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Today's Top Real Estate News
Provided by Inman News
9/10/2010 5:53:29 PM
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Real estate middlemen and women
Find buyers first, deals second
Steve Bergsman
Inman News
Dean Graziosi is one of those "experts" who makes a living selling real estate books, real estate CDs and other programs explaining how you can make money in real estate by following his advice. If everything were that easy, I guess we all would be rich. As you can imagine, I don't have much patience for so-called gurus, as everything about them seems a bit incredulous. Graziosi claims he's a multimillionaire and a best-selling author. Like me, he lives in the Valley of the Sun (Phoenix metro area) and I thought I would make contact. So, I gave a phone call to his public relations team and a few days later he and I were chatting. Graziosi definitely has a winning personality, which probably is why he makes such a believable guru. And he really came off as a nice fellow. There was an interesting item in our discussion that caught my ear: He had noticed through his various forums a large uptick in women getting involved in real estate. Of course, there are probably a million female real estate professionals across the country, but Graziosi advocates a whole different approach to the business. His program is for you to be a virtual wholesaler and create a business that could be conducted from home -- all it takes is a phone and a computer. The idea is to be a middleman. You go out and find motivated buyers who have cash but not a lot of time to seek out acquisitions and then find the great deals, match the two, and as Graziosi said: "make money in the middle." Graziosi has a good sense of what's happening in that middleman market because he runs a kind of bulletin board on his website. "I watch it everyday -- I'm addicted to it," he said. The site gets 300 to 500 postings daily. At first, it was typically guys posting up. Then once in a while a husband and wife team would post. Starting about eight to 10 months ago, he notes, "we saw a wave of women posting, saying 'this is what I've done, this where I'm at.' " All of a sudden on the site there were a host of Anitas, Renas, Laurens and Carolyns and they were each motivating each other, creating a round-robin of professional support. "One might say, 'I don't think real estate is going to work for me,' and the others would come in and say, 'Don't you dare give up on your dreams. Look what I did.' "It has been like a snowball going downhill; it's just been great to watch the evolution," Graziosi said. So what's causing so many women to try their hand at real estate without actually buying property? Actually, Graziosi admitted, it's less about the real estate, and more about the kind of work that could be done at home because of unemployment situations. "A lot of husbands have lost their jobs, so moms have had to find employment, which means putting their kids in day care. That can be very expensive," Graziosi said. "Moms are looking for a way to make money at home." This phenomenon of women tiptoeing into real estate through the Graziosi method, he says, "is a combination of down market, using the Internet, and a desire to get out of debt." OK, I like the idea of spouses trying to make money using the Internet, but does this "real estate middleman" concept really work? And if it does, how hard do you have to work at it to make it pay off. He gives the example of Carol S., a mom with seven children, the youngest of which is handicapped -- that forced her to stay at home. Right now, said Graziosi, she has a list of 1,500 potential buyers. This is how she did it, he explained: "First, she called a real estate agent who she knew and asked for everybody in the area she was targeting who paid cash for a home in the last sixth months. Once she got that list, she went through it and highlighted anybody who bought more than one home and figured out what these people were buying and where. "Then she reached out, 'I know you're buying this kind of house and I know you're buying with cash. If I bring you deals like this, would you be interested?' No buyer would say no if you're bringing in a great deal." Another thing Carol S. did was call everyone who had a house for rent because sometimes she would find a tired landlord who wanted to sell, or she came across an investor who liked rental units, and she put them on her list. Carol S. still puts more buyers on her list, but her focus shifted to her top 30. Graziosi's theory is to find the buyers first and the deals second. "Finding deals first takes time, energy and effort, which then turns to frustration when you can't find anyone to do the deal," he said. And where does Carol S. find her deals? The usual places: Craigslist, want ads, for-sale-by-owner signs, county records searches to find out who is going into foreclosure. If an amazing deal pops up, she'll try to lock it up for a week, e-mailing all her buyers to see who is interested. "Carol has been lucky enough to sell every deal she's locked up," Graziosi said. "Sometimes she makes $2,500 on a deal. The most she's ever made was $15,000." Or as Graziosi notes, "This is not your old-school 'buy a house, fix it up and make $100,000.' This is a tiny little piece in the middle that still makes everybody happy." Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.
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Drilling down on concrete fasteners
Screw anchors a perfect fit for home projects
Paul Bianchina
Inman News
Bolting framing, fixtures, tools or anything else down to concrete has never been an easy task. Wedge anchors have been the standard choice for many years, but they are difficult to install correctly and can place additional lateral strain on the concrete due to their expansion, making them unsuitable for use close to the edge of a concrete slab or foundation wall. Many other types of anchors don't have sufficient strength to meet code requirements for framing installations. One high-strength solution to this construction problem that's also relatively easy to use is the Titen HD Heavy Duty Screw Anchor. The Titen HD is manufactured by Simpson Strong-Tie, a company long known for its wide selection of steel hangers and other fastening and connector supplies for construction. It looks somewhat similar to a conventional lag bolt, but all similarity stops there. Titens install into predrilled holes with no additional anchors or shields, and are simply screwed into place. For tool and equipment installations, they're also easily removable if the equipment needs to be moved. Titen anchors have very widely spaced threads, and the edges of the threads have serrated teeth that allow the anchor to actually cut into the sides of the hole. They have a hex head for use with conventional sockets, and the bottom of the head flares out into a washer that provides a clean finished appearance. The underside of the washer has ratchet teeth that provide additional protection against the bolt working loose if subjected to vibration. Installation
Installation of the Titen anchor is quite simple. First, you need to determine the size of the mounting holes in the item you are planning to bolt down and then, using the chart provided by Simpson, determine the correct anchor diameter. For example, if you were bolting down a tool or other fixture that has mounting holes that are 9/16 inch in diameter, you would want to use a 3/8-inch-diameter Titen. The next step is to drill the installation hole. Again using the Simpson chart, determine the correct diameter of hole for the size of Titen anchor being used. It's very important that you drill a hole of the correct diameter -- the anchor won't drive into a hole that is undersized, and it won't bite well and give the proper holding strength if driven into a hole that's too large. You'll also need to calculate the depth of the hole, which is determined by the thickness of the fixture being bolted down as well as the thickness of the concrete you're working with. The hole should then be drilled approximately 1/2 inch deeper then the embedment depth of the bolt, which allows space for the resulting dust to settle prior to installing the bolt. For example, if you were bolting down a fixture that was 1/2 inch thick and the concrete was 6 inches thick, you would probably select a 5-inch-long Titen anchor, which would give you 4 1/2 inches of penetration into the slab, and you would drill your hole approximately 5 inches deep (4 1/2 inches of embedment plus 1/2 inch). You can also drill the hole to the specified depth -- in this case, 4 1/2 inches -- and then blow out the accumulated dust with compressed air. Drilling into concrete requires the use of a carbide-tipped drill bit designed specifically for use in masonry. If you have only a couple of holes to drill, you can use a conventional electric- or battery-powered drill. However, if you have a lot of holes to drill or if the concrete is old and hard, you'll have much better results with a hammer drill, which combines a circular drilling motion with an in-and-out hammering motion that is much more effective on concrete. Hammer-drills can be rented at most rental yards, and you can get the necessary drill bit there as well. Once the holes have been drilled and cleaned, position the piece of equipment you're bolting down over the holes. Insert the Titen anchor bolt through the fixture base and into the hole, and tighten it down using either a socket wrench or an impact wrench. Tighten the bolt down until the integrated washer below the head contacts the fixture, and you're all done. For framing installations, the Titen anchors can typically be used in place of conventional anchor bolts for many types of installations. You'll want to be sure to check with your local building department for specific information and requirements. Titen anchors can be purchased at most lumberyards, home centers and hardware stores, sometimes by special order. They are available by the box only, with quantities ranging from 10 to 50 depending on the diameter of the anchor. You can also check them out on the Web here. Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com. All product reviews are based on the author's actual testing of free review samples provided by the manufacturers.
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Race to be greenest: U.S. vs. China
Asian giant comes out ahead in 3 key areas
Arrol Gellner
Inman News
Editor's note: Arrol Gellner is currently on an extended stay near Shanghai. Following is one of a series of columns comparing the built environments of America and China. America or China: Think you know who's greener? Americans have long painted the Chinese as wayward polluters and environmental cretins. But the more you know about China, the less certain your answer becomes. In the three decades since the "Opening," the Chinese have indeed run roughshod over their environment when it suited their development plans. Then again, back when our own stage of development roughly matched China's present one -- perhaps around 1880 or so -- our environmental policies were hardly more enlightened. But that was then and this is now. How do the Chinese actually fare in terms of green thinking? In many ways, they're already ahead of the United States. The Chinese government is acutely aware, for example, that a transportation future built on the internal-combustion engine is untenable -- an unpopular conclusion that our own government has evaded for decades. For their part, the Chinese have done without internal-combustion vehicles for far longer than we have, and they'll likely have less trouble bidding them adieu. Nor is this as distant an event as Americans might imagine -- electric bicycles and scooters have already been part of the Chinese scene for years, and electric cars are undoubtedly not far behind. China's concern for a dire environmental future has also spurred policies that may surprise some Americans: In many stores, for instance, plastic shopping bags now carry a charge of 20 jiao (perhaps 40 cents in terms of American buying power), encouraging typically thrifty Chinese shoppers to bring their own bags. Some cities have set aside wetlands parks, mainly to educate the population on the environmental value of such areas. China's low-tech power generation is another shortcoming that takes a drubbing from American observers, and indeed, the majority of Chinese generating plants are -- like our own -- fired by dirty coal. Yet in a typical no-win critique by the West, the Chinese have also been thoroughly lambasted for their flagship zero-pollution hydroelectric project, the Three Gorges Dam. Whether their power source is dirty or clean, however, it must be said that the Chinese use electricity with deliberate frugality. Commercial buildings have used energy-efficient lighting for nearly as long as ours have, and in wider applications. What's more, in China, America's own de facto efficiency standard, the compact fluorescent bulb, is already being superseded by newer light-emitting diode (LED) technology. Though ironically an American invention, the Chinese are now ranking producers of LEDs, and they've widely applied their own product to traffic signals, signage and roadway lighting. So much for the home-court advantage. Unlike most Americans, the Chinese have also overwhelmingly adopted energy-efficient lighting in their homes -- partly out of patriotism, but mainly out of thrift. For the same reason, rooftop-mounted solar hot water heaters have been a familiar sight on the Chinese skyline for decades. And while the Chinese have gratefully taken to electricity-gobbling air conditioners in their often torrid climate, they're notably sparing in their use -- sometimes uncomfortably so for foreign visitors. When it comes to consumption, the historically impoverished Chinese have always been more parsimonious than the West. They currently gobble the world's resources not because they're profligate, but rather because they're a vast country with an awful lot of catching up to do. By all indications, though, they won't be playing catch-up for long. Copyright 2010 Arrol Gellner
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'Room for rent' rules to live by
Rent it Right
Janet Portman
Inman News
Q: I own my home and have been recently widowed. I would like to rent an extra bedroom to a roomer, who will share the kitchen, living room and other common areas of the house. I want to make sure that when I advertise and interview applicants, I don't set myself up for a fair housing claim. Do those rules apply to me? --Nancy C. A: Your question is clear and timely. In our current economic climate, more and more people are saving money by sharing their living space (and, like you, many have personal reasons for bringing in a lodger, too). Unfortunately, the answer to your question is not so clear. In fact, you may find it very unsatisfying. But until the law changes, this is the best I can do. Under the federal Fair Housing Act, landlords who live in a property with four or fewer rental units (this would include your situation) are exempt from all but one aspect of the federal law: They may not advertise in a way that indicates a preference for (or against) members of a protected class (race, color, religion, national origin, sex, familial status and disability). And, there is an exception even to the exemption: You may advertise for a lodger of a specific sex (and you don't have to specify your own sex). So, for example, your ad can say, "Female roomer wanted," but it could not say, "Christian roomer wanted." If you asked a newspaper to print the latter, both you and the newspaper would be in violation of the law. Interestingly, if you placed the same ad on an Internet site that did not channel your specifications in terms of protected classes, you might just get away with it. In practice, this means that while a landlord cannot practice "advertising discrimination" except on the basis of sex, he can discriminate on the basis of other protected classifications "at the door." Many states, however, have more complex and restrictive fair housing laws, and this is where my answer becomes somewhat unhelpful. California, for example, also allows landlords who rent to no more than one roomer to advertise for a lodger of a specific sex, and it provides that certain owners who are renting to a "roomer" or "boarder" are exempt from the rest of the prohibitions against discrimination in housing. But the exemption applies only if the owner makes no "discriminatory notices, statements and advertisements." (See: Gov. Code section Section 12927, subd. (c)(2)(A).) The key word here, which distinguishes the California rule from the federal, may be "statements." It appears that as long as the landlord remains silent "at the door," he is within his legal rights to turn away an applicant because of race, religion and so on. But once the landlord voices his reasons, he's made a "statement," which deprives him of his exemption from the anti-discrimination law. No California appellate court has ruled on this issue, however (it's the subject of only one administrative case handled by the Department of Employment and Fair Housing, Department of Fair Employment and Housing v. Melissa DeSantis. FEHC Dec. No. 02-12, Case No. H 9900 Q-0328-00-h, May 07, 2002.) For this reason, it would be risky for a California owner to rely completely on this reading of the law. For safety's sake, you'll be on solid grounds if you limit your preference in your ad to a lodger of a specific sex, but do not mention race, color, religion, national origin, familial status or disability; and you conduct your in-person interviewing in a way that's designed to find a solid, stable and compatible lodger regardless of their membership (or not) in a legally protected class. To be certain of the boundaries that apply in your state, there's no substitute for consulting with a local lawyer well-versed in landlord-tenant law. Q: I'm about to sign a lease for a small commercial space where I can set up my woodworking business. The lease has a clause in it that says I will be responsible for anybody's injuries unless they were caused by the "sole negligence" of the landlord. I'm a really careful businessman and tenant, so do I need to worry about this? --Wes L. A: Yes, you do need to worry about this clause. If it's ever tested in court, chances are that a judge wouldn't uphold it. But in the meantime, it could cause you a lot of headaches. You're dealing with a variation of what's known as an "exculpatory" clause. In its purest form, its purpose is to shift to you the consequences of your landlord's careless acts. So, for example, if your landlord knows about a dangerous condition in your rental and fails to take reasonable steps to fix it, and you or a guest were hurt as a result, an exculpatory clause would presumably get your landlord off the hook. After reading this description, many readers will conclude, "Not fair!" That's the conclusion of many legislators and judges, too, who have found that these clauses are a bad idea because they operate as a disincentive for landlords to take care of business. Though most landlords will maintain their property because they don't want people to be hurt, some are also motivated by a desire to avoid being sued or having to deal with claims against their insurance policies. If the consequences of their carelessness lands at their tenants' doors, landlords will have little incentive to perform needed maintenance, and the risk that people will be hurt will go up. This result is against public policy, so many states will not enforce such clauses. The clause your landlord has used is a clever but probably doomed variation on the classic exculpatory clause. He's said that he will be responsible for the consequences of his negligence only when his act is the "sole" reason for the injury. But what if both you and he are at fault? In this situation, you'd pay his share, too. And that's just as contrary to public policy as a pure exculpatory clause. For instance, suppose you know that the roof over your shop is leaky, and that water puddles in the entryway during a rainstorm. Even though you've repeatedly alerted the landlord, he's failed to fix the roof. Now, suppose a customer comes in on a rainy day and slips on the wet entry, injuring herself. Both you and the landlord are likely targets for a claim or a lawsuit, because each of you failed to take reasonable steps to fix or prevent the injury: The landlord should have mended the roof, and you should have mopped up the water or at least posted effective warning signs or tape alerting visitors to avoid the area. But under the landlord's clause, you'd end up paying the entire claim or judgment. You've described yourself as a careful person. Fair enough, but you don't tell us whether your landlord is similarly prudent. Even though it's unlikely that you'll end up being sued by injured customers, it would be a mistake to leave this clause as is. The worst words you ever want to hear -- and you've just written them -- are, "It's never going to happen." Lawyers call this phrase a prediction. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com. Copyright 2010 Janet Portman
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Don't lose home over low appraisal
Home Sale Hindsight
Tara-Nicholle Nelson
Inman News
Q: I am in contract on a property that had an asking price of $159,000. My offer of $145,000 was accepted. The bank appraisal came in at $135,000, and the seller lowered the price to $141,000. Should I stick with the bank appraisal of the property? The contract is contingent on financing, so in order to finance this property I would have to make up the difference with the downpayment. --Peter A: Given that appraisals are notoriously conservative right now, resulting in homes frequently being undervalued, your situation is not at all unusual. What you should do next depends on three simple items: what you can afford; what the place is actually worth in your opinion; and what the place is worth to you. One thing, first. My assumption is that the negotiation flow went something like this: You made your offer, the seller accepted it, the appraisal came in low, you notified the seller, and she agreed to reduce the price to $141,000. If you're concerned about the gap that still exists -- the $6,000 difference between $135,000 and $141,000 -- there's nothing saying you can't go back and request the seller to come down a bit more, or even offer to meet her halfway. All she can say is no, and even in that worst-case scenario, you're no worse off than your current position. But at least you'll have tried! Now on to the three criteria you should factor in to your decision. First up: what you can afford. Your original offer -- the price you were originally prepared to pay -- was actually higher than the price the seller is currently willing to accept, so I'll assume that you can afford the monthly payment at that overall purchase price. However, as you know, your bank will lend your approved loan-to-value ratio on the appraised amount only, even if it's lower than the sale price. So, for example, if you were planning to put down only 3.5 percent of $145,000 on an FHA loan, or $5,075, under the current terms, you would have to more than double your downpayment -- coming up with the $6,000 difference on top of your original downpayment. If, on the other hand, you were planning to put down at least $6,000 over the bare-minimum downpayment, your bank may allow you to simply redirect some of those funds to fill in the gap. This could change your monthly payment, but that change is likely to be slight. The one possible item that could impact your affordability much more significantly is if you were planning to put 20 percent down, and the redirection of that $6,000 gap pushes your downpayment below the 20 percent mark. If that were the case, and you didn't have enough extra cash to fill the gap and still put 20 percent down, this gap would require you to pay for a private mortgage insurance (PMI) policy you wouldn't otherwise have had. And PMI isn't exactly cheap -- if you are getting an FHA loan you'd incur a $1,300 flat fee (called up-front mortgage insurance premium, even though it can be rolled into the loan and paid over time), and about $100 a month on top of that (based on new FHA guidelines that went into effect Sept. 7). On a non-FHA loan, you'd probably be talking about just the $100 per month. You'd have to pay this PMI for at least five years (FHA) or until you can document that you have 20 percent of equity in the home (non-FHA). You can see how filling in the gap to get to the seller's $141,000 might actually cost you a lot more than the $6,000 -- if, that is, it stops you from making a 20 percent downpayment you would otherwise have been able to make. Beyond the issue of whether you have the cash to bridge the gap and can afford to do so without jacking your payment up due to PMI, you also need to consider whether you feel the home is worth the extra $6,000. I can already imagine some folks citing the official definition of an appraisal to say, "If the appraiser says it's worth $135,000, then that's all it's worth!" But that would be an extremely naive statement. As we've discussed many times in this column, appraisers are under the gun and under some very tough guidelines right now -- they are being extremely conservative, nationwide. What the appraisal means is that the specific comps that specific appraiser found upheld that value. It's possible -- and even common these days -- for buyers and sellers in your sort of transaction to strongly disagree with a low value. If you feel the home is worth more, for whatever reason, then it may not be bizarre to pay the extra $6,000. Finally, and most importantly, what is the place worth to you? Put differently -- how badly do you want it? Would you regret paying the $6,000 more or less than losing the home? If you, like so many of today's buyers, have seen dozens of homes, been outbid multiple times and this home is a great fit for your family, your finances and your lifestyle -- even at the $141,000 -- go for it! Take your real estate agent and mortgage broker's opinions and advice, locally relevant as it is, into consideration, then make the decision that will cause you the least regret. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2010 Tara-Nicholle Nelson
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Buying into college-town real estate
Consider lease-option among soft-market strategies
Tom Kelly
Inman News
National surveys attempting to determine the best places to live continue to include several college towns. The small-town environment is attractive for its slower pace and the athletic facilities and educational programs. College towns also remind many aging baby boomers of the places where they grew up or received their education and where they would ultimately like to return. For example, two couples my wife and I have known for years have recently purchased a home near Western Washington University in Bellingham. When I inquired if the homes were going to be college rental investments, both couples said they plan to make the homes their primary residences. One couple who wanted to be closer to two grown daughters had signed up to do volunteer work in the Bellingham area. The other couple planned to use the home as a jumping-off point for boating in the San Juan Islands and Queen Charlotte Straight. I'd bet that many people would jump at the chance to sell their family home and "move down" to a smaller home in a different environment, such as a college town. Not everyone can sell their present home and move right away. However, given the lower homes prices throughout much of the country, why not investigate ways of getting the home you want tomorrow ... at today's price? Homeowners over 62 could consider a reverse mortgage for purchase. If the market is slow in your area, you could consider offering your buyer a lease with an option to buy. The same strategy could work for you by offering a lease-option to the seller of the home you want to buy. Here are a few key components to the lease-option: - The buyer and seller agree on a purchase price, usually a figure somewhere between today's market value and the anticipated market value 12 months down the road.
- The seller gives up tomorrow's presumably higher value for money in hand today. The buyer pays a bit more than today's value in exchange for very little cash down. Let's say buyer and seller agree the price will be $335,000.
- The seller charges the buyer a nonrefundable fee for agreeing to this option. The amount can vary depending on factors such as how eager the seller is to move and the size and quality of the house. Typically, the higher the fee, the better the buyer maintains the property.
Let's use $3,000 for the fee in our hypothetical transaction. The fee is in addition to the monthly lease payments. And we'll have the seller give the buyer the right to purchase the property for $335,000 at any time within the 12-month lease period. If the option is exercised, the fee could be considered part of the downpayment. The lessee has made no downpayment; hence, the monthly option fee is typically higher than rental market rates. The two parties agree on what portion of the rent will be applied to the downpayment. Any amount can be credited. For example, if the monthly fee is $2,000, $800 could be credited to the downpayment. (If the seller really is not eager to sell, he may not agree to a higher rent credit.) Buyer and seller must be sure to specify both lease and sale terms in the agreement. For example, when the time comes for the buyer to exercise the option, if the interest rates are at 8 percent, the buyer may not be able to qualify for a loan. It's a good idea to set an interest-rate ceiling in the agreement, or ask the seller to finance the home when conventional rates hit a certain level. There are plenty of potential renters (other than undergraduates) associated with a college or university who would be happy to rent a comfortable place close to campus. The number of visiting professors to college campuses always is underestimated, as are the number of staffers (secretaries, security personnel, catering workers and librarians) who often are terrific rental-lease prospects. Notes to human resource representatives have worked wonders in landing mature renters, as have inquiries posted in faculty lounges and on-campus faculty living areas. Graduate students (some married) also form a significant renter pool. Sometimes, professors seek alternative housing for highly coveted students. If you want to move down the road, especially to a college town, see what's possible today. Some owners need to sell and could be open to different types of financing. A purchase at today's prices could save you money, return you to your roots, and perhaps achieve your goal. It could also provide you with a huge pool of renters until you get there. Tom Kelly's book "Cashing In on a Second Home in Central America: How to Buy, Rent and Profit in the World's Bargain Zone" was written with Mitch Creekmore, senior vice president of Stewart International, and Jeff Hornberger, the National Association of Realtors' international market development manager. The book is available in retail stores, on Amazon.com and on tomkelly.com.
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Renter faces expensive plumbing lesson
Odd discovery identifies source of 'accident'
Robert Griswold
Inman News
Q: Recently the toilet in my apartment overflowed. The water poured out all over the bathroom and even into a couple of adjacent rooms. I contacted the manager and he sent out a plumber and a flood control company. The plumber cleared the blockage and reported that he found a large nail clipper and some small batteries in the line from the toilet. The flood control company extracted the water and I had to put up with large noisy air blowers to dry everything out for three days. Now the manager is telling me that the toilet backup is my fault and he expects me to pay $650 for the plumber and flood control company. I admit that the items were mine, but I don't know how they got into the toilet. I am sure it was an accident. Can the manager make me pay for this? I can't afford to pay for this. I feel that I should be compensated for the inconvenience. A: If the blockage was caused by items that found their way into the toilet from your unit in the professional opinion of the plumber, then you are responsible. The fact that you believe the items got there accidentally does not matter unless the manager and owner want to make an exception. However, a $650 expense is not something that most landlords are willing to absorb for carelessness by a tenant. Certainly you were inconvenienced by the water extraction efforts. But again, this was all caused by a situation that the landlord didn't create. This is an expensive lesson but I expect you will be extra careful to make sure that nothing falls into the toilet accidentally in the future. You might want to approach the manager and see if the owner will allow you to pay the $650 over a couple of months. Q: A few weeks after my daughter and her children moved into a rental house, my daughter awoke one morning around 5 a.m. to a noise and saw the curtains moving in the master bathroom. She didn't see anyone and went back to bed. Later that morning, she discovered the windows had been broken in the master bathroom. She knew her children were not responsible because it happened while they were asleep. The house is located on a corner lot with no fence around the property, so she believes it was an attempted break-in or vandalism. She contacted the property management company and (an employee) told her to file a police report, which she did. The property management company then sent someone out to replace the glass. There were no other incidents or problems during the next 18 months. However, my daughter recently gave the property management company notice to move out and management informed her verbally that the owner of the dwelling wanted her to pay for the repairs to the window. They sent her an invoice for $175 and gave her one week to send payment or else they will just take the amount owed from her security deposit. This was the first time anything had been said about it being her fault. If she has a copy of the police report, how can the landlord legally deduct it from her deposit? Should she question this or is she responsible? A: In my opinion, your daughter should not send payment but a copy of the police report and a letter outlining what happened 18 months ago. This letter should indicate who was called at the property management company office and state that there was never any discussion about a charge for the window replacement. The more details the better. I would suggest that she also object to any attempt by the property management company or the owner deducting the cost of the window replacement from her security deposit and indicate that intention in this letter as well. Your daughter's situation is a good reminder that in circumstances like these -- where there is damage to the property and the property manager makes the repairs without charging the tenant -- the actions should be documented with a quick note or letter sent with the next month's rent. Of course, you need to keep a copy for your records. This is not only a good idea in case the property manager (or in this case the owner) attempted to suddenly charge for a prior repair, but also because the property manager or ownership could change and there may not be any records that would support the tenant's position. This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and "Property Management Kit for Dummies" and co-author of "Real Estate Investing for Dummies." E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com. Questions should be brief and cannot be answered individually.
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Anatomy of a real estate appraisal
REThink Real Estate
Tara-Nicholle Nelson
Inman News
Q: I know that the city appraises a house for tax purposes. Is this the same method that banks use to appraise homes also? A: There's a lot of confusion about the value estimates that cities generate for homes, so this is a very astute question. A city's process of estimating the value of a home for purposes of calculating property taxes is usually called a tax assessment, though some cities do call it appraisal. We'll use assessment for clarity's sake to denote a city's value estimation. In most areas, property taxes are calculated on an ad valorem, or "according to value," basis. For example, in a place with a 1.25 percent state property tax, each county tax assessor has the job of assessing the value of each home, then imposing a tax of 1.25 percent of each home's value every year, plus local or neighborhood assessments, minus any discounts or exemptions applicable. Very generally speaking, both cities and mortgage lender appraisers consider the recent sales of comparable homes within a nearby radius of a home as the basis for their opinions of that home's value. But that is a massive oversimplification, both of the assessment/appraisal method, and of the similarities between how assessors and appraisers operate. For purposes of this post, let's assume we're discussing bank appraisers' methods when they are appraising a home for purchase, not giving a bank an estimate of a home's value for purposes of a loan modification, short sale, or to set the list price of a foreclosure. Appraisers are paid to ensure that the bank could currently resell that home for the price the buyer and seller have agreed to. As such, appraisers work from the purchase contract and its agreed-upon sales price and any seller concessions to repairs or closing costs. With that information, and other data about whether the sale was distressed at all (e.g., foreclosure or short sale), the appraiser looks primarily at multiple listing service data about homes with very similar numbers of bedrooms, bathrooms and square feet that have sold within a half-mile radius, and within the last few weeks. Appraisers will expand the radius and the time frame of the search if they can't find at least three to five comparables homes ("comps") to use. Next, the appraiser visits the site of the home, usually taking both interior and exterior photos, assessing things like the general condition of the home (so as to compare it against the norm for the area), and also checking for any safety hazards that the bank should require be repaired prior to close of escrow (e.g., broken windows, exposed electrical wires, massive wood rot or unsteady decks). Then the appraiser goes back to the office and does a property-by-property comparison of the "subject" property against the individual comparables, adding or deducting dollars from her opinion of the home's value accordingly when the home is more or less valuable than the comparable, for any reason, like this comparable is newer than the subject property, or that comparable isn't in as good a level of repair as the subject home. On the other hand, there are generally only a few times a home is assessed for property tax purposes. Most often, homes are reassessed when they change hands -- i.e., when they are sold. And they are generally assessed by default to the value that was paid for them, when they are sold between strangers on the open market, so there's no analysis of comparable sales or site visit that goes on in those cases. The fair market value is assumed to be what a qualified buyer is willing to pay for the home, as shown by what the buyer did in fact pay for the home. In some states, the assessed values were assumed to rise every year, up to a certain maximum -- for example, in California, assessed values rise up to 2 percent automatically -- until the market crashed. Now, county assessors in almost every state are adjusting assessed values annually on the basis of comparable sales, as reported by the county sales records. In a few areas, homes are actually subjected to a drive-by site visit from the tax assessor every three or four years, mostly to check the condition of the home so they can more precisely compare it to the homes that were recently sold. There are really only two other common occasions for a home to be reassessed by a city. First, when a homeowner feels that their home's assessed value (and, thus, property taxes) is too high, they can petition for reassessment due to declining market values and, you guessed it, offer recent comparable sales supporting the lower value they feel the home has on the current market. Lastly, when a homeowner obtains construction permits and improves his or her home, the home is often reassessed upwards to account for the increased value after the upgrades or remodeling. In these cases, comps are not the primary driver of value; rather, the assessor assigns a value to the additional square feet or amenities added. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2010 Tara-Nicholle Nelson
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Save $25K a year the frugal way
Book Review: 'The Cheapskate Next Door'
Tara-Nicholle Nelson
Inman News
Book Review
Title: "The Cheapskate Next Door: The Surprising Secrets of Americans Living Happily Below Their Means"
Author: Jeff Yeager
Publisher: Broadway Books, 2010; 256 pages; $12.99 At the start of the recession, Jeff Yeager became well-known in personal finance circles as the self-proclaimed Ultimate Cheapskate, publishing his first book, "The Ultimate Cheapskate's Road Map to True Riches," and then walking his talk by bicycling the 3,000 miles of his book tour, crashing on couches and in tents the whole route. Apparently, during all those overnight stays in the rooms of children of cheapskate parents who hosted him, Yeager picked up a few secrets. He realized, he explains in his latest book, "The Cheapskate Next Door: The Surprising Secrets of Americans Living Happily Below Their Means," that his cheapskate hosts were very diverse in background and how they lived out their frugal philosophies, but they shared in common (a) "a set of vitally important practices and philosophies when it came to money and the role money played in their lives," and (b) they "were sleeping soundly at night at a time when so many Americans were losing sleep in an economy gone haywire." So, Yeager collected up a set of his fellow American cheapskates' insomnia-preventing frugality secrets and put them together in his take on the now-classic tome, "The Millionaire Next Door" (which paradoxically, was also about cheapskates -- cheapskates whose frugality has brought them undercover wealth). And voilą, "The Cheapskate Next Door" was born. If you're interested in shifting to a lifestyle of enjoyably living below your means, read this book -- but know going in that the differentiating element of Yeager's brand is his persona as a raconteur of comedic, bizarre and gross tales from the extreme edge of Cheapskate-land. I'm talking tales of eating testicles of some unnamed fauna, roasted whole over his pal Clive's cinderblock rotisserie. I'm talking stories of drinking some near-stranger's denture water while crashing on their (generously offered) couch overnight. I'm talking total strangers, uh, "eliminating" on top of Yeager's roadside tent-cum-motel room that wasn't tucked quite far enough under the bridge. But don't let this deter you. If you're on the prissy side (like myself), you might read the first few pages of this book and think, "Egads! Whatever that dude is doing is the opposite of how I want to live." But these tales are included for their entertainment value. The entire point of the book is to underscore that whoever you are -- whatever your personal style is -- there's a way for you to live well below your means. And Yeager proceeds to share how your fellow Americans are doing it -- most of them, without getting peed on. Who are these people? He tells of interior designers who live cheaply, yet in high style. Yeager speaks about cheapskate parents of large families, and 30-somethings planning upcoming retirements -- all powered by their frugality. He mentions college students and pastors -- all cheapskates. So, what makes them all cheapskates? They're used-car-buying, student-loan-eschewing, early-mortgage-paying, debt-avoiding folks who tend to use what they buy until the wheels fall off, get divorced at half the rate of non-cheapskates and are 100 times more likely to adopt a stray animal than to buy one. Yeager starts out by exploring the 16 idiosyncratic mindsets of a cheapskate, from not giving a rip about the Joneses, to preferring to shop for value, not for bargains -- because bargains cost time, and time is more important than money -- in the land of the cheapskate. He moves on to the habits and meticulous money management practices that characterize the personal finances of these cheapskates: "Admittedly, the cheapskates next door know far more about how to stay out of debt than they do about how to get out of debt." Next come chapters on how cheapskates raise financially savvy families, live green while minimizing the green they spend, avoid wasting food, and find freebies on everything from Internet access to foreign language instruction. Yeager walks readers through the basics of dining out on the cheap, bartering and negotiating, homeownership -- cheapskate-style, and the common food shopping and cooking philosophies shared by the cheapskates he encountered. Whether clothes, cars, health insurance or recreation, Yeager shares the cheapskate way of life when it comes to all these essentials. "The Cheapskate Next Door" is an enjoyable read with an extreme take on living frugally -- it offers hundreds of tips on saving every nickle and dime (including carrying around a yardstick to grab the fallen quarters beneath the vending machines you come across -- no joke). If that's not your style, though, it contains many very sound basics on how to approach the larger purchases and recurring expenses of life in a way that eliminates the debt monkey America seems to be tiring of carrying on its back, along with the inspirational stories of members of "The Cheapskate Next Door" community who are loving living their lives in this way. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2010 Tara-Nicholle Nelson
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5 tips for assessing a lowball offer
Know when to counter, when to ignore
Mary Umberger
Inman News
Your house is for sale for $350,000, and you're confident it's well-priced. You get an offer, but it's for $300,000, and you're stunned and disappointed by how low it is. If your first instinct is to feel insulted and to hurl an epithet -- don't, said Jeffrey Stanton, a real estate instructor based in Modesto, Calif., and Staten Island, N.Y. Stanton's company, Your Professional Development, teaches courses in negotiation techniques. That seller might still end up with an acceptable sale price, Stanton said: The key is being ready. Five things for home sellers to know about lowball offers: 1. It's critical in this market for sellers to be prepared for the possibility of an unacceptably low offer, Stanton said. This is the job of the seller's agent -- managing expectations and emotions -- and too often this particular educational task is overlooked, with uncomfortable, potentially time-wasting results for all, he said. "Most agents wait for an offer and say, 'Oh, shucks, now I'm going to have to present this to my seller,' " he said. Not only should the agents tell the homeowners to be prepared for a low offer, they need to come to agreement on just what constitutes "lowball." "Each market is going to be totally different. In one, it may be 5 to 10 percent below list. In a different market, it may be 30 percent below list," Stanton said. "That's a unique conversation that has to happen between agent and seller." 2. Lowball offers may have any number of motivations, and sellers shouldn't automatically presume they stem from somebody's desire to be insulting. "A lot of times, a lowball may be all the buyers can afford," he said. "It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you're going to say yes or no. "Just don't take it as them disrespecting you." 3. If the initial offer seems out of the question, should the seller just ignore it or make a counter? Stanton said that some negotiators suggest making no written response at all, which tells the would-be buyer that the offer isn't even being considered, in order to get across the point that the offer must increase considerably. The thinking is that the most powerful thing an individual can say is, "If it's that low, I'm not selling," Stanton said. But he suggests that buyers in such cases make a counteroffer. "You want to keep the negotiation lines open, so come back with something," he said. "If the house is listed for $350,000 and the offer is $300,000, the seller may want to counteroffer at $345,000, just to see what the buyer is going to say." 4. In such a case, the next move will be revealing, Stanton said. "One of the signs in negotiations is how much of a move they make," he said. "The smaller the move, the closer that person is to his goal." Take the aforementioned counteroffer of $345,000, he said. If the buyer responds to that one with $305,000, usually it can be interpreted as the buyer not having much price flexibility. But if that (buyer) response is $320,000, that's a big move, Stanton said. And if the countering continues but the buyer goes up only to $322,000, he's probably near his limit, he explained. 5. Another technique right at the beginning of the whole process might save everyone time, Stanton said. If the buyer's agent tells the listing agent that he or she is going to present an offer that's significantly below the asking price, "then I absolutely would require that the other agent present that offer in person -- I'd say, 'Be here tonight at 7 o'clock,' " Stanton said. If it's a true lowball offer where the buyer is just fishing for a price and the agent knows it, it might speed things along if the agent's presence is required, rather than just faxing the offer, Stanton said. "The buyer's agent will say, 'Let me get back to my buyers,' " Stanton said. "It's called a problem transfer. I'm going to take my problem -- that lowball offer -- and transfer it to the agent. All of a sudden, that $300,000 offer has turned into a $320,000 offer. "You'd be surprised how often that actually works," Stanton said. Mary Umberger is a freelance writer in Chicago.
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Smokin' fireplace makeovers
Replace brick with marble, stone or tile
Bill and Kevin Burnett
Inman News
Q: I'd like to remove my fireplace brick, but it goes all the way up from the hearth to the ceiling. Is it possible to remove the brick and replace it with another material? After removal, what type of material should I use to cover things up? Is there something that I can use that will still allow me to use the fireplace? A: Yes, you can remove the brick facade and replace it with another material. And you will still be able to use the fireplace. The only restriction is that the material around the firebox must be noncombustible. Common choices are marble or some other type of stone or tile. Check your local building code to determine how far the hearth must extend in front of the firebox and the area on the sides and top of the opening that require noncombustible material. Expect 8 to 12 inches on the top and sides and a minimum of 18 inches for the hearth. When it comes to the hearth, the deeper, the better. There's nothing worse than a hot ember that burns a hole in the carpet. The remainder of the wall can be any material you want, from drywall to plaster to the rustic appearance of wood. The removal process is fairly labor intensive, but if you do the demolition yourself you'll save a bunch of money. Furthermore, if you do the whole job yourself, all you'll be out is the cost of materials. Go slowly, be careful, and you'll be fine. When you're done you'll have a spiffy new look for pennies on the dollar. You will need a hammer and a cold chisel. If you want to make quicker work of it, rent a small electric demolition hammer. Make sure to remove any breakable objects from the area and cover the floor. Dropping a brick from 8 or 9 feet in the air is not a good idea. Have a helper handy to receive and stack the bricks when you remove them. To remove the old brick, start at the top and work down. Begin by chiseling the mortar on the top line of brick. It might be a little tough to remove the first brick, but once you pry it out, the others should follow more easily. Remove one brick at a time. Work down the wall until all of the face bricks, including any mantel you might have, are removed. Then remove the bricks from the hearth. With the wall and the firebox opening stripped, you're ready to reface. It's vital to have a flat, solid surface on which to affix the new stone, tile or marble. For larger, flat pieces of tile or marble, you can either plaster a mortar bed over the existing brick to create a substrate or you can affix cement board such as Durock with thin-set mortar. Use concrete nails to hold the cement board in place. When the mortar dries, you'll have a solid, flat surface. If you use smaller, irregular material, such as individual stones, you can forgo the cement board. Just apply a thick layer of mortar and embed the new material. In both cases you will have to pretreat the old brick with a concrete adhesive to allow the new mortar to stick to the old brick. A word of caution: If you decide to use material that is very heavy, make sure the floor framing will support the weight. You might have to go into the crawl space to install a couple of concrete piers with a beam across the floor joists to support the added load. Also, if you decide on stone or another type of brick, you'll need a steel bar across the top span of the firebox to support that weight. Two final suggestions: This is a good time to have your fireplace inspected by a licensed, bonded chimney sweep. Also, it's likely that your project will require a building permit. Make sure you get one. Copyright 2010 Bill and Kevin Burnett
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Judge denies Section 8 evictions
Law of the Land
Tara-Nicholle Nelson
Inman News
In March 2006, the landlord of the Morton Gardens apartment complex in Los Angeles sent tenant Debora Barrientos and her neighbors "Notice(s) of Withdrawal from Section 8 Assisted Housing Program and Notice of Change in Terms of Your Tenancy," which stated that the tenants' Section 8 tenancies were being terminated and that they would be charged full market rents going forward, according to court records. The notices went on to provide that "(t)he owner/agent for the owner wishes to remove the Subject Premises from the Federally Assisted Section 8 Housing Program, and intends to rent the unit at market rents," and stated that the tenants' options were to either pay the full market rent or move out. The owner's desire to remove the homes from the Section 8 program was the only reason provided for the change in terms/eviction. The tenants submitted the notices for review to the Los Angeles Housing Department, which rejected the notices. Then, the landlord sent new eviction notices to the tenants, elaborating that the rationale underlying the notice included terms in the contract and the Section 8 program guidelines that "allow(s) the landlord to terminate the rental agreement for a business or economic reason, including but not limited to, the desire to opt-out of the Tenant Based Section 8 Program and or the desire to lease the unit at a higher rental rate. "Prior to the service of this notice, the landlord made a business decision to no longer participate in the Section 8 voucher program for your unit." Because Section 8 is a federal program, the tenants filed suit to prevent their eviction in the federal district court, which ruled in their favor, finding the eviction notices to be invalid because they were not based on the permissible grounds for eviction under the Los Angeles Rent Stabilization Ordinance (LARSO). The landlord appealed the matter to the Ninth Circuit Court of Appeals, which affirmed the lower court's ruling. First, the Court of Appeals rejected the landlord's arguments that there were grounds for the evictions other than a desire to raise the rents, which is not a permissible grounds for eviction under the LARSO. While the lower court acknowledged that the revised notices did state some undefined "business or economic reason" motivating the evictions, at no time prior to the court proceedings did the landlord specify what this "reason" might be, nor did the landlord at any time provide any evidence as to what the costs of their participation in the Section 8 program were (despite the argument at trial that the burdensome cost of participating was the "other business or economic reason"). Further, the Court of Appeals explained, the only other grounds for the eviction specified in the notices -- the landlord's desire to opt out of participating in Section 8 -- is not a valid grounds for evicting a Section 8 tenant, given that Section 8 imposes a "good cause" requirement for evictions. Even if the landlord had clearly specified "other business and economic reasons" for the evictions, the Court of Appeals elaborated, they would also have failed under the LARSO. HUD's Section 8 regulations do provide that evictions for "business and economic reasons" are possible, out of an expressly stated legislative intent to allow courts to strike a balance, on a case-by-case basis, between the economic rights of a landlord and the rights of Section 8 tenants not to be evicted except for good cause. Where, as in this case, a local rent or eviction control ordinance applies, the Ninth Circuit declared, the good causes for Section 8 eviction are properly limited by a court to the good causes for eviction authorized under the local statute: the LARSO, in this matter. As the LARSO does not recognize "business and economic reasons," this would not have been a justifiable rationale for the evictions in this matter, even if the landlord had proven the costs of participating in Section 8 to be economically burdensome. Accordingly, the trial court's rejection of the eviction notices was upheld. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2010 Tara-Nicholle Nelson
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Inherit real estate without hiccups
2 options to take when holdout refuses to sign quitclaim deed
Benny Kass
Inman News
DEAR BENNY: My wife has a problem you may be able to resolve. About 30 years ago her father died without a will. All the other six children had heard him repeatedly say he wanted the property to go to our daughter, who was a minor at the time. Five of them signed quitclaim deeds assigning the property to my wife, but one sibling who lives back east refused to sign. My wife now has a deed with six-sevenths ownership. However, the county where the property is located condemned the asset because the roof came off, making it too dangerous to occupy. After 10 years of having the property neglected, my wife and I began to restore the property, a small 2-bedroom home. We paid all the taxes for the last 30 years, and have put thousands of dollars into keeping up the property. Is there any way to get a clear deed to this property so she can liquidate the house? We would like to know how to proceed. Since her sister refused to help pay the taxes or renovation costs, is there a way to force her to sign a quitclaim deed? --Paul DEAR PAUL: Your father-in-law died many years ago without a last will and testament. Was his estate probated? In most states that I am familiar with, probate proceedings must be initiated so as to make sure that title is legally transferred to someone. You state that five of the seven children have deeded their interest to your wife. But did those other five siblings have legal title to the property? You should have the title searched, and consult a local attorney for specific advice. Assuming, however, that probate was accomplished, and title was vested in all seven children, you will most likely have to file a lawsuit against the seventh holdout. You basically have two options: - You can file a suit against the seventh person, asking that she be required to pay one-seventh of the various costs you have incurred, such as insurance, real estate taxes and improvements. Keep in mind that every state has a statute of limitations, ranging from one to five years depending on the situation. You will have to confirm the number of years in your state with your attorney. But this means that you cannot sue beyond the statute of limitations period.
- You can also consider filing a suit for partition. Every state allows such a lawsuit when two or more people own property and one does not want to sell. However, such litigation is time-consuming and expensive. The best that could happen is that a court would grant your request and order that the property be sold. You will be able to ask the court to allow you to recoup your expenses (again subject to the applicable limitations statute).
But, what is the property worth? It may not be productive to spend a lot of money and time on a partition lawsuit if the sales proceeds -- divided into seven parts -- is less than the litigation costs. DEAR BENNY: I have owned and lived in my house for 20-plus years. The duplex next door is a rental, and the owner lives in another town and doesn't do maintenance to the property until a tenant moves out or something breaks. Our homes are close together and his paved driveway runs in between. The driveway covers his property from the side of his house to the property line. I have about 2 to 3 feet of space that is mostly plant beds. The issue is the storm drain in the driveway. It is clogged and doesn't drain. The water will build up during a rainstorm and will start to drain into my basement coming under the foundation. This will continue until the water level has dropped. I have asked this absentee landlord several times to have it repaired, as it is impacting my house. His answer is that it doesn't impact him and if I want it fixed I can pay for it myself. What recourse do I have to get him to do the repair? --Harry DEAR HARRY: First, you have to make absolutely sure that the storm drain is not on your property. I assume that the "2 to 3 feet of space" you mention does not include the driveway. Next, although the drain is on private property, have you contacted the appropriate county (or city) government agency to determine if they can be of assistance? In some jurisdictions, a governmental agency can issue an order demanding that the homeowner clean the storm drain. However, if all else fails, I think you have only two courses of action to take: You can get an attorney to file suit, which is time-consuming and expensive, or you can take the initiative and clean the drain yourself. I recognize that my last suggestion is like rubbing salt in a wound; it's offensive for you to have to pay for a problem caused by your neighbor. But you want to protect your own property, and that may be your best solution. DEAR BENNY: I read the article about the man wanting to gift his house to his friend. If the man owned his house outright, why not sell it to his friend and carry the loan himself? He could then let his friend default on the loan. With no other action taken by either party, would this be a good deal for both? --Wolf DEAR WOLF: Yours is an interesting suggestion but there are too many tax consequences. First, the sale must be reported to the IRS, and the seller may have to pay capital gains tax. Next, the interest on the seller carryback loan must be reported as income to the seller and as a tax deduction to the buyer. And if the interest rate is too low (or even zero), the IRS will impute interest to both parties. And if there is a loan, will it be recorded on land records? Bottom line: It's a fraudulent transaction that I cannot recommend. DEAR BENNY: While working overseas, my husband and I bought a house that was to be our retirement home. But when we actually retired, we realized that it was too far from family so we sold it, taking the $250,000 exclusion. Long before we were married I bought a house that has been rented for 25 years. Now I wonder if this house, being in my name only, is eligible should I want to sell it? I see you mention $500,000, so is that for two people? We received only a $250,000 exclusion, so I wonder if another $250,000 might be eligible. --Carolyn DEAR CAROLYN: If you and your husband both owned and lived in the house for two out of the five years before you sold it (called the "ownership and use test") and if you filed a joint tax return, you are eligible for the up-to-$500,000 exclusion of gain. Please note the words "up to." That does not mean that you can automatically exclude all of the $500,000. If your gain was only $250,000, that's all you can exclude. I would talk with an accountant about your situation. Depending on how long ago you took the exclusion, you may be able to file an amended return, so that you can claim the correct amount. As for the rental property, it is not eligible for any exclusion. The exclusion authorized by Congress applies only when the ownership and use test described above is met. DEAR BENNY: In a recent column, you refer to a 2008 tax law on allocation. Can you please tell me what law that is? --Julia DEAR JULIA: The law is known as the Housing and Economic Recovery Act of 2008. Up until January 2009, if you moved into your second home that you had been renting for many years, and live in it for two out of the five years before you sell it, you can exclude up to $250,000 of any gain that you make (or if you are married and file a joint tax return, the exclusion is up to $500,000). But Congress, in an effort to offset other monetary losses that would be generated by the new law, decided to target second homes, which includes where you vacation every summer or your rental property. Effective for property sales after Jan. 1, 2009, you now have to allocate the percentage of time that you owned the property as compared to the time that it was not used as your principal residence. Simply put, after Jan. 1, 2009, when you sell your house that has not been used exclusively as your principal residence, you must "crunch the numbers" to determine any possible tax liability. Have your financial advisers do the numbers for you. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com. Copyright 2010 Benny L. Kass
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Homebuyers, sellers still stuck in denial
Mood of the Market
Tara-Nicholle Nelson
Inman News
Recently, the folks over on GOOD magazine's blog asked the question: Which class in high school or college impacted you the most? Why? Now, I was a bona fide school fanatic -- three degrees over nine years, and I'd still be in school if I hadn't realized the need to make a living at some point! So, I've taken a lot of classes, with lots of teachers and loved a bunch of them (both classes and teachers). Nevertheless, my answer was clear: social psychology. Why? This class, which explored the interactions of people with each other, within and outside of groups, was probably the single course that changed my everyday interactions with people at home and at work in the most ways. To this day, many times a day I apply and exercise skills I picked up in that course, and I've heard and observed, hundreds of times, these interactions have the effect I wanted or needed them to. (Thanks, Dr. Noel!) Probably the most influential of the skills I picked up in that course, at the age of 18, was the skill of active listening -- a listening technique that facilitates focus on and understanding of what the speaker is saying, and also communicates to the speaker that the listener truly cares about and comprehends what he or she said. I won't get into the details, but suffice it to say that in order to use the technique of active listening, you do have to actually listen to what the speaker is saying to you. These days, I wish we could do a little active listening tutorial specifically for the various players in the real estate market. Because they just aren't listening! Of course, it's also quite possible that a little mini-course in abnormal psychology is also needed here. Because what I'm seeing is not only poor listening, but that familiar coping mechanism: denial. Buyers are not listening to their agents when they caution them about short sales. "They take a long time," the agents say, "really long, like six months or a year. And many of them never close -- ever. If you decide to get into contract on one, just don't get your hopes up." Yet and still, I get e-mail after e-mail from jilted short-sale buyers wondering whether it's strange that they've been in contract for four months with no word from the bank. Sellers aren't listening, either. I continually receive inquiries as to how much they should list their homes for, providing me all manner of detail about how much they need to move to their next house and how much they need to pay off their current mortgage and other bills, but omitting all information about what the similar homes in their area have sold for recently. Your home's value has zip to do with how much cash you need, sellers -- it's all about what a qualified buyer will pay for it, now, and the best indicator of that is what qualified buyers have been paying for similar homes recently. But many sellers are simply not hearing or are willfully denying the facts underlying their home's true market value, even when their agents bring them a sheaf of comparable sales documenting it. And, perhaps least surprisingly, legislators aren't hearing it. Everyone agrees that the homebuyer tax credits were somewhat effective at creating an urgency on the part of buyers, where it didn't otherwise exist. But in terms of long-term healing of the housing market, in terms of stimulating ongoing homebuying activity, it's not incentives America needs nearly as much as jobs. I watched "The Secret." I know there is a place for staying unerringly positive, and focusing on the things you want to happen, rather than on the outcomes you hope to avoid. But there's also a very large role in a mature approach to real estate decision-making and planning out your personal finances for operating in reality -- even if that reality is not exactly what you wanted, facing it empowers you to take control of the elements of your situation that you are in a position to control. Buyers can prioritize "regular" equity sales or short sales that are listed by agents with a strong record of successfully closing them, or can at least avoid the panicked, crazed feeling of being stuck in short-sale limbo without understanding why. Sellers can decide that this is not the right time to sell, or can get real with themselves about the aggressive pricing it will take to position their home competitively for sale against all the short sales and foreclosures on the market. Denial can be an effective coping mechanism, but the real estate reality will come home to roost, sooner or later. The sooner we all drop the denial, the more powerful we will all be. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com. Copyright 2010 Tara-Nicholle Nelson
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A pro's take on attic ventilation
A tip to properly exhaust hot air
Paul Bianchina
Inman News
Q: My house currently has a continuous ridge vent in the attic and two gable vents (one on each end of the attic). However, it has no soffit vents at all. I'd like to install some but I'm not sure what kind are best. Is it bad to have more ventilation at the eaves than at the ridge? Any tips are appreciated. --Mike A: For the typical attic, ventilation is achieved by installing a series of low vents along the eaves or soffits of the roof, and a series of high vents along the roof's ridge or gable ends. Since the air in the attic is warmer at the ridge than it is at the eaves, the natural upward movement of the warmed air creates a current of moving air. The low vents act as air intake vents and the upper ones act as exhaust vents -- lower temperature air is drawn in through the low vents, pushing the higher temperature air out the high vents. Without the low ventilation, as is the case of your attic, you are dependent solely on wind pressure to move air in through one of the high vents and out through the other, which doesn't work very well. You want to use a ratio of approximately 1 square foot of ventilation area for every 300 square feet of attic area, including attached garages. That ventilation should be equally divided between high and low vents. So, simply divide the square footage of your attic by 300 to get the total amount of ventilation required, then halve that number to determine approximately how much should be high and how much should be low. Ideally, you want to keep the amount of high and low ventilation roughly equal, and you also want to keep the low vents roughly balanced on each side of the house. In other words, don't put all the low vents on one side and none on the other. However, as long as you install the correct total amount of ventilation required for the entire attic, if you have a little more low than high it won't matter. The type of soffit vents to use depends on the construction of your house. If you have open soffits, where you can look up and see the underside of the roof sheathing, you can remove some of the solid wood blocks between the rafters and replace them with screened eave vents. If you have a closed soffit, which means the underside of the rafters are covered, you need to cut a slot through the soffit and install long continuous soffit vents, of which there are several types on the market. And in addition to the new vents, make sure all your exhaust fans are vented to the outside to prevent moisture problems in the future! Q: We have two fairly new appliances (dishwasher and convection/microwave) that are bisque (color). Our present stove is bisque and the fridge has wood panels on the doors to match the cabinets. I have found a fridge and stove in bisque but now am beginning to wonder if the way to go is with stainless steel. Will the bisque "date" the house? (The brand of cabinets we now have) do have bisque laminate cabinets, but then I'm thinking everything bisque may be way over the top. This is the part I hate about doing anything in the house -- too many decisions! --Virginia B. A: I definitely sympathize! Too many decisions, and a lot of them -- especially when you're dealing with the kitchen -- can be quite expensive. As such, you need to make your decisions based on what's practical and affordable, not just on what's currently popular. Discarding perfectly good appliances doesn't make any sense. Stainless steel appliances are hot right now, and have been for several years. I suspect they'll remain so for quite awhile, since they look classy and they blend well with a wide variety of cabinets, counters and flooring. Black appliances tend to do the same thing, and while they're not currently a hot trend, they tend to remain relatively popular year after year. Bisque will probably date the house to some degree, but it's such a neutral color that I don't think it would be a huge turnoff to a potential buyer. One thing I would strongly recommend against is bisque cabinets! As you mention, that would be way over the top. What's currently popular in the way of cabinets is neutral, softer-grained woods such as maple and alder. Finally, try not to get too stressed. Don't look at too many options. After a while it all gets confusing and overwhelming, and it takes the fun and excitement out of remodeling. Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com. All product reviews are based on the author's actual testing of free review samples provided by the manufacturers.
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