The Hunt for the Best Agent Starts With Reading the Signs
Question: We’re getting our house ready to sell. I know you often recommend interviewing at least three realty agents. My question is, how should we select the firms to interview? Should we go with the big firms that advertise heavily? We don’t know any local realty agents. The agents who send us an occasional letter or postcard aren’t very impressive.
Answer: The best way to find a top quality real estate agent is to ask friends, business associates and neighbors for their recommendations. Also, look for nearby “for sale” signs that have turned to “sold” signs within a month or two.
Another way to find a successful agent is to follow the magazine and newspaper home-sale ads for houses like yours. You want to hire an agent who isn’t stingy about spending advertising money. The Internet is also a source for finding agents active in your area; agents with personal Web sites are usually quite progressive.
The size of the brokerage firm is irrelevant. You are hiring an individual agent, not the firm. Yes, the firm should have a good reputation. But some of the best realty brokers I know are independents, often working out of their homes.
As for your comment about not being impressed by the agents who send you an occasional mailing, I fully agree. I get those too. Few agents are consistent over the years about keeping in touch with homeowners in their “farm” areas every month. Because you want an experienced agent, not an agent who is going to become experienced on your listing, be sure to check each agent’s references of recent sellers before selecting the best agent.
Finally, just in case you select the wrong agent, don’t sign a listing for longer than 90 days unless it has an unconditional cancellation clause.
Insurance Alternative May Be Just as Costly
Q: We need to buy a home with as low a down payment as possible (because we don’t have much savings). A mortgage banker pre-approved us for a 97% Fannie Mae mortgage. But we will have to pay expensive private mortgage insurance.
After we were approved, the loan officer suggested that instead we take an 80% first mortgage plus a home equity loan up to 90%, 95% or even 100% of the home’s purchase price. Of course, the more we borrow, the higher the interest rate on the home equity loan. What do you think of this idea?
A: I agree with your mortgage banker that an 80% mortgage (which doesn’t require costly private mortgage insurance) plus a home equity loan is usually cheaper than the mortgage insurance for the borrower. Of course, compare your monthly payments with both alternatives before deciding.
The abuses by private mortgage insurance companies are well-documented, and Congress enacted legislation last year to require that it be dropped when the loan-to-value ratio declines below 80%. The insurance companies fought the new law very hard.
Incidentally, the new statute applies only to new private mortgage insurance loans, not to most existing ones.
If you can avoid private mortgage insurance, you will save thousands of dollars. However, the trade-off is that the interest on your home equity loan might be close to the total amount you would pay on a mortgage with private insurance.
Mutual Error (Maybe Fraud) Can Cancel Sale
Q: I recently bought a lot that the seller and my real estate agent thought was zoned for four apartments. Though this is correct, the lot size is not sufficient for four apartments under the city’s zoning rules. Only three apartments can be built. But the economics don’t make sense; my land cost per apartment for only three units would be far too high. How can I get my money back?
A: It appears the sale can be rescinded for mutual mistake. There might also have been negligent misrepresentation, possibly fraud. You may have several legal theories to sue the seller for rescission. Please consult a local real estate attorney.
Time-Share Week Hasn’t Any Takers
Q: How can I dispose of a time-share week that I can’t sell or give away? I want to get rid of it so I can stop paying fees.
A: That must be a very bad time-share if you can’t even give it away to your friends, relatives or enemies. As regular readers know, I do not recommend buying time-shares (which are purchases of future vacation time) because of their many drawbacks.
Most time-shares can be sold for about 10% of their original purchase price. The only person who usually makes profits on time-shares is the original developer. One way to get rid of your time-share is to trade it for something you want, such as a car, boat, condo or RV. Offer to add your time-share as part of your down payment.
New Husband Can Buy Ex’s Share of the House
Q: My husband and I divorced in 1995. Our divorce settlement says I must sell the house when our daughter graduates from high school in 1999. He will get 45% of the sales proceeds. But I resent having to sell the house, especially since I may be getting married soon and will become stepmother to three children ages 5, 6 and 7. It’s a great house in a great neighborhood for kids. Is there any way I can avoid having to sell it?
A: The obvious solution, if you get married, is to have your new husband buy out your ex-husband’s 45% share of the house. This would be good for the new marriage and it would get rid of your ex-husband. An appraisal can determine the market value for buyout purposes. If your new husband is willing to buy, your divorce lawyer can handle the simple details.
Over-Improved House Carries a High Price
Q: Almost three years ago, my husband and I bought what we thought would be our dream home. But it’s turning out to be a nightmare. We paid almost 50% down, so we had no trouble getting a mortgage. As we bought direct from the seller, we thought we were purchasing a bargain.
Last September, my husband’s employer went bankrupt. Fortunately, my husband was able to find another job quickly at equivalent salary. But it involves moving to another city.
Meanwhile, I’m stuck trying to sell our house. We’ve had it listed for sale with two Realtors. Both told us we paid about $70,000 too much. It’s the best house in the neighborhood. They call it an over-improvement.
How can we sell it so the kids and I can join my husband? Can we deduct our loss on our income taxes?
A: Your situation is a classic example of the consequences of buying a house that is over-improved for its neighborhood. Since you bought direct from a “fisbo” (for sale by owner), you didn’t have the benefit of a Realtor to caution you against paying too much. Neither did the mortgage lender warn you about overpaying, since you made a 50% down payment and the lender had a very safe mortgage.
Although homes are appreciating nationally at an average annual rate of 5%, your house is still an over-improvement whose market value is held down by the current resale prices of nearby homes. Adding to your misfortune, loss on the sale of a personal residence is not tax deductible.
The best thing to do now is cut your losses by reducing the asking price to the indicated market value shown by recent sales prices of nearby homes. I’m sure the two Realtors have shown you the market value of your home, although you’re probably not willing to accept it.
Moral Responsibility May Also Be Legal One
Q: About six months ago I listed my home for sale with a Realtor. He found a buyer and we signed the sales contract. However, the buyer had to cancel for personal reasons, so there was no sale. The agent’s listing expired shortly thereafter and I didn’t extend it. Now that buyer has contacted me directly and says she is still interested in buying my home. If I sell to this lady, what are my legal and moral ramifications?
A: Study your listing agreement. It probably contains a “safety clause,” which is typically valid for 90 to 180 days. This clause says that if you sell to someone who was registered with you by your agent during the listing term, you owe the agent a sales commission.
Since the agent brought you the prospect’s purchase offer, it is arguable she was registered with you during the listing term. Without the efforts of the listing agent, this prospect never would have seen your home and made an acceptable offer.
Morally, if you sell to this buyer, you owe a sales commission. Legally, you probably do too. If you make a sale to this buyer, presumably without the agent’s direct involvement, the agent might sue you for the full commission and might win.
After the sale closes, if you deliver to the listing agent a cashier’s check marked “Payment in full” for 50% of the sales commission, the agent will probably thank you and be very satisfied.
This Adjustable-Rate Loan Is Worth Keeping
Q: About six years ago, we bought our home with the help of an adjustable-rate mortgage. Following your advice, we got a mortgage tied to the Cost of Funds Index, which has dropped to 4.665%. Adding our 2% margin means we are now paying 6.665% interest. We consider that a bargain.
But our home’s market value has appreciated at least $100,000, so we want to refinance to take out some tax-free cash to add a family room. However, as we shop for a refinanced mortgage, we find that adjustable-rate mortgages are not much cheaper than fixed-rate mortgages. Why? When we got our loan, it was the only mortgage for which we could qualify. A mortgage broker friend tells me hardly anyone takes an adjustable-rate loan today. He doesn’t have any lenders offering loans tied to the Cost of Funds Index. Why?
We like our adjustable-rate loan and want another one; where can we find one that’s a good deal?
A: Adjustable-rate loans used to be a very good deal to compensate borrowers for their high risk of rising interest rates. But today they aren’t worth the risk.
In the past, adjustable-rate interest rates were at least 1 1/2% below fixed rate mortgages. As I write this, the national average fixed-rate mortgage is at 6.85%, and the national average adjustable-rate loan is at 5.7%. The result is that fewer than 30% of mortgages being originated today have adjustable rates. Most borrowers prefer the fixed-rate mortgage, which is a true bargain at less than 7%.
Checking with several major mortgage lenders, I find none writing adjustable-rate loans tied to the Cost of Funds Index. The loan you have is a bargain because the Cost of Funds Index moves as slowly as molasses, up or down. Adjustable-rate mortgage lenders prefer the more volatile T-bill, LIBOR (London Inter-Bank Overnight Rate), CD Index or other lender-favorable indexes.
Instead of refinancing that loan you like, get a home equity loan or a home improvement loan. Both are really second mortgages. If you insist on refinancing and can qualify for a fixed-rate home loan, take it.
