when the buyer finds out the extent of the necessary work.

THE CLOSING: Even if you don’t do fix-up work, the yard and house should be clean and free of debris so that the fixer buyers with vision will be able to see what the property has to offer.

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 2007 Dian Hymer

(This is Part 5 of a five-part series. See Part 1, Part 2,Part 3 and Part 4.)

Previous articles in this series emphasized that the subprime market remains open for business, with more realistic underwriting rules than before the house-price bubble broke. Hopefully, ill-advised actions by government won’t shut it down before something better is in place.

The Federal Housing Administration, or FHA, is the only plausible substitute. But converting FHA into a viable substitute for the subprime market requires a number of far-reaching changes.

Risk-Based Pricing: A core feature of the subprime market is risk-based pricing over a very wide range. On the price sheet of a typical subprime lender, the interest rate on the worst risk is 7-8 percent higher than the rate on the best risk. For FHA to operate effectively in this market, it must do the same.

For risk-based pricing to work, FHA has to be free to set premiums over a wide range. Congress can’t impose limits on the premiums or require FHA to favor one category of borrowers over another. These would be difficult limitations for Congress to accept.

With risk-based pricing, there would be no need for Congress to specify down-payment requirements. FHA would be free to insure no-down-payment loans at an appropriate premium, or it might decide (as subprime lenders have) that no risk premium would be adequate for zero-down loans when the borrower also has poor credit.

Enlisting Mortgage Brokers: More subprime loans are taken out for refinances than for purchases. In many cases, borrowers who have no plans to refinance are actively solicited by mortgage brokers. For FHA to make significant inroads on the subprime market, it must enlist the brokers while protecting borrowers against broker abuse.

To enlist mortgage brokers, FHA must relax its capital and audit requirements. It should be as easy for brokers to originate an FHA loan as it would be a conventional loan. FHA holds lenders responsible for following FHA rules, and brokers should be the sole responsibility of the lenders, as they are in the conventional market.

Protecting Against Broker Abuse: Broker abuse consists of overcharging borrowers by collecting payments from lenders for delivering higher-rate loans. These payments are called “yield spread premiums,” or YSPs. FHA could prevent this abuse by adopting a rule that YSPs must be credited to borrowers, who would have to authorize their payment to brokers.

Protecting Against Lender Abuse: Because FHA is an insurer rather than a lender, adjustments to risk are in the FHA insurance premiums rather than in the interest rate. This is advantageous to borrowers because it narrows the range of FHA interest rates. The lender can’t tell the borrower the rate is high because of poor credit, small down payment or anything else that affects risk. The borrower pays for these in the insurance premium, and the premium is set by FHA, not by the lender.

Nonetheless, too many price variables remain: interest rate, points, fixed-dollar lender charges and third-party charges. The last two, in particular, are a potential source of abuse because they are not part of the price quotes that borrowers shop and can be manipulated at the 11th hour.

FHA currently provides protection against egregious abuse by limiting lenders to a 1 percent origination fee plus other “customary and reasonable costs.” Third-party charges are limited to actual charges, with no lender markups permitted. These rules made sense four decades ago when FHA set the interest and points, but with the rate and points set by the market, they are obsolete.

The “customary and reasonable” rule eliminates any competitive pressure to reduce lender costs. The “no-markup” rule does not prevent lenders from having an ownership interest in, and thereby profiting from, their referrals to high-priced third-party service providers.

FHA should require lenders to absorb all costs and third-party fees, and pass them to borrowers in the rate and points. Then borrowers would have only two price variables to shop, and competition by lenders would force down their own costs and the prices of third-party services.

Disclosure Requirements Need Updating: It isn’t enough that FHAs become a better deal for disadvantaged borrowers than subprime. Borrowers must also perceive that these loans are a better deal. Comparisons can be misleading because of what is not disclosed.

For example, when the subprime loan is 6 percent compared with 7.5 percent for the FHA, the borrower may not be aware that the balance of the subprime loan will be loaded with fees, or that the subprime rate will jump to 9 percent in two years even if the market is stable. For a revamped FHA to compete on a level playing field with the subprime market, the disclosure system must be fixed so that this and other critical information hits the borrower between the eyes, and the garbage disclosures that are now a distraction are removed.

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 2007 Jack Guttentag

The interest-rate rocket ride concluded at the middle of last week, the definitive 10-year T-note one night reaching 5.34 percent in Europe — versus 4.6 percent one month ago. The mortgage rate apogee did not quite touch 7 percent.

The 10-year on Friday was trading a hair under 5.2 percent, and I think there are excellent reasons for faith in stability near here, low-fee mortgages about 6.75 percent.

The week’s economic data were benign, inflation still above the Fed’s 2 percent target but ever-so-gradually abating. Overall economic activity is consistent with a second-quarter rebound from an awful first quarter, not upward-spiraling GDP: May retail sales shot ahead by 1.4 percent, but from a negative April; strong manufacturing reports slipped to flat in May, suggesting that passing strength was more pipeline filling than ramp-up.

This dead stop in long-term Treasury rates at 5.25 percent has two sets of fingerprints: the Fed’s cost of money is 5.25 percent, and the world’s investors are desperate for yield.

A little history: in 2004, when the Fed began to raise its rate from deflation-fighting 1 percent, long-term rates did not move upward, arguably the first time ever that long rates had stayed put at the beginning of a Fed cycle. “Greenspan’s Conundrum” was — is — the moniker for the phenomenon, now widely understood to have been caused by a global ocean of excess savings.

Long rates did ultimately rise from the mid-4 percent zone, but not until near the end of the Fed’s 17-hike campaign. When the Fed plodded to 4.5 percent, so went the 10-year T-note; a couple of months later, the Fed to 4.75 percent, so went the 10-year; then 5 percent, then 5.25 percent — the Fed bulldozed long-term rates tick for tick.

Stage two in the Conundrum followed: shortly after the summertime ’06 peak, long rates fell into an “inversion,” previously guaranteed to presage a recession. Not this time: rates fell because of misplaced hope for recession, and hunger for yield.

The heart of the Conundrum is “non-economic” buying of long-term bonds — non-economic because the buyers are forced to invest cash pouring into their hands, and result in no return whatsoever for the risks inherent in time.

These buyers are the Asian exporters, forced to buy U.S. securities lest their currencies become too strong, and wisely accumulating dollar reserves in their central banks to protect their currencies from another run like 1998. A marker: global central bank reserves have grown from $2 trillion to $5 trillion in a little more than five years. That’s a lot of money looking for investments, more money than there are good investments. Later to the game: the petro and commodity producers likewise awash in export winnings from the price spikes of ’04.

The hallmark of yield hunger: overpaying for poor investments. Markets everywhere today tend to bubble, and risk for time or credit brings negligible reward. The durable consequence of the Conundrum, I suspect: long-term rates staying very close to central bank rates. A bit lower if the economy seems to slow, as in the nine months past; a bit higher if the world economy seems to be running away from the central banks.

How might the Conundrum conclude, long-term rates returning to a proper, nonrecession 1 percent or so above the Fed? The rate rise thus far will do little harm to weak housing markets; however, should we fear a mortgage jump well into the sevens, and the killing damage sure to follow?

A change in Asian behavior has been forecast for a couple of decades, and isn’t going to happen soon. Petro/commodity winners are going to be cash fountains for a long, long time. Most episodes of underpriced risk end with cautionary accidents (we are due), but if there’s enough money chasing yield, it will just slosh somewhere else.

I think the Conundrum is still very much in action, that this long-term rate rocket is not the first in a series ahead, just a re-pricing of the Conundrum. The new pricing is still Conundrum crazy (all Treasuries from two years to 30 today are now trading in a 5.05 percent-5.25 percent band) and the 10-year is going to be tight to the Fed for quite a while.

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

Copyright 2007 Lou Barnes

Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, July 16, 2006.

“I can’t believe the mortgage company approved me to buy a condo in such bad shape.” That’s what I overheard a young lady tell her breakfast date at the coffee shop I like to visit on Saturday mornings. The place is always very busy. The tables are close together so it’s hard not to overhear conversations at the adjoining tables.

Burying my head in the newspaper, I then heard her say, “But my dad remodels kitchens so I know he will make it a beauty.” I wanted to tell the guy, “Marry her, she’s on her way to a real estate fortune!” But I kept quiet and looked away.

Purchase Bob Bruss reports online.

Then she went through a list of condo fix-up work she plans to make, such as fresh paint, new carpets and several decorating ideas. At that point, the guy changed the topic. If they marry, she will obviously be the real estate tycooness in that family.

HOW TO FIND A PROFITABLE HOUSE OR CONDO. If you are a typical house or condo buyer, you probably want to purchase a new or resale residence in near-perfect, “model home,” move-in condition. That’s fine.

But expect to pay full retail market value. That is not the way to make a profitable home purchase.

If you want to profit from your home purchase, as that young lady will, buy a house or condo needing profitable improvements. Extreme cases are called “fixer-uppers.”

To be polite, some listing agents call them “tired homes.” Having bought and sold many profitable residences over 40-plus years of investing, here are my top five criteria for buying a profitable house or condo:

1. ASK HOW MUCH THE SELLER PAID. The longer I’m involved with real estate investing, the more important I think this key question is. I wish I started asking it many years ago when purchasing investment properties.

Even if you find a house or condo in excellent condition, before making a purchase offer, ask your buyer’s agent, “How much did the seller pay for this home?”

Most buyers don’t ask this vital question. Your buyer’s agent might be shocked. Just explain the reason you need to know is to discover how much negotiation room the seller has so you can buy the property. Your agent will be thrilled to learn you plan to make a purchase offer.

For example, if you learn the seller paid $100,000 for the property many years ago, and the comparable home sales prices in the vicinity indicate it is worth $300,000 today, that seller has lots of negotiation room. However, if your buyer’s agent checks the public records and discovers the seller paid $250,000 for that house last year, the seller doesn’t have much negotiation room for you to buy a profitable house at a below-market purchase price.

2. ASK WHY THE SELLER IS SELLING. This is a controversial question for a home buyer to ask. Only the smartest buyers dare ask it. Knowing the seller’s true motivation for selling is critical if you are to buy a profitable house or condo.

Often the listing agent doesn’t know the answer. Be sure to communicate to your buyer’s agent, who will then tell the listing agent, “I need to know so my buyer can make a purchase offer that meets the seller’s needs.”

Sometimes, you won’t be told the truth. For example, if the reason for the home sale is a divorce, the listing agent might be reluctant to reveal that fact. However, I’ve found that to be important information so I can make a purchase offer providing cash to satisfy both sellers.

Or, if you learn the home is in foreclosure and the lender has scheduled a foreclosure sale in three weeks, you better be prepared to purchase fast before the seller loses the house.

I recall one situation several years ago where I asked the nasty listing agent why the sellers were selling a home I really wanted to buy for my personal residence. He arrogantly replied, “It’s none of your business. Just bring a cash offer.”

Not wanting to do business with him, I never made a purchase offer on that house. Later, I learned the sellers were very wealthy and were retiring to Palm Springs. I could have made a low-down-payment offer and they probably would have carried back a mortgage on very attractive terms.

3. LOOK FOR “THE RIGHT THINGS WRONG.” This used to be my primary criteria for buying a house or condo at a bargain below-market purchase price. Although this reason is still ultra-important, it is no longer as important as the first two criteria.

That condo buyer who sat at the table next to mine a few weeks ago, understood this rule even if she didn’t have it on her profitability list. By purchasing a condo needing a kitchen renovation, she was acquiring an almost instant profit opportunity, especially since her father is in the kitchen remodeling business.

“The right things wrong” mean profit opportunities. Often, all that is needed are a coat of paint and new wall-to-wall carpets. Additional profitable examples include new light fixtures, new appliances, fresh landscaping, and bathroom updating.

Examples of the “wrong things wrong” or unprofitable improvements include a new roof, foundation repairs, new plumbing or wiring, and new windows. The reason these obviously necessary updates are unprofitable is they add less market value to the home than they cost.

4. DEDUCT FROM MARKET VALUE FOR THE COST OF REPAIRS. Most sellers of houses and condos are well aware if their home needs repairs or updating to current market value standards. There are two ways for buyers to handle this.

One is to offer a low purchase price to compensate for the obviously necessary repairs. However, such an approach often upsets the seller who doesn’t realize how much it will cost to bring their home up to neighborhood standards.

A better approach is to offer close to current market value, based on recent sales prices of nearby comparable houses or condos, but then list and ask for credits for necessary repairs, such as a new roof, foundation repairs, landscaping, and new plumbing or wiring. This method is often more effective because the seller then realizes all the work their “fixer-upper” needs.

5. ASK THE SELLER FOR AFFORDABLE FINANCING. Although home mortgage financing is easily available today, you might be able to do better in the right circumstances by asking the seller to carry back a mortgage for you. This can be especially valuable if the seller owns the home free and clear with no mortgage, you plan to immediately renovate the house to increase its market value, and you expect to refinance or sell the home after the improvements are completed.

To illustrate, if you offer a retiree seller a 5.5 percent interest rate on a carryback mortgage, that’s better for you than is easily available at the local bank. However, be sure there is no prepayment penalty so you can refinance when you complete renovations to increase the home’s market value.

As the old saying goes, “It doesn’t hurt to ask.” There is no easier mortgage lender than the home seller. My experience is retirees are especially anxious to finance home sales because they usually can’t obtain such a high yield with the safety of a mortgage on their former residence if you fail to make the payments and they have to foreclose. By obtaining easy seller financing, you just increased your purchase profit even more.

SUMMARY: If you ask the right questions, your house or condo purchase can become a profitable investment. Whether you plan to keep your home purchase a short time or for many years, look for the “right things wrong” and the extra bonus profit opportunities, such as seller carryback mortgage financing.

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

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Copyright 2007 Inman News