QUESTION: About a month ago we listed our home for sale. As you often suggest, we interviewed several realty agents before selecting one. At first we were very pleased. She brought her entire office sales force of about 35 agents to inspect our home.
The first weekend she advertised an open house and had many attendees, according to the register book she showed us. She also held an open house two weeks later with equally good results.
However, we haven't had any offers so far. Then I got to thinking that other agents in town should also be showing our home to their prospective buyers. I phoned one of the agents we interviewed, since he claimed to have several prospective buyers for our home, but he said he had been looking for our home in the multiple listing book but had not seen it yet.
When I called our agent she said it is her firm's policy not to put listings into the MLS until after the first month. We were very upset to learn this. What should we do?
ANSWER: Your real estate agent has seriously breached her fiduciary duty to you. If she said your listing would be placed in the local MLS and it was not, the agent could lose her license for fraud and misrepresentation.
I suggest you immediately contact the owner or manager of the brokerage. If you are not satisfied with the results, you may want to cancel your listing and file a complaint with the state real estate commissioner who will investigate and possibly revoke the agent's license.
Greed is the reason some realty agents don't want to cooperate with agents from other local firms. If your home sale takes place within the same brokerage, the firm and the agents earn larger sales commissions. But they are doing you a disservice by not exposing your home's availability to all member realty agents of the local multiple listing service.
One of the major advantages of listing your home with an agent over trying to sell it without professional marketing help is the local MLS. It is the best way to let local member realty agents that your home is available for sale. There is no valid excuse for a firm not promptly submitting your listing to the MLS after your agent told you the MLS would be used to sell your home.
Condos Are Preferable to Co-Op Apartment
Q: My mother lives in a New York City cooperative apartment building. The mortgage was paid off last year and the owners are considering converting to condominiums because some of the owners want to have individual mortgages on their apartments. Do you think this is a good idea?
A: Yes. Condominiums are usually worth far more than similar cooperative apartments. The reason is that condos can have individual mortgages, just like single-family houses, whereas cooperative apartments are more difficult to finance.
As a result, many cooperative buildings have converted to condominiums. But I have never heard of a condo building converting to cooperative status. I suggest you advise your mother to vote for the conversion because it will almost surely increase the value of her apartment.
Switch to Bank That Is People-Oriented
Q: My wife and I have received handsome gifts from our parents to use as a down payment on our first home.
We are very frugal and know we can make the mortgage payments. But the bank where we went to pre-qualify for a mortgage won't approve a loan large enough for the new home we want to buy. We tried to talk the loan officer into approving the loan we need, but she said we didn't meet the ratios since our monthly payment will take 36% of our gross monthly income.
Since we have no other loans, except $232 for our car loan which will be paid off in eight months, how can we get a loan?
A: Switch banks. You are trying to do business with the wrong type of lender.
There are two types of banks: the numbers banks and the people banks. You are obviously dealing with an impersonal numbers bank. These are usually the giant, inflexible banks that could care less about individuals but which loan billions of dollars overseas. But the people banks need and appreciate your business. These are often smaller community banks with just a few branches.
Ask the lender if your loan will be kept in a portfolio or sold in the secondary mortgage market.
If you are told the loan will be sold, run out of that bank as fast as you can because you are dealing with an inflexible lender. Find a portfolio lender who can be flexible and make a loan to a good borrower like you whose payment-to-income ratio doesn't fit the stupid rules of the major secondary market buyers such as Fannie Mae and Freddie Mac.
Neighborhood Worries Would-Be Purchaser
But we are concerned about the neighborhoods, which don't seem well-maintained. As we are looking for our first home to purchase and can't be too choosy, do you think we should buy one of these foreclosed houses?
A: Please be careful. Bad location is an incurable defect. If you don't like the neighborhood, don't buy.
However, consider the price, the terms and the opportunity. I've purchased many investment houses where I wouldn't want to live. But at the price and terms, they were bargains. I still own some of those homes today and nice families live in them.
If you think the neighborhood is improving, today might be the right time to buy. However, if it has major drawbacks such as a noisy freeway, a smelly nearby factory or a bad location, stay away. But if the house has a defect that can be cured, maybe you should buy. For example, last year I bought a run-down house on a very busy street. I upgraded it, built a nice fence to add privacy and earned a handsome resale profit. Perhaps you can do the same.
Time-Share Owner Likes Investment
Q: I disagree with your recent remarks that time-shares are generally not good investments. That may be true, but I bought several time-shares in a very desirable project and I have had many offers from other owners who want to buy out my time-shares at a good profit. If people investigate carefully and buy only top-quality time-shares in the high season, I think they can make money. Also, the trading opportunities have been wonderful.
A: Thank you for sharing your rare time-share success story. Unfortunately, my mailbag is filled with horror stories of time-share buyers who can't resell for the price they paid. Worse yet, some time-share projects are assessing owners for repairs and to meet operating budgets. I'm glad to hear there are a few happy time-share owners.
No Tax-Free Stock Trade for Real Estate
Q: You often extol the benefits of tax-deferred exchanges. I am becoming worried about the stock market where I have about $500,000 invested, much of it profit. Is there any way I can made a tax-deferred exchange of my stocks for real estate without paying tax?
A: Sorry, but trading personal property common stock for real property is an ineligible "unlike kind" trade. It would not qualify for tax- deferral. Only a "like kind" exchange of investment or business real estate for another such property, without receiving any taxable unlike kind "boot" such as cash or net mortgage relief, can qualify for an IRC 1031 tax-deferred exchange. Please consult your tax adviser for full details.
Where to Get Home Warranty for Buyer
Q: Several months ago, you said it was a good idea for a home seller to provide a one-year home warranty for the buyer. As I plan to sell my home without a realty agent, where can I buy such a warranty?
A: Most real estate brokerage offices can give you names of home warranty companies which do business in your community. Or you will usually find these firms listed in the phone book yellow pages.
Inflation a Reason for Bigger Home Mortgage
Q: I notice several readers have questioned your sound advice to make a small down payment and get as large a mortgage as possible when buying a home.
In addition to the new tax law which, I agree, makes a large home mortgage sensible, I think you overlooked the biggest advantage of paying back the mortgage with cheaper inflated dollars.
Even though the government says the inflation rate is only about 5 or 6 percent, after 10 years that means a total loss in purchasing power of 50% to 60%. Don't you think inflation is a more important reason than the tax savings for getting a big mortgage?
A: Yes. Thank you for emphasizing that although the inflation rate is down from previous years, inflation is not dead. It is another reason for using a large mortgage to leverage a home purchase and obtain maximum financing benefits.
Sale of Vacation Home Can Be a Taxing Event
Q: We recently signed a contract to sell our summer home. Since we bought it many years ago for about $12,000 and got $65,000 for it, we will have a large profit if you can come up with a way to avoid tax. Any ideas?
A: Sorry, but the sale of your vacation home will not qualify for any special tax breaks.
Since it is not your principal residence, it can't qualify for the "roll-over residence replacement rule" tax deferral of IRC 1034. But some tax advisers say vacation homes can qualify for tax deferred exchanges under IRC 1031 if you were acquiring another such property.
However, since you didn't mention another acquisition, it appears you won't qualify for an exchange either. Sorry, I have no magic way to avoid tax on the profitable sale of a vacation home.
How to Avoid Delays, Costs of Probate
Q: My parents live in a retirement home. They recently attended a seminar about estate planning where they learned of the costs and delays of probate.
One alternative would be to add me, their only child, to the deeds to their properties so I would automatically receive the titles when they die. But the lawyer conducting the class said problems can occur if the offspring should incur debts. What is the best way to solve the probate problem?
A: Adding a minor child to the title to real estate can be a major mistake. If the parents should later want to sell the property, they will have title problems because minors cannot convey title. A guardian may have to be appointed to represent the child.
As you explained, if an adult co-owner offspring should incur debts, such as for a personal injury judgment, any property which they own can become subject to levy to pay the debt. Therefore, adding an adult offspring to the title of property owned by parents is usually not a good idea.
A better alternative is to suggest your parents put their real estate and other major assets into an inter vivos living trust.
During their lifetimes, they are both the trustees and the beneficiaries. When one dies or becomes incompetent, the other takes over. After both die, the living trust can specify you become the new trustee and new beneficiary, thereby avoiding probate costs and delays. Further details are in an excellent new book "Plan Your Estate" by attorney Denis Clifford.
Every Property Owner Needs Title Insurance
Q: Almost 10 years ago, my husband and I paid $7,500 for a nice rural lot where we planned to build a vacation home someday.
We paid the property taxes but hadn't seen the lot in years. In August, we were vacationing in the vicinity and decided to drive by our lot. To our surprise, a modest house has been built on our lot. When we knocked on the door, the nice lady said her husband's father died a few years ago and willed the lot to them. This sounded like the same man from whom we bought the lot almost 10 years ago.
The next day we went to the county court house and got a copy of our recorded deed. When we showed it to the occupants of "our lot," they said the signature doesn't look authentic. The husband showed us his father's will and I agree the signatures don't match. What should we do?
A: I hope you bought title insurance when you acquired that lot. If you did, contact the title insurer and make a claim on your title policy. Forged signatures are the major cause of losses for title insurance companies.
However, if you did not purchase an owner's title insurance policy, then you may lose the lot unless you can prove you acquired valid title to the property. But a forged signature on your deed will thwart your ownership claim. Contact a real estate attorney for further information.
Bring Cashier's Check to Foreclosure Auction
Q: There is a house a few doors away from ours which is going to foreclosure sale in a few weeks. I heard the husband and wife are separated and neither will make the mortgage payments. The house is a wreck. But it could be a bargain if not many people show up at the auction.
A notice posted on the property says the opening bid will be $60,000. Do we have to bring this much cash to bid at the auction? Are there any special things we should know about buying at a foreclosure sale?
A: In most states, you either must bring cash or cashier's checks to the foreclosure auction. However, in a few states you are allowed time to raise the rest of the cash. I suggest you attend a few foreclosure sales before the one you're interested in so you get an idea of how the auctions are conducted in your city.
But, depending on the circumstances of the foreclosure, you might be better off trying to buy the house from the owners before the foreclosure sale. It is often possible to buy out the owners' equity for a few thousand dollars and avoid the competition of the foreclosure auction. Please consult a real estate attorney to discuss the situation.
For more details, order my special report, "How to Acquire Foreclosure and Distress Property Bargains,"($3.50), Newspaperbooks, 64 E. Concord St., Orlando, FL 32801.
Sometimes It's Better to Rent Than Own
Q: Recently I attended a real estate investment seminar where the speaker, who seemed very knowledgeable, said it is cheaper and smarter to rent your home than to own it. My wife and I pay about $1,200 per month for the mortgage payment and property taxes on our home. But we could rent a similar house down the block for $950 per month. Do you think we should sell our home and rent instead?
A: No, no, no. The seminar speaker you heard is absolutely correct in telling you that it is cheaper and smarter to rent your home than to own it. However, most folks don't like the idea because they want to own the home where they live.
The solution is to rent the residence in which you live and own an equivalent rental house. For example, you could rent that house down the street for $950 while you rent your present home for $950 to tenants.
Yes, you will have a negative cash flow of about $250, plus maintenance and insurance. However, you will be able to depreciate your former residence, thus resulting in a tax loss. If your adjusted gross income is less than $100,000, you can deduct up to $25,000 of such a loss against your ordinary income, such as job salary, interest and dividends.
I must admit although it makes sense to rent a residence instead of owning it, I don't do that. There is something about the security of owning your home that can't be compensated no matter how great the tax benefits. Before you move out of your home and rent one down the street, please consult your tax adviser for full details.
Reinspect House Day Before Closing Date
Q: In a few weeks, we are scheduled to complete the purchase of our first home. Since the sale involves the seller fixing up the house before we buy, how can we be sure the work is completed before we close the sale?
A: The best protection any home buyer has is to reinspect the house the day before the scheduled closing date. If the seller knows you will be checking, he is unlikely to play games. You have all the leverage before the sale closes. But after the seller has your money, you have virtually no leverage to get the seller to correct any defects.
10% Commission Not Unusual in Rural Deal
Q: I recently inherited some rural land which I want to sell. The two realty agents I've consulted both want a 10% sales commission to sell my land. Do you think they are trying to take advantage of me?
A: No, 10% is the customary sales commission rate for selling rural land. Selling such property is not an easy job. Don't be surprised if the sale takes six months or longer.
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.