Don’t Do Walk-Through Until Seller Has Vacated
Question: My husband and I recently bought our first home. During the walk-through inspection, two days before the closing date, the seller was still living in the house. After the sale closed, we got the keys and went inside. To our shock, the seller had removed five authentic glass 1940s light fixtures, leaving us one plastic light fixture.
We phoned his realty agent and told him he needed to retrieve the fixtures for us, as the sales contract clearly says the light fixtures were to be left in the house. The agent agreed and said we would get them back. Since then, the agent has not returned our phone calls. We found a catalog that sells the same type of 1940s fixtures at between $75 and $150 each. Can we buy new ones and bill the agent? Should we take him to Small Claims Court?
Answer: Your situation shows the importance of a buyer’s walk-through inspection after the seller has moved out. A walk-through inspection while the seller is still living in the house is virtually worthless because the seller can still damage or remove items included in the sales price.
You should have waited until the seller moved out before conducting your walk-through inspection. I’ve bought rental houses where the sellers didn’t move out on time. I had to postpone the walk-through inspections until the sellers were out so I could inspect for damage and missing items.
Before the sale closes, the buyer has maximum leverage over the seller. After the sale closes, the buyer has virtually no leverage.
Your complaint is primarily with the seller, not the seller’s agent. Although the seller’s agent promised to retrieve the light fixtures, enforcing that oral promise could be difficult.
Before going to Small Claims Court, make a written demand on both the seller and the agent for return of the missing light fixtures within seven days so you don’t have to sue for the cost of replacements. Frankly, you will probably be better off with new, safer light fixtures. If the seller and agent don’t meet your reasonable deadline, that’s the time to sue both in Small Claims Court for the light fixture replacement costs. Let the judge decide who owes you.
Tax Exemption Is Based on Stepped-Up Value
Q: I understand that in 2002 the federal estate tax exemption jumps to $1 million. My elderly mother owns a very nice home, now worth about $700,000, where I grew up. My father died about 18 years ago. Mother is in poor health but living in a very luxurious convalescent home. I am her sole heir.
When I visit her, sometimes she recognizes me, sometimes she doesn’t. But she is receiving superb care, so I don’t worry. If my mother lives until 2002, when I inherit the house, will I then receive it with a new “stepped-up basis” to market value under the new tax law?
A: Yes. The 2001 Tax Act, which increases the federal estate tax exemption to $1 million, preserved the stepped-up basis to market value on the date of death for inherited property received by 2009. However, when the estate tax is abolished in 2010, the stepped-up basis for inherited property will be greatly limited then.
For readers not familiar with the importance of “stepped-up basis” for inherited property, here is a short example.
Suppose your mother’s basis for the house is $100,000 because it was purchased many years ago. When your father died, suppose it was worth $200,000. The result was your mother’s basis increased at that time. But if that house is worth $700,000 when your mother passes on, your new stepped-up basis will be $700,000.
Suppose you later sell it for $725,000. You will owe capital gains tax only on the $25,000 amount above your stepped-up basis. For full details, please consult your tax advisor.
Realtor Is Too Far Away to Be Effective in Sale
Q: I am a senior citizen and own my home debt-free. It is in a depressed economic area. I have $172,000 invested in my house and two lots. My asking price is $129,000. I want to sell so I can move full time to Las Vegas, where I rent a senior citizen apartment and spend half my time. But I don’t feel comfortable owning a vacant house, so I drive back and forth every few months.
My house is listed with a Realtor who is about 100 miles away (he is a retired Air Force officer who is a friend). Since my husband died, I don’t want to own that house. Would a reverse mortgage help my situation? What should I do?
A: Reverse mortgages are only available on full-time, principal residences. If you spend half your time living in Las Vegas, your free-and-clear house won’t qualify as a principal residence for a reverse mortgage.
Listing your home for sale with a Realtor who is located 100 miles away is not realistic. He can’t possibly do a first-class job of getting your home sold, especially if it is in a depressed economic area. I am surprised he would even accept your listing.
Cancel his listing and list with a nearby Realtor who successfully sells homes near yours. Before signing a listing, interview at least three successful local agents. Each agent should prepare a written comparative market analysis.
This form shows recent sales prices of comparable homes, asking prices of similar nearby homes now listed for sale (your competition), and asking prices of recently expired listings. You’ll quickly know the correct asking price for your home if you really want to get it sold. Then list it for sale with the most successful local agent.
She Forfeited Her Deposit by Backing Out of Sale
Q: My daughter placed a bid to buy a HUD foreclosure house. She was awarded the house. But after she thoroughly inspected it, she realized it will be a “money pit” to get it into livable condition. She refused to complete the purchase but had to forfeit her deposit. Is this customary?
A: Yes. VA and HUD foreclosure homes are sold “as is.” That means there are no warranties or representations. Buyer beware is the rule, as your daughter discovered the hard way.
Homeowners May Have to Refinance to Lose PMI
Q: We made a 10% down payment to buy our home. Our 90% mortgage, with private mortgage insurance (PMI) was originally with GE Capital. The terms for eliminating PMI called for paying down the original loan to 80%. New appraisals would not be accepted. Our mortgage was then sold to Wells Fargo, which maintains the same attitude. I thought the courts have said they cannot do this. Do I have to get an attorney to write someone at Wells Fargo to get my PMI removed?
A: I’ll presume you think your loan-to-value ratio is below 80%, probably because of substantial market value appreciation of your home.
Congress enacted a law, effective for PMI mortgages originated after July 1999, requiring PMI cancellation when the loan-to-value ratio drops below 78%. That doesn’t apply to your loan if your mortgage originated before then.
Who owns your home loan today? I’ll bet Wells Fargo is just the loan servicer, not the actual owner of your mortgage. As a borrower, you have a right to know who owns your home loan. Ask.
If you are lucky, your mortgage is owned by “good guy” Fannie Mae or Freddie Mac, the largest buyers of home loans in the secondary mortgage market. Both have reasonable policies for canceling PMI. If you learn either of these investors owns your mortgage, all you have to do is pay for a new appraisal by an approved licensed appraiser to prove your loan-to-value ratio is below 80%.
However, if you learn your mortgage is owned by another lender without such an enlightened PMI cancellation policy, you might be stuck. In that event, my best advice is to refinance with another lender to get rid of your expensive PMI premium.
Seller Does Not Have to Accept Full-Price Offer
Q: I am confused by your recent item in which you implied a “setup” for a bidding war on a home whose asking price was below market value. It seems to me the seller’s low-ball asking price, once accepted, constitutes a contract. If a buyer accepts an offer to sell, wouldn’t that be a sale?
A: No. I think you’re referring to the letter about a listing agent who told a prospective buyer that the seller had no intent of selling at the low asking price. The low asking price’s purpose was to start a bidding war to drive the sales price well above the initial asking price.
Even when a buyer offers the full asking price, the seller has no legal obligation to accept that offer. A binding sales contract is not formed until the seller and buyer agree upon the sales price. The asking price is only an “invitation” for offers at that price, and the seller need not accept even a full asking price purchase offer. For more details, please consult a local real estate attorney.
Prices May Need to Be Lowered to Expedite Sales
Q: When we retired about two years ago, we bought a custom-built home for about $800,000. Thinking this home would easily sell, several months ago we bought a second home in the same development. Our first home has now been on the market for almost a year. Recently, we placed our second home on the market for sale, too.
We realize we committed a serious blunder and are at the mercy of the local housing market. Meanwhile, our retirement funds are rapidly depleting with our assets being used to pay two mortgages. What should we do?
A: Your situation shows why it is so important to sell your old home before buying another one.
The reason most listed homes don’t sell is that their asking price is too high. Another major problem might be a real estate agent who isn’t effectively marketing your homes.
My suggestion is to have your listing agent prepare a new comparative market analysis to show today’s market value of each home. If your asking prices are too high, based on recent, comparable home sales within the last three months, cut your losses by reducing your asking prices to get those homes sold.
