Remodeling Often a Better Choice for Homeowners Than Buying Up
QUESTION: My husband and I are debating whether to add a fourth bedroom and a family room to our present home or sell it and buy a larger home. We have looked at every brand-new home in our vicinity. While they are very nice and are more up-to-date than our current residence, we like our location, the good schools and the short commute to our jobs. But some of our good friends recently remodeled their home and they almost got divorced. It was a mess. Finally, they took a two-week vacation to get away from the construction. Because we need more space for our growing family, we must make a decision quickly. What do you recommend?
ANSWER: My home builder friends will crucify me, but because you are happy with your neighborhood, I recommend you add on and remodel your home. In most situations, this choice is much cheaper than buying an equivalent new home.
Perhaps you have noticed extensive home remodeling and additions in your neighborhood. Homeowners all over the nation are realizing it is usually far cheaper to upgrade their current home than it is to sell and buy a larger, more expensive home.
Another major advantage is, in most towns, you will keep your old lower property tax assessment except for the value of the addition and remodeling.
But before you hire a contractor, please interview at least three. Ask your friends for recommendations. Be sure to write down all the work you want performed so all contractors will be bidding on the same job.
Before you hire a contractor, check each one out very carefully by inspecting at least one of their previous jobs and phoning at least three of their previous customers. In most states, you can also check with the state contractor’s license board and the local Better Business Bureau to learn of any complaints filed against each contractor.
Unfortunately, as in many businesses, the home remodeling business has some bad apples. But there are also many excellent contractors who work primarily on referrals from satisfied customers.
Personally, I have had excellent experience with most remodeling contractors, but occasionally I have problems with contractors who take on work that is beyond their skills. Keep in close touch with your contractor to prevent mistakes. Don’t become a pest but check the work every few days to be certain all is well and the work is being performed according to the written contract. It is better to prevent problems than correct them.
Recommended Books for Home Shopper
Q: I am a renter who wants to buy a home. But I don’t like the idea of being at the mercy of real estate agents, mortgage companies, builders and the like. I want to learn about the process of buying a house. Do you know of a good book about how to purchase a home without getting swindled?
A: Yes. One excellent new book is “How to Buy a House With No (or Little) Money Down” by Martin M. Shenkman from John Wiley & Sons, New York, $12.95. Another good book is “Before You Buy Your House or Apartment” by William J. Klein from Warner Books for $9.95. Both are available in stock or by special order at local bookstores.
What to Do If Your Real Estate Loses Value
Q: About three years ago we moved away from Montana. We considered selling our home there for about the price we paid, but decided instead to rent it to tenants. Since we moved away the home has declined in value.
Worse yet, it is now worth about $5,000 less than our VA mortgage balance. Our tenant recently moved out. We consulted several realtors there and after figuring the sales commission, we would be lucky to get rid of the house by finding someone to take over our mortgage, but we would have to pay the realtor’s sales commission. What should we do?
A: It is a shame you didn’t sell that house when you moved away from Montana. Unless you plan to return to your old home, I recommend selling it because managing long distance rentals is very difficult. As you discovered, being out of touch with local conditions has now cost you dearly.
As you probably know, I recommend listing homes for sale with local realtors. However, you may want to try selling your home by running ads such as “nothing down, take over mortgage payments.”
I presume your older VA mortgage is assumable. If that doesn’t work, then listing it with a realtor and paying the sales commission out of your pocket is the most viable alternative. Incidentally, many mortgage lenders who suffer foreclosure losses now go after defaulting borrowers, so don’t think you can walk away from that VA mortgage without the risk the lender may come after you for any loss. Ask your attorney to explain further.
Assessor Erred in Setting Low Tax
Q: We bought a brand-new home about five years ago. The first year our property tax was very low because at the time the tax was assessed, the home was only partly completed. However, our tax has never been increased since then, except for increases in the tax rate. Can the tax collector come after us for the tax he forgot to reassess? If we sell the property, can the assessor come after us for unpaid taxes?
A: Yes. In most states the tax assessor can levy a tax on escaped assessments. But I am not aware of any state that has a law requiring the property owner to notify the assessor of his mistake. If you sell the property, in most states the tax assessor cannot go after the former owner for unpaid realty taxes but he may be able to assess the property for back taxes. Consult a local real estate attorney for further details.
New Books Describe Setting Up Living Trust
Q: Just a quick note to thank you for recommending some time ago that property owners avoid probate by putting their assets into a living trust. My husband and I followed that valuable advice. It involved some work getting the legal descriptions of our properties, having the deeds prepared, and then recording them.
A local lawyer charged us $750 but it was well worth the modest cost. Less than a month after we completed the living trust my husband died at age 43 of a heart attack.
Since we owned 11 properties, I was expecting all sorts of delay and complications, but his entire estate was subject to only minimal paper work, mostly the tax returns, which the lawyer handled for less than $1,000. But I haven’t read anything in your columns lately about living trusts. Why don’t you encourage people to use them to avoid the costs of probate?
A: Thank you for giving me the opportunity to discuss living trusts again. Frankly, I don’t get many questions about how to avoid unnecessary probate costs, so the topic doesn’t arise very often.
Since I last wrote about how to save on probate costs, two excellent new books have been published. One is “Living Trust” by Henry W. Abts III (published by Contemporary Books, Chicago, $19.95).
The other is “Plan Your Estate” by Denis Clifford (published by Nolo Press, Berkeley, $17.95). Both are available in stock or by special order at local bookstores. I especially like Clifford’s book because it contains simple tear-out living trust forms.
Can an Agent Sue If Buyer’s Terms Refused?
Q: Our home is listed for sale with a fine realty agent. Last week another agent showed the house to prospective buyers. I was home when they inspected the house. They were thoroughly obnoxious people who nit-picked the house. I was sure they wouldn’t buy it.
But the next day they submitted a full price, all-cash offer with only a contingency for professional inspection of the house. However, my husband felt we should reject the offer because we feel these people will be trouble. We rejected the offer because we didn’t like the buyers, but we told the agent we didn’t like the inspection contingency. But now the realty agent is threatening to sue us for the sales commission because she brought us a full-price offer. Can she win?
A: No. If the listing agent or a cooperating agent brings a home seller a full-price, all-cash offer with no contingencies, the seller is not obligated to sell to that buyer. But the seller would owe the agent a full sales commission since the agent produced a full-price cash offer.
A real estate listing is much like newspaper ads for merchandise, which legally are invitations for purchase offers at the advertised price, not promises to sell at the asking price.
However, when a realty agent produces a full-price, all-cash offer with contingencies, such as your agent produced, if the seller does not accept it, the listing agent is not entitled to any sales commission since the agent did not produce an offer exactly matching the listing price with no contingencies. Please consult a real estate attorney for further details.
Manage Apartments to Save for Home
Q: My wife and I have been trying to save for a down payment to buy a home. But then my wife got pregnant and had twin boys, who are now 4-months-old. We decided it would be best for her not to go back to work because after paying child-care costs, she wouldn’t have much net income.
Our problem is, these developments have devastated our savings program. Before the babies, we were saving about $500 per month, but now we can barely make ends meet on my salary. Any ideas how we can get a down payment to buy a house?
A: Probably the best way to stop the outflow of rent money so you can start saving again for a down payment is for you and your wife to become managers of an apartment complex. Since she is home all day, she can manage the complex and show vacant apartments during the daytime. If you are handy, you can take care of minor repairs in the evenings and on weekends.
Good apartment managers are hard for owners to find. Look through the classified want ads in most major newspapers and you will find lots of owners looking for apartment managers. If the apartment complex is large enough, you can probably get a free two-bedroom manager’s apartment plus a little compensation. Then you can save all the money you are currently spending on rent. In a few years you will have a handsome down payment.
Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent him at P.O. Box 6710, San Francisco 94101.
