Appraisals & Market Value | Top of page

1. Can I find out the value of my home through the Internet?

You can get some idea of your home's value by searching the Internet. A number of Web sites and services crunch the numbers from historic public records of home sales to produce the statistics. Some services offer an actual estimate of value based on acceptable software appraisal standards. They also depend on historic home sales records to calculate the estimate. Neither of these services produce official appraisals. They also don't factor in market nuances or other issues a certified appraiser or real estate professional might in assessing the value of your home.

2. How do we determine the value of a troubled property?

Buyers considering a foreclosure property should obtain as much information as possible from the lender, including the range of bids expected. It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records.

3. How do we determine the value of a home?

A comparative market analysis and an appraisal are the standard methods for determining a home's value. Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. Be sure you get listing prices of current homes on the market as well as those that have sold. You also can research this yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location. This information is not only available at your local recorder's or assessor's office but also through private companies and on the Internet. An appraisal, which generally costs $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.

4. What is the difference between list price, sales price and appraised value?

The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area.The sales price is the amount of money you as a buyer would pay for a property. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.

5. What is the difference between market value and appraised value?

The appraised value of a house is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 to $300. Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker. Either an appraisal or a comparative market analysis is the most accurate way to determine what your home is worth.

6. What is the return on new versus previously owned homes?

Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy. One survey by the National Association of Realtors shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased 4.3 percent between 1999 and 2000, compared to 2.8 percent for new homes in the same period.

7. What standards do appraisers use to estimate value?

Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value. For detailed information on appraisal standards, visit the Appraisal Institute website, appraisalinstitute.org, or contact the organization at 550 W. Van Buren St., Suite 1000, Chicago, IL 60607; (312) 335-4100. http://www.appraisalinstitute.org

8. What's a house worth?

A home ultimately is worth what someone will pay for it. Everything else is an estimate of value. To determine a property's value, most people turn to either an appraisal or a comparative market analysis. An appraisal is a certified appraiser's estimate of the value of a home at a given point in time. Appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account. Most appraisals cost about $300. A comparative market analysis is a real estate broker's or agent's informal estimate of a home's market value, based on sales of comparable homes in a neighborhood. Most agents will give you a comparative market analysis for free. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder or assessor offices, through private real estate information companies or on the Internet.

Escrow & Closing Costs | Top of page

1. How can I save on closing costs?

Studies show that the closing costs, which can average 2 to 3 percent of a total home purchase price, are often more costly than many buyers expect... There are some ways to save:

• Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller.

• Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.

• Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront.

• Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges.

• Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the actual purchase.

• Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.

2. What are closing costs?

Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.

3. Where do I get information about closing costs?

For more on closing costs, ask for the "Consumers Guide to Mortgage Settlement Costs," Federal Citizen Information Center, Pueblo, CO 81009; (888) 878-3256; www.pueblo.gsa.gov 

4. Who pays the closing costs?

Unless otherwise agreed, each party, buyer and seller, pays their own closing costs.

5. Why do I need a title report?

As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you. When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.

Finding the Right Home | Top of page

1. Should we go for our dream home or settle for less?

Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy. If you're in this situation, start by examining your priorities and asking the following questions:

• Is the surrounding neighborhood or the home itself the most important consideration?

• Is each of the neighborhoods safe?

• Is quality of the schools an issue?

• Do any of the areas seem to attract more families with children or adult residents?

• Where do you fit in?

As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, and again 10 years later, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones.

2. How can I obtain factual information on homes I am considering?

Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement. Here is a summary of the things you could expect to see in a disclosure form:

• Kitchen appliances include range, oven, microwave, dishwasher, garbage disposal, trash compactor.

• Life Safety features security, fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.

• Presence of TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.

• Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.

• HVAC, condition of electrical wiring, gas supply and presence of any external power source, such as solar panels.

• The type of water heater, water supply, sewer system or septic tank also should be disclosed.

Sellers are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems. The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions. It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms as do many brokers and agents. Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.

3. How do you choose between buying and renting?

Home ownership offers tax benefits as well as the freedom to make decisions about your home. An advantage of renting is not worrying about maintenance and other financial obligations associated with owning property. There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially. Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.

4. What are the pros and cons of adding on or buying new?

Before making a choice between adding on to an existing home or buying a larger one, consider these questions:

• What funds are available to remodel your current house?

• Would the foundation support a second floor or does the lot have room to expand on the ground level?

• What do local zoning and building ordinances permit?

• How much equity already exists in the property?

• Are there affordable properties for sale that would satisfy your changing housing needs?

Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.
For more information, check out "The Do-able Renewable Home," a booklet published by the American Association of Retired Persons, available online at www.homemods.org

5. What do all of those real estate acronyms in the ads mean?

If you find yourself stumbling over weird acronyms in a real estate listing, don't be alarmed. There is method to the madness of this shorthand (which is mostly adopted by sellers to save money in advertising charges). Here are some abbreviations and the meaning of each, taken from a recent newspaper classified section:

• assum. fin. -- assumable financing

• dk -- deck

• gar -- garage (garden is usually abbreviated "gard")

• expansion pot'l -- may be extra space on the lot, or possibly vertical potential for a top floor or room addition.

• fab pentrm -- fabulous pentroom, a room on top, underneath the roof, that sometimes has views

• FDR -- formal dining room (not the former president)

• frplc, fplc, FP -- fireplace

• grmet kit -- gourmet kitchen

• HDW, HWF, Hdwd -- hardwood floors

• hi ceils -- high ceilings

• In-law potential -- potential for a separate apartment.

• large E-2 plan -- this is one of several floor plans available in a specific building

• lsd pkg. -- leased parking area, may come with an additional cost

• lo dues -- find out just how low these homeowner's dues are, and in comparison to what?

• nr bst schls -- near the best schools

• pvt -- private

• pwdr rm -- powder room, or half-bath

• upr- upper floor

• vw, vu, vws, vus -- view(s)

• Wow! -- better check this one out.

Home Inspections & Warranties | Top of page

1. Do I need a home inspection?

Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.

2. How do I find a home inspector?

Your real estate agent is one source. But keeping them independent from the agent may be a good idea. Inspectors are listed in the yellow pages. You can ask for referrals from friends. Ask for their credentials, such as contractor's license or engineering certificate. Also, check out their references.

3. How do I find a home inspector?

In order to find a home inspector, Dian Hymer, author of "Buying and Selling a Home A Complete Guide," Chronicle Books, San Francisco; 1994, advises looking for someone with demonstrable qualifications. "Ideally, the general inspector you select should be either an engineer, an architect, or a contractor. When possible, hire an inspector who belongs to one of the home inspection trade organizations." The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite. One can usually find an inspector by looking in the phone book or by inquiring at a real estate office or sometimes at an area Realtor association. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.

4. What's a home inspection?

A home inspection is when a paid professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed

Insurance | Top of page

1. What kind of home insurance should I get?

A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry. Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents. A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000. For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property. Some experts recommend an inflation rider, which increases coverage as the home increases in value.

2. Are Home Buyer Warranties worthwhile?

Yes. Especially for older homes. Ask your REALTOR for more information.

Lease Option | Top of page  

1. How do lease options work and what are the benefits?

A lease option is an arrangement with you and a seller to exercise the option to buy a house after you have rented it for a specific period. A portion of your rent would applied toward the purchase if the option is exercised. This is referred to as rent credit, which most institutional lenders will accept as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application.
If you are a seller, lease options can give you several advantages, especially in a slow market. These include a monthly rent higher than market rent, top-market value for the property and tax-free use of the option consideration until the option expires or is exercised. Also, the renter is more likely to treat the property like an owner, tax-free use of option consideration until the option expires or is exercised.
Read any lease-option arrangement carefully for details on transferring the option and other important concerns.

2. What is a lease option?

When a renter signs a lease with an option to purchase a property for a specific price within a certain time frame, that is called a lease option. In most lease-option situations, a portion of the rent is applied to a future down payment.
Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs.

3. Where do I get information on lease options?

Contact your real estate agent (some even specialize in such transactions) or read up on lease options at the public library. If you have a real estate attorney, ask if he or she has any prepared information you can review. Most bookstores have a fairly hefty real estate book section these days. Many current real estate books have at least a section on lease options.If you are considering a lease option, be sure you do your homework first. And have an attorney or financial advisor on hand to review any paperwork before you sign.

Making the Offer | Top of page

1. Is a low initial offer a good idea?

Offering substantially less than the asking price is commonly referred to as a "low ball offer." Any offer can be presented, but a low-ball offer may sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected or ignored. Always do your homework about comparable prices in the neighborhood before making an offer. It's important to know the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.

2. Is it possible to buy homes below their market value?

A typical buyer may look at five to 10 homes before making an offer, an investor who makes bargain buys usually goes through many more. Most experts agree it takes a lot of determination to find a real "bargain." There are a number of ways to buy a bargain property:

• Buy a fixer-upper in a transitional neighborhood, improve it and keep it or resell at a higher price.

• Buy a foreclosure property (after doing your research carefully).

• Buy a house due to be torn down and move it to a new lot.

• Buy a partial interest in a piece of real estate, such as part of a tenants-in-common partnership.

• Buy a leftover house in a new-home development.

3. Do I need an attorney when I buy a house?

Some states, require an attorney to complete a real estate transaction, but others do not. Most home buyers are capable of handling routine real estate purchase contracts as long as they make certain they read the fine print and understand all the terms of the contract. In particular, you should be clear on the terms of any contingency clauses that will allow them to back out of the contract. If you have any questions at all, it may be advisable to consult an attorney to avoid future legal hassles. In looking for an attorney, ask friends for recommendations or ask your real estate agent to recommend several. Call to inquire about fees and to check on their experience. In general, more experienced attorneys will cost more, but real estate fees as a rule are small relative to the cost of the property you are buying.

4. How do you determine the value of a troubled property?

Buyers considering a foreclosure property should obtain as much information as possible from the lender, including the range of bids expected. It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records.

5. What strategies are effective in negotiations?

The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home. Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price stacks up. Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.

6. What contingencies should be put in an offer?

Most purchase offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction. As a buyer, you could forfeit your deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must should identify the seller's responsibilities on such issues as conveying clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.

7. What is the difference between list price, sales price and appraised value?

The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. The sales price is the amount of money you as a buyer would pay for a property. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.

8. What information is the seller required to disclose about a property?

Disclosure requirements may vary. Nonetheless under the strictest laws, the seller is required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to you. This may include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property; and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state's disclosure rules prior to a home purchase.

Negotiating & Closing | Top of page

1. Are interest rates negotiable?

Some lenders are willing to negotiate on both the loan rate and the number of points but this isn't typical among established lenders who set their rates like large corporations set the prices on their goods. Nevertheless, it pays to shop around for loan rates and know the market before you go in to talk to a lender. You should always look at the combination of interest rate and points and get the best deal possible. The interest rate is much more open to negotiation on purchases that involve seller financing. These usually are based on market rates but some flexibility exists when negotiating such a deal. When shopping for rates, look for published rates in local newspapers or check the growing number of Internet sites that publish such information.

2. Can you negotiate the price on new homes?

Negotiating price with a developer is difficult at best, because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try. Experts say builders more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.

3. How is the asking price set?

Methods vary. New construction is cost + profit. Existing housing is more according to current market conditions. Because the real estate market is continually changing, and market fluctuations have an effect on property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood. A so-called comparative market analysis provides the background data upon which to base your list-price decision. When you prepare to sell and are interviewing agents, study each agent's comparable sales report (the data should be no more than three months old).
If all agents agree on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others.

4. How much does my real estate agent need to know?

The more real estate agents know, the better they can negotiate on your behalf. However, the degree of trust you have with an agent may depend upon their legal obligation. Agents working for buyers have three possible choices: They can represent the buyer exclusively, called single agency, or represent the seller exclusively, called sub-agency, or represent both the buyer and seller in a dual-agency situation. Some states require agents to disclose all possible agency relationships before they enter into a residential real estate transaction.

Here is a summary of the three basic types:

(I) In a traditional relationship, real estate agents and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub-broker, who brings the ready, willing and able buyer to the table.

(II) Dual agency exists if two agents working for the same broker represent the buyer and seller in a transaction. A potential conflict of interest is created if the listing agent has advance knowledge of another buyer's offer. Therefore, the law states that a dual agent shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.

(III) A buyer also can hire his or her own agent who will represent the buyer's interests exclusively. A buyer's agent usually must be paid out of the buyer's own pocket but the buyer can trust them with financial information, knowing it will not be transmitted to the other broker and ultimately to the seller.

5. Is there a secret to good negotiating?

There are several cardinal rules to negotiating effectively. One is do your homework, and learn as much about the seller or the buyer as you can. Another is to play your cards close to your vest and not reveal too much information to the other party or their agent. Don't let yourself get rushed into any decision, no matter how tempting it may be. Finally, if you have doubts about your negotiating skill, hire someone to help.

6. Should I include any contingencies in my offer?

Most offers have at least three standard contingencies, which include...

(I) Availability of Home Owners insurance.

(II) Financing: which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender.

(III) Inspections: Allow the buyers to bring in professionals for the purpose of inspecting the property. This often includes structural, roofing, pest, mechanical, electrical, plumbing and health hazards, such as indoor air quality, water, lead based paint and radon.

Under certain circumstances, a buyer may forfeit the earnest money deposit. This could occur as a result of backing out of the deal for a reason not stipulated in the contract. Consult with your real estate professional for further details. The real estate purchase contract must identify seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.

7. Are "get-rich-quick real estate schemes" for real?

Most real estate experts say there is no such thing as getting rich quick in real estate. But there's no end to get-rich-quick programs presented to the public as alternative methods of buying real estate. Some are reputable while others depend on your financial circumstances to work. A handful are simply scams. Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly. Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are.

8. When is the best time to buy?

Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are eager to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionlly been slow months, although some astute buyers look for bargains during this period.

9. What is the first step to buying a home?

Finding out what you can afford is one of the fist steps, which can be done by pre-qualifying for a home loan. This step will help you narrow your search for both a neighborhood and particular houses. A pre-qualification is a simple calculation that considers several factors, but primarily your income. There are no guarantees with a prequalificaiton, but it will be expected of you when you make an offer on a home.

10. What repairs should the seller make?

If a seller is wanting to sell for top dollar, all minor repairs and selected major repairs should be done before going on the market. Nearly all purchase contracts include an inspection clause, a buyer contingency that allows a buyer to back out if numerous defects are found or negotiate their repair. The trick is not to overspend on pre-sale repairs, especially if there are few houses on the market but many buyers willing to buy at almost any price. On the other hand, making such repairs may be the only way to sell your house in a down market.

11. Are furnishings negotiable?

Yes although fixtures are any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace) automatically convey, unless otherwise agreed in the sales contract. Anything that is not nailed down is negotiable. This most often involves appliances that are not built in (washer, dryer and refrigerator) although some sellers will be interested in negotiating for other items, such as a piano, pool table or hot tub.

Property Taxes | Top of page

1. Are property taxes deductible?

Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

2. Are taxes on second homes deductible?

Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

3. Do all loans require impound accounts?

If the loan is FHA or VA, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an impound account.

4. How do property taxes work?

Property taxes are what most homeowners in the United States pay for the privilege of owning real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.

5. How is a home's value determined?

There are several ways to determine the value of a home.

• Property Appraisal: A professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $350 for a $250,000 house.

• CMA - Comparative Market Analysis: an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer a free CMA as a professional courtesy in the hopes of gaining your goodwill and business.

• Comparable sales report: Available for fee from private companies specializing in real estate data.

6. What is an impound account?

An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month

7. How does one appeal property taxes?

Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal processes, which begin with an appeal filed with the appropriate assessment appeals board.

Tax Considerations | Top of page

1. Are points deductible?

Yes, They are deductible, by either buyer or seller, for the year in which they are paid. You also can deduct any points you pay when you refinance your home, but you must do so ratably over the life of the loan. Consult your tax or financial advisor for further information.

2. Are seller-paid points deductible?

As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer.

3. Are taxes on second homes deductible?

Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

4. Are there tax credits for first-time home buyers?

Many city and county governments offer Mortgage Credit Certificate programs, which allow first-time home buyers to take advantage of a special federal income tax write-off, which makes qualifying for a mortgage loan easier. Requirements vary from program to program. People wanting to apply should contact their local housing or community development office.
Here are four general requirements to keep in mind:

• Some credit may be claimed only on your owner-occupied principal residence.
   

• There are maximum income limits, which vary by locality and family size.
   

• You must be a first-time home buyer, which means you must not have had any kind of ownership interest in a principal residence during the past three years. This restriction may be waived, however, if you are buying property within certain target areas.
   

• Allocations must be available. A local MCC program may have to decline new applications when it runs out of funds.

5. What is the home mortgage deduction?

The mortgage interest deduction entitles you to completely deduct the interest on your home loan for the year in which you paid it. Mortgage interest is not a dollar-for-dollar tax cut; it reduces taxable income. You must itemize deductions in order to do this, which means your total deductions must exceed the IRS's standard deduction. Another point to remember is that the amount of interest on your loan goes down each year you pay on your mortgage (all standard home-loan formulas pay off interest first before significantly paying into principal). That's why paying extra on your principal every year can help you pay off your loan early.

6. How are fees and assessments figured in a homeowners association?

Homeowners association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold. For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, need to be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work. To find out more about how the IRS views condo association fees, look online to IRS Publication 17, "Your Federal Income Tax," which includes a section on condos. Or order a copy by calling (800) TAX-FORM.

7. How may I reach the IRS?

Either by phone at (800) TAX-1040 or via the internet: www.irs.gov

8. How can I save money on my taxes?

Here are some ways to save money on taxes:

• Mortgage interest on loans up to $1 million is completely deductible for the year in which you pay it to buy, build or improve your principal residence plus a second home.
   

• Points, or loan origination fees, also are deductible no matter who pays them, the buyer or the seller.
   

• Most homeowners, except the wealthy and those living in high-priced markets, no longer need to worry about capital gains taxes. The exemption has been raised to $500,000 for married couples and $250,000 for single owners. It can be taken every two years. Homeowners should always keep all receipts of permanent home improvements and of mortgage closing costs. If you do have to pay capital gains taxes, these costs can be added to your adjusted cost basis. Consult your tax adviser for more information.

Resources: "Tax Information for First-Time Homeowners," IRS Publication 530, and "Selling Your Home," IRS Publication 523. Call (800) TAX-FORM to order or download from www.irs.gov | http://www.irs.gov/pub/irs-pdf/p530.pdf

9. Should I buy or rent a home?

Home ownership offers tax benefits as well as the freedom to make decisions about your home. An advantage of renting is not worrying about maintenance and other financial obligations associated with owning property. There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially. Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.

10. Should I buy a vacation home?

Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it fewer than 14 days a year, or 10 percent of the rented days - whichever is greater.

11. What is the Mortgage Credit Certificate program?

The Mortgage Credit Certificate program allows first-time home buyers to take advantage of a special federal income tax credit. This program allows buyers credit in qualifying for the tax advantage they'll receive after they purchase the home. The amount of the credit is tied to a local formula that every city with an MCC program must follow. A MCC credit, which can total $2,000 or more, reduces the borrower's federal tax liability by an amount tied to how much one pays in annual mortgage interest. Both the borrower's income and the purchase price of the home must fall within established guidelines. To see if your community has an MCC program, call your local housing or redevelopment agency. You also may inquire with your real estate broker or the local association of Realtors.

12. What rules apply to mortgage credit certificates?

To qualify for a mortgage credit certificate, both your income and the purchase price of the home must fall within established city guidelines. These guidelines vary by city but generally only permit people who earn an average income or slightly higher than average income. A limited number of cities have authorized the MCC program. Contact your municipal housing department for more information.

13. What home-buying costs are deductible?

Any points you or the seller pay to purchase your home loan are deductible for that year. Property taxes and interest are deductible every year. But while other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees. Points paid when you refinance an existing mortgage must be deducted ratably over the life of the new loan.

14. Where do I get information on IRS publications?

The Internal Revenue Service publishes a number of real estate publications. They are listed by number and available as a PDF download:

521 "Moving Expenses"       
523 "Selling Your Home"
527 "Residential Rental Property"
534 "Depreciation"
541 "Tax Information on Partnerships"
551 "Basis of Assets"
555 "Federal Tax Information on Community Property"
561 "Determining the Value of Donated Property"
590 "Individual Retirement Arrangements"
908 "Bankruptcy and Other Debt Cancellation"
936 "Home Mortgage Interest Deduction"

The required Acrobat Reader and above publications are available as a free download. For alternate delivery method, call the IRS (800) TAX-FORM.

Working with a Real Estate Agent | Top of page  

1. Can I use an agent for a new home?

Yes, just be aware of the differences inherent in working with sales agents who are employed by the developer, rather than traditional real estate agents. Builders commonly require that an outside agent be present, and sign in, the first time a prospective purchaser visits a site before payment of commission even is discussed. At times when buyers use an advertisement to find the development themselves first, builders can refuse to pay any commission regardless of how helpful an agent may become later in the process. It is advisable to call the development first and inquire about their policy on compensating real estate agents if you are using one.

2. How do I find a good real estate agent?

Recommendation from a friend or work colleague is one of the best ways. Be sure to ask if they would use the agent again. You also can call the managers of reputable real estate firms and ask them for recommendations of agents who have worked in your neighborhood. In any case, whether you are a buyer or a seller, you should interview at least three agents to give yourself a choice. A good agent typically works full-time and has several years of experience. If you are a seller, you should expect to review a comparative market analysis, which includes recent home sale prices in your area, when you talk to a prospective agent.

3. How much does my real estate agent need to know?

Most real estate agents would say that the more they know about your wants, needs and objectives, the better they can serve you. However, the degree of trust you have with an agent may depend upon their legal obligation. Agents working for buyers have three possible choices: They can represent the buyer exclusively, called single agency, or represent the seller exclusively, called sub-agency, or represent both the buyer and seller in a dual-agency situation. Some states require agents to disclose all possible agency relationships before they enter into a residential real estate transaction.

Here's a summary of the three basic types of agency...

• In a traditional relationship, real estate agents and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub-broker, who brings the ready, willing and able buyer to the table.
   

• Dual agency exists if two agents working for the same broker represent the buyer and seller in a transaction. A potential conflict of interest is created if the listing agent has advance knowledge of another buyer's offer. Therefore, the law states that a dual agent shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.
   

• A buyer also can hire his or her own agent who will represent the buyer's interests exclusively. A buyer's agent usually must be paid out of the buyer's own pocket but the buyer can trust them with financial information, knowing it will not be transmitted to the other broker and ultimately to the seller.

4. What about a buyer's agent?

It is common and preferred for an agent to represent the buyers exclusively in the transaction and be paid by the sellers, in form of a co-broker fee offered across the Multi List. More and more buyers are going a step further, hiring and paying for their own agent, referred to as buyers brokers.

5. Where can I get information on buyer agents?

For information on buyer agents, contact the Real Estate Buyer's Agent Council @ www.rebac.net Another reliable resource is National Association of Exclusive Buyers Agents www.naeba.org

Buyer Resources | Top of page

1. How do I find a home inspector?

Go to American Society of Home Inspectors website www.ashi.org to locate home inspection service providers throughout the United States and Canada. Note: ASHI is the oldest, largest, and most recognized organization for home inspectors.

2. How do I reach the IRS?

Either by phone at (800) TAX-1040 or via the internet: www.irs.gov

3. What standards do appraisers use to estimate value?

Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value. For detailed information on appraisal standards, visit the Appraisal Institute website, www.appraisalinstitute.org or contact the organization at 550 W. Van Buren St., Suite 1000, Chicago, IL 60607; (312) 335-4100.

4. Where can I get information on buyer agents?

For information on buyer agents, contact the Real Estate Buyer's Agent Council @ www.rebac.net Another resource is National Association of Exclusive Buyers Agents www.naeba.org

5. Where do I get information about closing costs?

For more on closing costs, ask for the "Consumers Guide to Mortgage Settlement Costs," Federal Citizen Information Center, Pueblo, CO 81009; (888) 878-3256; www.pueblo.gsa.gov

6. Where do I get information about finding a real estate attorney?

To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience.

7. Where do I get information about housing discrimination?

For information about housing discrimination, call the U.S. Department of Justice at (202) 514-2000, 950 Pennsylvania Ave., NW DC 20530, usdoj.gov; or your local U.S. Department of Housing and Urban Development office. For detailed information, the booklet, "Your Loan is Denied, Defending Yourself Against Mortgage Lending Discrimination," is available from the Center for Investigative Reporting,131 Stuart Street, Suite 600, San Francisco, CA 94105; call (415) 543-1200; or visit www.muckraker.org

8. Where do I get information on home market stats and trends?

A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards. For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in 4200 Koppernick Rd #40, Canton,Mich.48187; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.

9. Where do I get information on lease options?

Contact your real estate professional, some specialize lease options, or read up on lease options at the public library. If you have a real estate attorney, ask if he or she has any prepared information you can review. Most bookstores have a fairly hefty real estate book section these days. Many current real estate books have at least a section on lease options. If you are considering a lease option, be sure you do your homework first. And have an attorney or financial advisor on hand to review any paperwork before you sign.

Condominiums & Town homes | Top of page   

1. Are condominiums risky to buy?

Condos never had the kind of appreciation experienced by single-family homes in the 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before, the market for condos is strong. As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer). The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes.

Some condo resources worth considering include...

• Community Associations Institute, Alexandria, VA 22314; (703) 548-8600; www.caionline.org

• The Condominium Bluebook, Branden E. Bickel, Piedmont Press; 2003; www.condobook.com 

2. Are condos a good investment?

Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say. While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past. Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets.

3. Are one-bedroom condominiums a good investment?

One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos.

4. Can condos ban smoking?

A homeowners association's board of directors can restrict smoking if it applies to indoor common spaces such as hallways or recreation rooms. Outdoor spaces are a different story, say legal experts. Any restriction would probably hinge on local laws (i.e. if a city banned smoking outdoors, a homeowners association probably could restrict smoking in its outdoor spaces). Typical covenants, codes and restrictions (CC&Rs), which govern condo associations, give the board authority to make and enforce reasonable rules for the use of common property. But that would not apply to interior spaces owned by smokers themselves.

Resources...

• Common-interest development brochure available free from California Department of Real Estate, Book Orders, P.O. Box 187006, Sacramento, CA 95818-7006; (916) 227-0852; www.dre.ca.gov 

• Various Internet sites specializing in common-interest developments, such as those operated by the Community Associations Institute and CIDNetworks.

5. Do condos have to be made accessible to the disabled?

The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made accessible. All new construction of public accommodations or commercial projects, such as a government building or shopping malls must be accessible. New multi-family construction also falls into this category. In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled. For additional information see: "Housing Rights" and "Discrimination is Against the Law," are available through the Department of Fair Employment and Housing by calling (916) 227-0551. California residents can dial toll free (800) 884-1684. www.dfeh.ca.gov

6. Where do I find information on general condominium association laws?

• "The Condominium Bluebook" by Branden E. Bickel, B& Piedmont Press; 2000. Order online at http://www.amazon.com

• Community Associations Institute, Alexandria, VA; (703) 548-8600; www.caionline.org

Fixer-Uppers | Top of page 

1. Are there special tax breaks for rehabbing historic properties?

Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government. The tax code does not allow deductions for the demolition or significant alternation of a historic structure. Resources: * National Trust for Historic Preservation, 1785 Massachusetts Ave, NW, Washington, DC 20036-2117; (202) 588-6000, www.nationaltrust.org

2. Are there government programs for rehabilitating historic properties?

The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible. The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs. For a list of participating lenders, call HUD at (202) 708-1112. If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility. Another program is the Federal Housing Administration's Title 1 FHA loan program.
Resources: "Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, Washington, D.C. for additional information: http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm 

3. Are there programs for fixer-uppers?

If you need home loan to buy a "fixer-upper" and remodel it, look at the U.S. Department of Housing and Urban Development's Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible. A 203(K) loan is usually done as a combination loan to purchase a "fixer-upper" property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. Investors no longer may participate - only owner-occupants. Owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements. Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

4. What are some guidelines to follow when trying to find a contractor?

While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file. If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy. If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want. Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.

5. What are some resources for information on home improvements?

If you're getting ready to embark on a home improvement project involving contracting help, "Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" lays out a road map for selecting the right contractor, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing. The book is available for $9.95 through Consumer Press and Women's Publications, Inc., 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153. Remodeling magazine's annual "Cost vs. Value Report", available for a nominal fee from the magazine; call (717) 399-1900, ext. 146

6. What kind of return is there on remodeling jobs?

Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road. Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

7. Where are fixer-uppers found?

You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area. Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost. Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it. The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.

Foreclosures | Top of page  

1. Do you have to buy HUD homes through a real estate broker?

You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

2. How do you find government-repossessed homes?

The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors. You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent. One caution. HUD homes are sold "as is," meaning limited repairs have been made made but no structural or mechanical warranties are implied.

3. How do you finance a foreclosure property?

One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks.

4. Are foreclosure properties typically purchased "as-is"?

Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property as is, which means there is no warranty implied for the condition of the property (in other words, you can't go back to the seller for repairs). The condition of foreclosure properties is usually not known because an inspection of the interior of the house is not possible before the sale. In addition, there may be problems with the title, though that is something you can check out before the purchase.

5. What happens at a trustee sale?

Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice. In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

6. What types of foreclosure are there?

Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lien holder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt. Non-judicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.

7. Where do I find foreclosed HUD homes?

In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place. When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount. Despite these seemingly straightforward rules, buying foreclosures is not easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.
Other worthwhile resources...

• "The Smart Money Guide to Bargain Homes, How to Find and Buy Foreclosures," James I. Wiedemer, Dearborn Financial Publishing, Chicago; 1994.
   

• "Real Estate Principles," Charles O. Stapleton III, Thomas Moran and Martha R. Williams, Dearborn Financial Publishing, Chicago; 2001.
   

• "Real Estate Investing From A to Z," William H. Pivar, McGraw-Hill, 2003.
   

• Web page www.hud.gov

New Homes & Vacation Homes | Top of page 

1. Are new home prices negotiable?

It can be difficult to negotiate the sales price with a developer because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try. Experts say builders more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.

2. Do builders offer financing?

Builders often include financing programs to help move more buyers into a project early on. If it's a buyer's market in your area, you can be sure that developers will offer incentives such as low-down-payment financing.

3. Should I buy a vacation home?

Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits.
Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it fewer than 14 days a year, or 10 percent of the rented days - whichever is greater.

4. Should I hire a home inspector for a new home?

Most experts recommend having a home inspected, new or old. For new home, ask the builder to provide copies of any inspection reports on the property, architectural plans, surveys and pertinent construction documents for your inspector to review. Your inspector should either be a professional home inspector, an engineer, an architect or a contractor. If you hire a professional inspector, look for one who belongs to one of the home inspection trade organizations. The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge about structures and their various systems and appliances are a prerequisite. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection. ASHI Online: http://www.ashi.org

5. What about new versus previously owned?

Although new homes typically have a higher sales price than comparable existing homes, buyers are willing to spend more upfront with an understanding that part of what they are paying for is assured low maintenance costs. A builder's warranty, along with brand-new roof, appliances, furnace and other operating systems that make major repairs unnecessary, work together to counteract possible slower appreciation initially. Data from the U.S. Census Bureau's American Housing Survey suggest that operating costs per house are lowest for brand-new homes, slightly higher for relatively new existing homes but lower on average for older existing homes. Measured per square foot of living space, however, operating costs are consistently higher for progressively older existing homes. Utility costs are the largest component of operating costs. Energy consumption per square foot depends on size of the home, insulation, window quality, air leakage and efficiency of the furnace. Operating costs also include expenditures for both routine maintenance and major repairs.

6. What are considerations to buying a new home?

Builders may have a target market in mind for their new-home projects. Some may tout communities as glamorous to upscale urban professionals seeking amenities such as a golf course, hot tubs and tennis courts. Yet a playground and swimming pool might be central to a project geared toward families while the next one offers seniors a walking trail and an easy-to-care-for yard. Do not be tempted to move into a "glamorous" community where you might be able to afford the house but not the lifestyle. In addition, similar-looking new houses often come complete with restrictions imposed by the developer on house color, landscaping, renovations and anything else a homeowner possibly could do to make their house deviate from the preferred look. Marketing experts try to appeal to buyer's tastes by their promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there.

7. What are some new-home cautions?

When you buy a resale home, you can find out a lot more about the property and the neighborhood before you buy than when you buy a new home. Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example. Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control.

8. Is a vacation home a good investment?

You can buy a vacation home today for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home to use as a permanent retirement home later, which allows them to get ahead on their payments. Another benefit is that the interest and property taxes on a vacation home are tax-deductible. Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house fewer than 14 days a year, or 10 percent of the number of rented days - whichever is greater. You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture.

9. What is the return on new versus previously owned homes?

Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy. One survey by the National Association of Realtors shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased4.3 percent between 1999 and 2000, compared to 2.8 percent for new homes in the same period.

10. Where can I get a list of home builders?

For a list of home builders, contact the National Association of Home Builders at 1201 15th St., N.W., Washington, DC 20005; (800) 368-5242, www.nahb.org ; or your local Building Industry Association office.

Tenants-in-Common & Co-ops | Top of page

1. Can a co-owner force someone off a shared deed?

In some states, a co-owner often can force the sale of a shared property by filing a so-called partition action. In such a situation, if the severance is granted, the property would be sold and the owners would split the proceeds proportionate to their interest in the property.You should check your title for any references to such a severance action. You may need to consult a real estate attorney.

2. Where do I get information on co-ops?

For information on co-operative housing, contact the National Association of Housing Cooperatives, 1707 H Street, N.W., Suite 201, Washington, D.C., 20006; (202) 737-0797; www.coophousing.org

Housing Affordability | Top of page  

1. How do you determine the value of a troubled property?

Buyers considering a foreclosure property should obtain as much information as possible from the lender, including the range of bids expected. It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through Internet sites specializing in property records.

2. How long do bankruptcies and foreclosures stay on a credit report?

Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

4. How much will I spend on maintenance expenses?

Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.

5. What can I afford?

Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts. It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and pre-qualify you for a loan. The price you can afford to pay for a home will depend on six primary factors...

1. gross income

2. cash available for the down payment, closing costs and cash reserves required by the lender

3. outstanding debt

4. credit history

5. the type of mortgage you select

6. current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI. This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

6. What is Fannie Mae's low-down program?

Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage. Two new programs will help potential buyers overcome two of the most common obstacles to home ownership, low savings and a modest income. To address many first-time buyers' struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate mortgage with either a 25- or 30-year loan term through Fannie Mae's Community Home Buyers Program. Fannie Mae's new Start-Up Mortgage will assist buyers with a 5 percent down payment who are at any income level. Yet applicants do not need as much income to qualify and less cash for closing than with traditional mortgages. Borrowers will receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan. Freddie Mac, Fannie Mae's counterpart, also offers low-down-payment loan programs.

7. What is the standard debt-to-income ratio?

A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income. Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.

8. When is the best time to buy?

Frequently cited reasons for buying a house:

• You need a tax break. The mortgage interest deduction can make home ownership very appealing.

• You are not counting on price appreciation in the short term.

• You can afford the monthly payments.

• You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.

• You prefer to be an owner rather than a renter.

• You can handle the maintenance expenses and headaches.

• You are not greatly concerned by dips in home values.

9. Where do I get information on housing market stats?

A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards. For overall housing statistics, U.S. Housing Markets meyersgroup.com regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-3199; census.gov  The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title 601 Riverside Ave., Jacksonville, FL 32204; (888) 934-3354;ctic.com

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