7 Tips for Selling a Home Faster and for More

Online real estate firm Redfin offers seven recommendations for selling a home faster and for more money.

The seven tips come from an analysis of academic research, multiple listings service data, and from information posted on Redfin’s various Web sites.

1. Don't overprice your property. According to a 2002 academic study of 3,490 California listings, homes without a price reduction sold for 97 percent of the initial list price, whereas homes with a price reduction sold for 88 percent of the initial list price.

2. Set your price to show up in Web searches. A September 2007 Redfin study analyzed how online search filters affect traffic to a listing. Because real estate sites filter on price in $25,000 or $50,000 increments, listings priced at or below these thresholds — $250,000 rather than $251,000, or $325,000 rather than $326,000 — get as much as 7.1 percent more online visits.

3. Debut on Friday. A December 2007 Redfin analysis of its online traffic for 119,079 listings across seven markets found that listings that debut on Friday get on average 7.7 percent more visitors in their first seven days than those that debut on the worst day, Thursday.

4. Get sellers engaged with your agent. According to several academic studies, motivated, active sellers are able to sell their property as much as 30 percent faster.

5. Market the property online. Promoting a listing on Web sites beyond the local Multiple Listing Service can drive a significant number of new online visits to a property. A December 2007 analysis of 121 Redfin listings found that promoting the listings on Craigslist resulted in an average of 6.8 online visits to the property for each Craigslist promotion.

6. Have sellers stay put. The study of 3,490 California listings, cited earlier, found that vacant homes were 9.5 percent more likely to undergo a price reduction.

7. Wait to list your property until neighboring foreclosures are off the market. According to a November 2007 report from the Center for Responsible Lending, a foreclosure costs neighboring home owners an average of $5,000 when listing their property.

Source: Redfin (12/14/07)
www.LagretRealEstate.com

Figuring out the math when it's time to move on

By Lew Sichelman

WASHINGTON -- In a hot housing market, it doesn't seem to matter what price sellers put on their homes. Whatever you ask, someone will offer more.

But in a slow market, pricing is key. Price the place too high and it will languish, soon taking on the aura of a white elephant.

Yet the key isn't so much your asking price as it is how fast you want to sell, said Zan Monroe, a senior instructor for the Council of Residential Specialists based in Fayetteville, N.C., and proponent of "absorption-rate pricing." If you've got time on your hands and are in no real hurry to move, then, yes, you can offer your place at the high end of the market. But if you want out fast, you have to be much more realistic. You need to find the price point at which your house will sell as quickly as you need it to.

Absorption-rate pricing isn't new. Practically every type of business uses the technique. But it is new to real estate. "Our industry is just now catching on," said Monroe, who teaches agents how to help clients determine an asking price commensurate with their need to move on.

First, realize that only a certain number of houses will sell in any market, strong or not, in any given time period.

To determine the odds that your house will sell, you'll need help from an agent whose firm participates in your local multiple-listing service. You'll need to know how many houses were on the market in the last six months, how many sales closed in that period and how many new listings were entered into the MLS during the same time frame.

Six months is the perfect time search, Monroe said. Any longer presents an inaccurate picture because the same house may drop off the market and come back as another listing. It appears as two different properties, when in fact it is the same.

Let's say there were 53 closings of the 128 listings that entered the MLS in the last six months. That means 41% of the houses that entered the market sold. So the odds of your place selling in the 180 days after you put it on the market are just over 40% -- regardless of how low the price. Most people find this exercise rather sobering. "I've never met anyone who considered the fact that their house will not sell," said Monroe, the real-estate educator. "But in some places right now, there's only a slim chance, if any."

Remember, you can cast as wide a net as you want. Or you can drill down to, say, your own neighborhood, a certain price range, school district or even house style. The more detailed the search, the more accurate the results, Monroe said.

Once you determine your criteria, you can figure out the absorption rate. And you'll also want to ascertain a trend line, so you'll need to go from a 12-month analysis to a six-month review and then to a three-month survey. The longer time period gives you the most data to work with and, therefore, a good average, while the shorter time frames tend to show the most up-to-date sales picture. This, Monroe explained, "tells you exactly what the market is doing."

Say, for example, that 1,200 sales fitting your search criteria closed in the last year. That's an average of 100 per month. Divide the number of active listings -- say, 800 -- by the average closed per month, and you'll now know that there's an eight-month supply of houses on the market.

According to Monroe, a six-month supply is a balanced market. Less than that is "not enough houses to fill demand," he said. "More means there are not enough buyers."

Next, perform the same analysis doing a six-month search and then a three-month search, and you can see exactly what's going on. If the months' supply of houses is going down, the rate of sales is speeding up. But if it is going up, sales are slowing.

If you have given yourself a year to sell your place, then an eight-month supply shouldn't bother you. But in Monroe's 27 years in the real-estate business, he has never heard of any seller who has had that long.

"Usually," he said, "sellers have a time frame of 90 days. And if they have to be in that new house or new job in three months, then they really need to find a buyer in 60 days, not 90."

Now it's time to decide where to price your place in relation to the market. Here, Monroe suggested asking yourself what your "walkaway" price would be. This is the amount of money you'll have in your pocket after settlement. Look at the prices of the homes in your search criteria that have been sold and that are still on the market to see if your "walkaway" price is in the ballpark.

"For most people, this is a reality check," Monroe said.

Based on the absorption rate in your search, you can see how long it will take to sell your place. If it will take more time than you have, you'll have to set a lower price. That, in theory, should attract more potential buyers and allow you to put up a "sold" sign sooner rather than later.

"Every house has a selling price," Monroe said. "But sellers need to be more realistic. There's a one-day price, a 30-day price, a 60-day price and so on."

House for sale in Columbia, MD

See the House for Sale

When will market hit bottom?

Dissecting the downturn

By Glenn Roberts Jr.
Inman News



For economist Dean Baker, the next U.S. economic recession is more a matter of when than if.

"I don't know how we avoid a recession," said Baker, co-director of the Center for Economic and Policy Research, a research and public education organization.

While Baker is less optimistic about the fate of the housing market and U.S. economy, market predictions by even the most optimistic real estate and economic analysts have generally grown gloomier in the past several months as troubles in the mortgage and credit markets have boiled over.

That has led many housing-market experts to reach a common conclusion: It's worse than we thought.

The bottom of the housing market is likely deeper and wider than previously imagined, they say, so the housing slump could drag down the economy with greater force and further delay a recovery.

Problems ranging from foreclosures and unavailable mortgage loans to subprime mortgage-company bankruptcies and skyrocketing losses associated with mortgage-related securities have sent shockwaves from Main Street to Wall Street.

Home sales have dropped off substantially and home prices are falling in many markets.

The global nature of mortgage financing has entwined the course of the United States' real estate downturn with factors outside of this nation's control, and troubles in the U.S. housing market and economy may likewise signal a host of international financial problems.

"We're really at the beginning of this," Baker said, noting that the unprecedented run-up in U.S. housing prices fell out of line with inflation and other fundamentals. "My expectation is that the bulk of that run-up will disappear."

A recession, he noted, "can be hard to recognize even when it has already begun."

While Baker said it doesn't appear that the United States has entered a recession yet, he said he is surprised to see continuing strength in some segments of the economy despite other downward trends.

Employment numbers have shown some resilience, he said, though many jobs are low-paying and don't offer much in benefits.

Also, while home ownership reached record levels during the latest housing boom, the rate of equity to value is at a record low as people have borrowed against their homes, Baker noted.

The economic recovery that followed the technology bubble and stock crash in 2001 was aided by growth in the housing market, and this time around there may not be another similar crutch to prop up the economy.

"What I worry about with this recession ... it might be very hard to get out of," Baker said.

He expects more of a slow, drawn-out bottoming and recovery cycle. "The unraveling could take two to three years."

It could be quicker, he said, if there is widespread real estate panic and the market floods with home sales and corrects more rapidly. Some markets have already been inundated with for-sale inventory.

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at University of California, Berkeley, said during a mid-November presentation that a recession is becoming more likely and it's prudent to plan for the worst, though he says there is still a 55 percent chance that the nation will avoid a recession.

Home prices may continue to fall another 5 percent to 7 percent nationally before the market turns around, he said.

Pressure on home prices

Economist Robert Shiller said during a presentation in late November that a recession is more likely than not, and he also said it would not be a surprise to see massive home-price declines. "I think we are in a period of exceptional uncertainty about the value of our homes."

The Standard & Poor's/Case-Shiller U.S. National Home Price Index -- an index that Shiller helped establish -- dropped 4.5 percent in the third quarter compared to the same quarter last year and dropped 1.7 percent compared to the second quarter, which represents records in the 21-year history covered by this index.

And the Office of Federal Housing Enterprise Oversight reported the first quarterly decline in average U.S. home prices in 13 years for the third quarter -- down 0.4 percent -- based on a separate price index.

Another index released by the National Association of Home Builders and Wells Fargo found that the national median price of new and resale homes sold in the third quarter dropped 3.6 percent year-over-year, and the National Association of Realtors reported a 2 percent year-over-year decline in the resale home price in the third quarter.

The U.S. Census Bureau and Department of Housing and Urban Development reported that the median sales price of new homes slid 13 percent in October compared to October 2006, and the Realtor group reported that the median price of U.S. resale homes fell 5.1 percent year-over-year in October.

National home sales have been dropping, too, while the volume of foreclosures has been rising.

The foreclosure problem will likely be with us through 2009, said Mark Dotzour, "The foreclosure situation nationally ramped up pretty dramatically in 2007 and will continue all the way through 2008 and well into 2009 as well, and then it's going to fall off pretty abruptly in the first quarter of 2010," said Mark Dotzour, an economist at Texas A&M University.

He said there is still a steady stream of adjustable-rate mortgages that are heading for a reset in rates during this period, which he likened to "sticks of dynamite where the fuse has already been lit."

Loose mortgage underwriting standards during the boom have created a sort of "renter" class among homeowners who cannot afford their payments and will be forced to leave, he said.

"We just had thousands of families move into homes thinking they were homeowners, when basically they are just 'renters' with no equity in a home and no hope of getting equity in a home."

In addition to problematic mortgages and rising foreclosures, home builders have contributed to the market downturn by overbuilding in some markets, Dotzour said, which has led them to offer discounted prices and other incentives.

That, in turn, has put downward pressure on resale-home prices.

"People have been asking me, 'When are we going to start to see a turnaround in housing?' The very first sign is when builders offer homes for sale without concessions," he said.

Builders also must pull back more on home production, he added. "I don't think we'll even start the beginning of a turnaround until we see a significant further reduction in the amount of houses being built.

"The fact is they're still building too many homes. Unfortunately what we'll have to see is a large segment of the home-building industry withdrawing from the market totally, either voluntarily or through bankruptcy."

Despite efforts to reduce inventory by offering incentives and cutting production, several large public home builders have reported huge multi-million-dollar quarterly losses. And many builders have cut staff to help reduce costs during this downturn.

Some builders have exposure to the subprime mortgage meltdown and credit crisis, too, through subsidiary lending divisions.

Dotzour said he expects the housing market to regain some balance in supply and demand in 2010, "barring any sort of spectacular government intervention."

The federal government may intervene to prevent the foreclosure situation from getting out of hand, he said, though political actions could "exacerbate the problem rather than help it," and the upcoming election year may increase the probability that Congress or the president "will do something dramatic to make political points."

Today's downturn more severe

Nicolas Retsinas, director of Harvard University's Joint Center for Housing, said it appears this housing slump is more severe than most, and it may be 2009 "before we start to see even a modest recovery."

If it weren't for the credit problems in the mortgage market, housing may have been ripe for a recovery in 2008, he said. "Credit is the lifeblood of housing in this country, and the squeeze basically shut off demand."

A surge in foreclosures could be "the last shoe to drop" in this downturn, he said, and could lead to a "more dramatic falloff in prices."

Jobs are a key indicator for the economy, Retsinas said, and if the nation continues to add jobs then the economy could weather the impact of the housing downturn and avoid a recession. "If people are still working we will find our way through this."

The mortgage and credit market problems have sparked a renewed interest in government regulation of the mortgage industry, Retsinas also noted.

The Federal Reserve has taken some actions that are intended to prevent the credit crunch from snowballing into an economic disaster, though Retsinas said that recent Fed interest-rate cuts haven't provided much of a lift for the housing market.

"I daresay the Central Bank of China probably has more to do with interest rates than the Fed," he said.

Ed Leamer director of the Anderson Forecast, a quarterly economic forecast produced at the University of California, Los Angeles, said that Fed actions in setting rates won't have much impact "until we start getting stable, appreciating prices."

Leamer is more optimistic than some economists about when the housing market will turn the corner. Foreclosures will likely peak in 2008, he said, and return to a normal level.

His expectation is that the housing market "will stop being a drag on growth in mid-2008 but will not experience a rapid bounce-back. No recession, this time."

Rising home prices will be the clearest signal that the real estate market is in a recovery phase, Leamer said.

"Excessive appreciation drove the market up, and now prices are declining. We need a half-year or more of rising prices to get the sense of urgency back into home buying. That is going to take awhile, which means expect a painfully slow recovery," he said.

Actions by Congress or federal regulators that are aimed at assisting distressed homeowners may realistically have more of an impact on the next real estate market cycle than on the current one, said Jonathan Miller, executive vice president and director of research for Radar Logic Inc., a New York-based real estate research and analytics company.

"I think there will be more quick fixes in the election year than there will be long-term solutions," he said.

Miller, who notes that local real estate markets are unique and some are faring quite well, said that nationally he doesn't expect to see the market hit bottom until 2010. "I think we've got more than two years -- probably two-and-a-half years to go," Miller said.

"This is not a short-term situation. The inventory overhang is so significant and sales have dropped so much over the last year and a half that it's going to take a long time to absorb the inventory."

Miller last year wrote in his blog that he expected the nation to enter a recession in 2007 or in early 2008, and "I still believe we're going in that direction," he said.

"One of the things that has always amazed me in discussions about the economy ... is that we have this disconnect from what the housing market is actually doing and what its potential impact to the economy is."

The health of the housing market is vital to the health of the economy, he said.

Whether or not you believe the United States is headed for a recession, the answer will likely become more clear in the first quarter or second quarter of 2008, said Josh Bivens, an economist for the Economic Policy Institute, a nonprofit, nonpartisan economic think tank.

"I expect the housing market to be awfully tough through the entirety of 2008," Bivens said. "My guess at a recession in the next year is at about 50-50 -- housing is the number one reason why I'm that concerned about it."

It remains to be seen how heavily the economy relied on mortgage-equity withdrawals, as "soon that's going to fall to zero," he said. If nothing can replace those withdrawals as an economic engine, "then we'll have a recession."

Home prices will probably continue to fall into 2009 as rental prices and home prices close a gap that had dramatically widened during the housing boom, Bivens said, adding that he wouldn't be surprised if home prices remain "really flat for a long time."

Soaring home-price growth of the up-cycle has led us to "uncharted waters," and if the nation does enter a recession then prices could fall steeply. "How much will home prices fall? It has me worried."

If you apply the same type of price correction relative to past market cycles, Bivens said it is possible prices could fall 25 percent nationwide.

"Historical experience says that's definitely a possibility and how the economy responds to a fall like that is a real worry," he said.

He expects that the impact of foreclosures will stretch beyond economically depressed markets like Detroit and Cleveland and hit markets like Boston and Washington, D.C.

He shares the view of several other economists that legislative actions will probably not stop the market's overall trajectory.

Also, he believes the global economy will suffer if the U.S. economy falters. "It's hard to imagine global growth being that good without the U.S. economy dragging it along."

www.LagretRealEstate.com

Why Sellers Should Cut Prices

By Lauren Baier Kim

Here's a look at what's new in real-estate markets across the U.S. from around the Web. (Some links may require registration or subscriptions.)

Hope for borrowers in California

Under a plan announced last week by Gov. Arnold Schwarzenegger, help may be on the way for half a million California homeowners whose subprime mortgages are due to reset to higher interest rates within the next two years, says Carolyn Said in a San Francisco Chronicle article.

According to the story, four lenders -- Countrywide, GMAC, Litton and HomeEq -- have voluntarily agreed to maintain the initial lower interest rates on mortgages for these borrowers, as long as they live in their homes, are making payments on time and can prove they cannot afford to pay higher rates, the Chronicle says.

It's not known how long lenders will freeze rates, but Larry Litton Jr., chief executive of Litton Loan Servicing, says his company will maintain the initial interest rates for as much as five years. Such a move may make sense for both investors who hold the loans and for homeowners: "It feels like a no-brainer for a loan servicer to keep the payment where it is, keep another piece of real estate off the market and keep the borrower in the house," Mr. Litton says in the article.

Forget the incentives -- cut the price instead

Thinking about throwing in a new car with your home sale, or perhaps offering your broker a bonus to move your property? Forget about it. Price discounts are the most effective way to get your house sold in today's housing market, according to a Bloomberg.com article by John F. Wasik. "Buyers just want price," he quotes one real-estate broker and consultant based in Stuart, Fla., as saying. "Buyers have become more educated and they can easily cut through the fluffy incentives," he says.

Related Links

Read news and analysis on the housing market at WSJ.com's Developments blog.

More Open House columns

Mr. Wasik notes that about 2 million homes may fall into foreclosure this year and that living near such a property could slash as much as $5,000 from your house's value. In many markets, homeowners should offer an asking price that's at least 10% below the competition, he says. He points out that in Boston and in Calif.'s Orange County and Sacramento, more than half of the homes on the market have already been reduced.

Brits snatch up U.S. homes

Americans may have hit the malls on Black Friday, but across the pond, Britons are looking for a different kind of bargain -- U.S. residential real estate, says an article in the London-based the Observer. With the exchange rate above two dollars to the pound and with housing prices on the decline in the U.S., Brits are buying up stateside holiday homes, selling their own U.K. properties to relocate to the U.S. and even purchasing U.S. residential real estate in the hopes of renting it out, the Observer says. Twenty percent of overseas buyers in the U.S. are purchasing for investment purposes, while about 50% are buying second homes, the newspaper says. Top places of interest for British buyers are Manhattan, California and Florida, the article says. "People can't believe the amount and type of property you can get," says the owner of one Florida firm who advertises to overseas buyers. "They would expect to pay twice that amount for the same thing in the U.K."

Grosse Price Declines

Grosse Pointe, Mich., is one of the most exclusive suburbs of Detroit, but it's now a place "Where Mansions Go Begging," according to the headline of a recent New York Times article by Keith Schneider. Mr. Schneider notes that since June, home prices in the exclusive suburb have been dropping by about $100,000 a month. Homes on the market number at 700 -- twice as many as there were at the same time in 2005 -- and may take 12 to 18 months to sell. Sixty homes foreclosed in the suburb this year as of last month, the article says.

For instance, one home buyer mentioned in the article purchased a 5,900-square-foot house in the area for $1.5 million, or $500,000 off the asking price.

Grosse Pointe has been hit by the same slump that's affecting the general Detroit area, where housing prices have dropped at least 20% in the past year, the article says. There are 41,000 homes on the market, twice as many as there were in 2005, and thanks to a flagging auto industry, the state has an unemployment rate of 7.7%, the highest in the nation.

Сити - будущее или вчерашний день?

Сейчас в России в каждом городе есть проект делового центра с большим количеством высотных бизнес-центров. Но нужны ли такие деловые центры с учетом развития современных технологий связи и обмена информации? Создание деловых центров приводит к новым пробкам и крупным ежедневным "миграциям" жителей. Сейчас на Западе в моду входит создание самодостаточных районов, где есть и жилье, и торговля, и офисы. При этом снижается общее количество перемещений людей по городу (экономия времени, бензина и нервов) и количество пробок.

вопрос:

"Я в США никогда не был, поэтому очень интересно Ваше мнение о будущем развитии городов. У нас сейчас активно строятся коттеджные поселки. А я читал, что часть из пригородов в США пришли со временем в упадок, так как первоначальное единство социальной среды со временем начинает нарушаться. Это действительно так?"

Ответ:

Мы живем в городе Коламбия, Мариланд, где такая планировка началась 50 лет назад. Город разделён на центры (их пока 5) Центр - магазины, банки, химчистки и т.п. Многоквартирные дома, дальше по более широкому радиусу домики на 2-4 семьи и самые удалённые от центра отдельно стоящие дома...выбор жить здесь выпал по географическому положению-близко к Вашингтону и Балтимору-два больших города где есть всегда работа и здесь хорошие государственные школы. Вы немного ошибаетесь насчет упадка пригородов ...Я бы привела пример Балтимора.


30-25 лет назад центр города распродовался за один доллар за дом, если хозяева обязались зделать капитальный ремонт. Почему Балтимор пришел в упадок...есть разные причины: экономические, социальные и даже вина губернатора - плохое руководство...Но в пригорадах Балтимора очень много хороших преуспевающих рай-онов. Живет много обеспечанных и преуспеваюших людей...30 лет назад была тенденция расселения в пригорадах (был дешевый бензин), сейчас наоборот -люди переезжают назад в центр города - хотят выть ближе к событиям. Например старые заводские здания переделываются на современные комфортабельные открытые квартиры и т.п. Там, где выла фабрика, делают кафе...
Нарушается ли социальная среда? Скорее нет...люди разных соц положений крутяться в своей среде и только если необходимо выходят за свои рамки...

When can my rental become my dream home

Clearing up confusion over 1031 property exchanges


By Benny L. Kass
Inman News

DEAR BENNY: In a recent column, I read that 1031 property transfers had to be held for a period of one to two years to establish "intent." I thought that a law was passed in October 2004 that stated the "intent" period was five years. I bought a 1031 property in California in 2005 and would appreciate this being clarified. Thank you for column! --Nancy M.

DEAR NANCY: The column was correct and so are you -- but you both are referring to different aspects of a 1031 (often called a "Starker") exchange.

Issue #1: Here, too, there are two issues: (a) How long can you hold the replacement property before you can exchange it again? and (b) How long do you have to keep the property as investment before you can move into the property and treat it as your principal residence?

As for (a), the statute clearly says that in order to get non-recognition of gain, you have to keep it for at least two years. As to (b), as that recent column properly stated, there is absolutely no IRS official guidance. Some tax lawyers take the position that one year and one day (i.e. go through one tax year) is sufficient. Others rely on what we call the "old and cold rule," namely that if the transaction took place more than two years ago, the exchange will generally not be reviewed by the IRS.

I have lots of clients who exchanged their investment rental property for a retirement home in Florida or Nevada, and want to know how long they must rent it before they can move in and establish it as their principal residence. The safe harbor is two years.

Issue #2: That leads us into the second part of your question. You are correct in that Congress a couple of years ago made some changes to 1031 exchanges. If you do an exchange and then convert it to your principal residence, in order to take advantage of the up-to-$250,000 exclusion of gain ($500,000 if you are married and file a joint tax return), you have to own the property for a full five years before it is sold. You also have to meet the two-year occupancy requirement. The actual text of the law reads as follows:

PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE -- If a taxpayer acquired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or exchange of such property if it occurs during the five-year period beginning with the date of the acquisition of such property.

I hope this clarifies the confusion.

DEAR BENNY: My wife and I and another couple are in the middle of buying a condo together and should be closing this month. The other couple has already been preapproved for 100 percent financing. We've been told that since they are already approved that they should go ahead and buy the condo and then amend the title while we're in escrow and add my wife and I to the title. I was curious as to whether this would work. --Josh

DEAR JOSH: I don't think so. Your friends have been approved for a loan, but you have not. At closing (you call it escrow) the lender will give specific instructions that will include that your friends will have to sign the promissory note and deed of trust. I seriously doubt that the escrow company will permit you and your wife to be added without the approval of the lender.

Can you qualify for the loan? Have you discussed the situation with the lender? The lender may also want to consider this an investment loan, which could result in an increase in the mortgage. Your friends could, of course, add your name to the title after escrow, but that might be grounds for the lender to call the loan based on the "due on sale" clause that I am sure will be in their deed of trust (the mortgage document).

So, I suggest that you talk to the lender and see what can be done between now and the escrow date.

But, your question raised two additional issues that concern me. First, you state that the loan is 100 percent. I don't know your financial situation (or that of your friend) but such loans have recently been associated with the many foreclosures that are taking place throughout the country. Have you -- or your friend -- carefully examined the terms of that loan? At some point, that loan will change whereby you will have to start paying principal and interest -- but at what interest rate? I am not a fan of such 100 percent loans.

Of equal importance, do the four of you have a written agreement as to how you will handle the property? What if you and your wife want out of the deal? What if someone dies? What if one of the partners gets divorced? What if someone cannot pay his or her share of the monthly mortgage payments?

All of these issues must be reduced to a written partnership agreement. The time to resolve these issues is when you are talking to each other.

DEAR BENNY: My wife and I are considering helping our son buy his first house. He is a recent college graduate with a well-paying professional job. He has been working for about a year, with about four months in his current job. He is living in our home paying some rent while saving the bulk of his paycheck. Given the cost of homes in the area and his lack of credit history, my wife and I figure he would need our help to buy his own home. Do you have any suggestions on how to approach this situation? We are not crazy about the idea of co-signing, as we consider that a risky proposition, but would be more amenable to co-ownership. Even if we agree to co-ownership, how can we protect our interest if the property is not maintained properly? Any tax consequences for us? --Steve

DEAR STEVE: Good question and very timely. As you suggest, property values nowadays are out of reach for many young adults.

There are several ways to approach this. First, do you have the money to buy the house and then rent it to your son? Every year, you and your wife could gift him up to $24,000 of the value of the house (you can gift up to $12,000 per person tax- and gift-tax free). You will need an attorney to assist you with this arrangement.

Next, can you be the bank? Can you lend him all the money and take back financing? He would pay you a fixed interest rate, which could even be greater than you are currently getting from your investments.

Finally, you could enter into what is known as a "shared-equity" arrangement. For example, you and your wife would own 50 percent of the property and your son would own the other half. You have to discuss with your attorney how title will be taken. But with a shared-equity arrangement, you both pay your share of the mortgage, taxes and insurance, and your son pays you rent for the half of the house that you own.

You need a written agreement, which will spell out all of the terms and conditions regarding the property. You asked about maintaining the property; the agreement will include provisions that should give you the protection you need.

There are two benefits for a shared-equity arrangement. Many lenders will give you a loan based on a personal residence rather than as an investment loan. Thus, you would get the benefit of a lower interest rate. Second, while you would have to pay tax on the rental income you receive from your son, you will also be able to deduct for tax purposes your share of the mortgage interest and real estate tax. You should also be able to take depreciation on the portion of the property that you rent to your son.

DEAR BENNY: What is a "hard-money lender"? I have read that they are entities that lend money out at 10 to 12 percent interest. They stay in business because the people who borrow their money will pay the higher interest to get the money faster and without a credit check.

Do people who buy at foreclosure sales or get involved with short sales use this as a means of financing these properties? Where do I find these "hard-money lenders"? --John

DEAR JOHN: There are good and bad hard-money lenders. These lenders usually make short-term, high-interest loans, and often they are "bridge loans.. For example, you want to buy a new house but have not yet been able to sell your current one. You have sufficient equity in your house, so you borrow money using your house as collateral. You hope that your house will sell quickly and thus are not concerned that the interest rate is higher than you can get from a commercial lender.

Usually, these hard-money lenders rely on the equity in your house rather than on your financial ability to pay.

But that's where problems start. Too many lenders make such loans knowing that the borrower will not be able to make the monthly payments, and thus the lender will ultimately foreclose on the property. In effect, these loans are designed to fail. They are called "predatory lenders."

You can find hard-money lenders just by typing those words in your favorite Internet search engine. But they should be the "lender of last resort." If you have to rely on a high-interest, short-term loan, maybe you are not ready to make that purchase.

Calculating the Cost Of Building a New Home

By June Fletcher
From The Wall Street Journal Online

Question: I want to build a 2,800-square-foot home with four bedrooms, two and one-half baths, a gourmet kitchen, walkout basement with media room and three-car garage in Pennsylvania. How can I estimate the cost to build the house? And what do you think about modular homes?

-- Sheila, Spring City, Pa.

Answer: According to B4UBuild.com, which sells books on the subject of cost estimating, the average cost-per-square-foot to build a home on site is between $95 and $150.

Contractors generally agree that cost-per-square-foot is a terrible way to budget for a home, because there are so many variables involved. Do you insist on top-of-the-line cabinets and appliances for your gourmet kitchen, or will mid-range ones do? Are you planning to side the house with cheap vinyl or expensive stone brick? Is the house going to be one story, or two? (The latter is generally cheaper because the foundation is smaller.) Will you have simple, rectangular rooms that minimize the materials and the labor required for framing, or unusual shapes like octagons with vaulted ceilings? What sort of flooring, bathroom fixtures and heating and cooling system will you have? Is the lot easy to access, relatively flat and easy to dig, or is it rocky, heavily wooded and uneven?

There are a few Web-based calculators that can help you make rough cost calculations. One easy-to-use, free one is Building-Cost.net, which adjusts not only for the quality levels of finishes and fixtures, but also for location, down to the city level. But bear in mind that this and other calculators won't give you an exact estimate, since ultimately that will be determined by the profit margins of the contractor you hire -- information you can't really know in advance.

So if you go the site-built route, I suggest that you start with a dollar amount that you're willing to spend. Interview at least three contractors and check their licenses and references and look at their work.

Once you've found someone you like and trust, the two of you can take your preliminary budget and work backwards, including the must-haves and eliminating the mere wish-I-hads as money allows.

Be sure to keep a cushion of at least 10% to 20% of the total project cost to cover last-minute changes, delays and other problems you can't foresee (for example, the cost of lumber spiking mid-project).

Now to your question about modular homes. Manufacturers of these homes, which are built in a factory in sections, say they are a lot more durable than site-built ones, since they are constructed in controlled conditions. But modular homes still make up only a tiny fraction of new home sales -- only 3.6% of the 1.06 million new homes sold last year, according to the National Modular Housing Council. (Click here for a list of manufacturers.)

That's partly because some consumers remember how uninspired modular homes looked in the 1980s and because some people still confuse them with so-called "manufactured homes," also known as mobile homes or trailers.

But these days, computer-aided design means that almost any house plan you choose can be made into a modular home. I think modular homes are fine and definitely worth considering, as long as you can visit a model or a nearby factory. Don't assume you'll save a few bucks, however. In fact, by the time the house is delivered to your lot and assembled, it may cost as much as a site-built one.

Can tenant break lease because of illness?

Rent it Right

By Janet Portman
Inman News

Q: We rent a single-family house and have a two-year lease. A month into the lease, the owners told us they'll be selling the property, and sure enough, we've had droves of real estate agents and potential buyers traipsing through our home. My wife has a serious medical condition (she's in a wheelchair and uses a ventilator) and needs peace and quiet so she can rest, but with this commotion it's impossible. The landlord refuses to be reasonable. We want to leave, but do we have grounds to break our lease? --Steve F.

A: Most states have laws governing when, for what reason, and with how much notice a landlord may enter a tenant's home. Entry to show the property to prospective buyers is always on the list of permitted reasons. As disruptive as it is, if your landlord is following your state's access rules, there's not much you can do on that front. But if your landlord is violating state law -- by not giving adequate notice or insisting on inappropriate showing times -- you may have some recourse. Practically speaking, however, unless the landlord's violations are extreme and repeated, you won't be justified in breaking your lease (you'll have to sue in small claims court for invasion of privacy and ask for money damages).

But don't give up just yet. First, consider whether your wife's condition qualifies her as a disabled person under the Fair Housing Amendments Act. Does she have a physical or mental condition that substantially limits one or more major life activities? If so, the owners are legally bound to adjust their business practices so that she can live safely and comfortably in her rented home. This accommodation should mean at the minimum a willingness to work with you to minimize the disruptions caused by showing the property.

If the owners still won't budge, suppose you break your lease and move. The owners will probably retain your security deposit to cover unpaid future rent -- and may sue you for the rest of the rent, too. In your defense (and request for the return of your deposit), could you prove to a judge that the owners knew they'd be placing the property on the market when you all signed the lease? If so, and if you can also provide credible evidence that the owners knew of your need for peace and quiet, you may be able to convince a judge that the owners should have disclosed their plans, and this failure justifies your breaking the lease. You'll be relying on a garden-variety legal principle that when one side to a deal has information that it knows is critical to the other side's decision but fails to disclose it, the contract can be voided.

Q: The quiet street where our rental property is located is about to be widened, to make way for a four-lane roadway. This will take away the front yard and expose the residents to considerable traffic noise and pollution. We're upset, as are the neighbors. We all suspect that the large shopping center nearby is the driving force behind this project. Can we stop it?--Barry and Katie S.

A: It sounds like your city is about to exercise its power of "eminent domain." This power traditionally gave government the ability to seize private property (and pay for it) in order to build roads, hospitals, schools and other structures that benefited the public in general. But what about taking private land to benefit private interests? The United States Supreme Court addressed this question in the Kelo case (Kelo v. City of New London, 545 U.S. 469 (2005)), where it allowed New London to seize property that would be used by a private developer.

The public, however, was not happy with the Kelo decision. In the 2006 midterm elections, citizens in 12 states placed initiatives that would rein in eminent domain use. Many states now prohibit outright the use of eminent domain for economic development, and others permit it only to eliminate slums and blight.

If your state has trimmed the permissible use of eminent domain, you and your neighbors may have an argument that the city is using it improperly. You'll want to know who will benefit from that wide new road other than the shopping center owners. Are other developers circling, ready to begin commercial or residential building once access is improved? For more information on the states' reactions to Kelo, and suggestions on how to protest an eminent domain taking for private development, check out castlecoalition.org.

Q:We rent a home in a neighborhood that has a homeowners association. We have a problem with our next-door neighbors -- they don't like the fence our landlord put up, and have taken to dumping trash and yard cuttings on our side. Worse, they yell racial epithets at us. We've secured a restraining order, but it doesn't help. Our landlord has gotten nowhere with the homeowners association, which says it's a private dispute. The landlord is willing to let us out of our lease, but we don't want to move. Any suggestions on what we can do to stop this harassment?--Tim and Diana F.

A: It's time to talk again to that homeowners association. Traditionally, these associations left neighbor-to-neighbor disputes alone, figuring that if the dispute didn't involve common areas or external appearances, it was a matter for the neighbors to work out or refer to the police. But now, they ignore disputes like yours at their peril. That's because courts are increasingly recognizing that condominium and even homeowners associations are subject to the Fair Housing Act (the federal law that prohibits discrimination in housing sales or rentals). This means that they need to take steps to stop the kind of situation you describe (lawyers would call it a hostile housing environment based on race.)

Your association needs to take action to stop this obnoxious behavior in its midst. The association surely has a rule against illegal activity among its members, with consequences for its violation, including fines or suspension of privileges. Failure to address this situation will set the association up for a fair-housing lawsuit brought by you, which can be extremely expensive -- especially if the association's insurance policy does not cover such claims.

Desperate plan to keep home after falling behind on property taxes

Why loaning father-in-law money is better than him quitclaiming ownership

By Ilyce R. Glink
and Samuel J. Tamkin

Q: My father-in-law owns property with his sister. He lives on the property, but she doesn't. They each own an equal share of the property, but he now can't afford to pay the expenses.

He wants to quitclaim his half of the property to me and my wife, and I'll take over his property taxes plus pay all past-due taxes. Do I need a lawyer to help fill out the forms or is this something we can do ourselves. Also, I should tell you that the property is mortgage-free.

A: You certainly can try to do it yourself, but you would probably be wise to talk with a real estate attorney to know what you are getting into. While paying past-due real estate taxes might sound simple, in some cases it can be cumbersome.

Also, if your father-in-law has paid all the expenses on the property and has lived there, does his sister still want to own her share of the property?

If she dies, her share of the property will go to whomever she has listed in her will. If you or your wife are listed as the heirs to her share of the property, that will help. But if you are not named the heir of the property and there are other siblings or relatives, you should know that you may be setting yourself for a big problem by taking over your father's share of the property.

You should sit down with your father-in-law and his sister to discuss the property and what they really want to do with it. There are other ways to handle this situation other than with a quitclaim deed.

If your father-in-law still wants to or needs to live on the property, you may want to help him with his expenses or even loan him money for the payment of those expenses. He and his sister can then give you a mortgage in return for the loan.

You would protect your money and your father-in-law could continue to live on the property.

Sam Tamkin
In many states if you own the property and live there as your primary residence, you get substantial tax benefits, such as the homestead exemption. You might lose these benefits if your father is no longer on title.

Furthermore, if you take title of the property now by a quitclaim deed, your father-in-law would effectively be gifting you the property prior to his death. The value of the gift would be your father-in-law's share of the value of the property when he purchased it plus any improvements made on the property.

If the property has appreciated in value substantially, you will end up paying taxes on the appreciation. If you and your wife were to inherit his share of the property, you would inherit the property at its value at the time of your father-in-law's death.

There is more to your question than just the transfer of the title to you. There are tax consequences and estate-planning issues you should consider. The best thing you can do is to consult with an estate attorney or real estate attorney who can help you think through these issues and decide what course of action to take.

Q: I hired a builder to build a custom home. We had ordered some upgrades and two weeks prior to closing I asked the builder for the final price of the home to secure financing. He gave me the number and said we would be fine.

So we closed with that purchase price. Two weeks later, he said some more bills had come in and that we owe him an additional $14,000. Is this my responsibility or is he out of luck because we have already closed?

A: There are multiple variables that would determine whether you owe the builder the amount he now claims. If the builder made an honest mistake and you recognize that he made this mistake, it would seem unfair to deprive him of the money he is owed.

However, your purchase contract should govern the transaction. Some contracts have language in them that would permit the parties to revisit an error like the one you are describing. If the contract has no such language, the builder may be out of luck. The price he set at closing would be the price for the sale.

First, you need to determine whether the builder is right about the numbers and whether he may be entitled to reimbursement. If you think he is, you should sit down, read over the contract, then talk to a real estate attorney and decide whether you will use the terms of the contract to shield yourself from paying the builder.

If you clearly recognize that the builder is owed the money, you might decide to pay him anyway. It would be a good-faith gesture, and in so doing you might be able to get the builder to extend the warranty on the home or get something else in return.

www.LagretRealEstate.com

Realtor vs. auction: Which will get seller top dollar?

Owners want to sell home 'as is' with no contingencies


By Ilyce R. Glink
Inman News

Q: My sister and I recently inherited our mother's home in California. It is an old house with all the value in the location. We want to sell it "as is" with no contingencies.

Developers have built on both sides of the property and sold those properties for between $1.5 million and $2.5 million. We are thinking about selling the home at an auction versus listing with a real estate agent.

What's your recommendation? And what would the tax ramifications be?

A: You have a valuable property on your hands. Whether you decide to sell at an auction or by using a real estate agent will be up to you. But certainly you should investigate further to determine whether you might get a higher price by using an auction or a real estate agent. If you're thinking you'll net out more by using an auction over an agent, you might be surprised by the outcome. Auctions aren't cheap.

But there are some reasons to use an auction. Depending on the type of property and its location, the auction route can be quick and yield good results. But you really need to make that determination after you talk to various knowledgeable real estate agents who really know and work in the area where the home is located, as well as talking to the most experienced auction houses that have dealt with properties like yours.

Keep in mind that auction house sales often have high transaction costs. Those costs can be greater than what some real estate brokers charge. Then again, what if it takes six months to a year to sell the property with a broker? A quick sale at auction with higher costs might be better than getting the same price for the home but having to pay the costs to own the home for an extra year.

The first thing to do is consult with several local real estate agents to get their take on the real estate market in that area. You might even want to investigate how quickly new construction homes are selling in that area. If the market is still rolling along where your mom's home is located, you might even be able to call local builders and to see if they have any interest in buying your mom's property.

Now let's talk about taxes. If you recently inherited the property, the value for federal income tax purposes will generally be the price you sell it for. Therefore, you should not have to pay any federal income taxes on the sale of the property.

If you inherited the property a couple of years ago and are just now selling it, you'll have to pay federal income taxes on the difference between the value of the property at the time your mother died and the price you get from the sale of the home, less expenses and other costs.

Don't forget about state estate taxes. Depending on the state in which you live, you may owe state estate taxes even if your mom's estate isn't at the threshold for federal estate taxes. You'll probably want to hire a real estate attorney to help with the sale. For details about state and federal estate taxes, talk to an estate attorney or your tax preparer.

Q: I read your answer to a recent question about inheritance taxes. You might want to point out that some states tax estates in full or at levels less than the federal level. Maryland happens to tax estates over $1 million.

A: Thanks for pointing out that as the federal estate tax exemption has grown larger, many states have opted out of tying their estate taxes to the federal level. This can create some expensive headaches for people whose assets may be below the federal level and above their own state level.

It also helps explain why some people are flocking to states that have no state taxes, such as Florida and Nevada.

If you have a large amount of assets -- even if your primary asset is real estate worth in excess of $1 million -- please talk to an estate attorney about your state laws and what you need to do to reduce any estate taxes that may be owed.

Q: I signed a contract to buy a house. We were supposed to close within 30 days.

Unfortunately, the seller did not turn on the gas so that the furnace could be tested. So, the closing date has already passed. Now the seller wants to rent the house out and not sell the house at all to me.

We asked that the gas be turned on so that the furnace could be tested because this was an issue in our inspection. My real estate agent then put in the extension line for settlement "TBD" but with no date. Can the seller just walk away from the deal?

A: If there was no firm date for you to buy the home, there may not have been a true contract agreed to. Depending on where you live, the back and forth of the contract documents may have ended up with you and the seller never agreeing to the terms of a contract. If there was no agreement, there was no contract and the seller is free to sell the home or rent it to someone other than you.

If you signed a contract and the contract was binding, then the question is what notice was given to the seller regarding the home inspection. If the notice given to the seller was that you did not approve of the inspection to the home due to the gas being off, that notice might have been construed as your disapproval of the condition of the property. If you disapproved the condition, the contract would have died at that time.

So, the first thing you need to determine is whether there was a valid contract for the purchase of the home. Then you need to know whether the notice to the seller regarding the gas and furnace also included language that could have terminated the contract. Lastly, you would have to know what your rights and remedies are under the contract if it is still valid.

You failed to buy the home, and the seller did not turn on the gas for you to test the furnace. You probably were not assisted in this process by an attorney and if you want to force the seller to sell you the home, you'll have to hire an attorney to review the paperwork and, perhaps, sue the seller to force the sale.

On the other hand, if you get your deposit money back from the seller, you may ultimately decide that the best course of action is to find another home to buy.

For more guidance, you should discuss your problem with a real estate attorney in your area.

Go to www.LagretRealEstate.com

Security deposit too small to cover pet, smoke damage

Can landlord raise deposit or is he stuck paying repair bill?


By Robert Griswold
Inman News

Question: I have a rental unit that I have leased out with only a $200 security deposit. I inadvertently rented to a smoker with a small dog. I was aware of the dog, but not the smoking. The tenant seems to be a chain smoker -- when I enter the unit to do repairs it smells like an ashtray. He never leaves the door open and the windows are always closed. He hardly lets his dog out and I also noticed that his dog pees on the carpet. I feel that by the end of his lease the carpet will be totally trashed and the smell unacceptable. The deposit is not enough to cover the replacement of new carpets. In the meantime, is there anything I can do?

James McKinley, an attorney for landlords, replies:

Since neither the dog nor the smoking is prohibited by the lease, there is little that you can do at this time. However, in order to avoid further damage to your property, you should give your tenant notice that you do not intend to renew the lease 30 days before the lease expires (or a longer notice if required). After you give your tenant notice of termination of the tenancy, you are required to notify your tenant, in writing, of his option to request an initial inspection of the premises and his right to be present at the inspection. You should also consider meeting with the tenant prior to the end of the lease to give your tenant an opportunity to remedy the identified deficiencies, in order to avoid deductions from the security deposit. After the inspection, you are required to give your tenant a statement specifying repairs or cleaning that need to be completed in order to avoid deductions from the security deposit. After the tenant vacates, you should to give an itemized statement showing how the security deposit was applied to rent, cleaning and/or damages, as required by state or local law. The tenant is still responsible for the costs of cleaning or repairs not covered by the security deposit, but you will have to commence a small claims action or general civil action to recover those damages.

Steven Kellman, an attorney for tenants, replies:

While you are bound by the lease in allowing the tenant to live there with his dog and his cigarettes, you are not forced to allow the continuing damage to your property. Tenants are entitled to many rights, but they must also act responsibly to earn those rights. I would suggest considering taking a course of action now rather than waiting for the tenant to move out. Pet owners and smokers must conduct themselves in such a manner so as not to cause material damage or create such a significant interference with the quiet enjoyment of the other tenants at the property. If this tenant allows his dog to damage the carpet and if he smokes in such a manner as to cause "smoke damage" to the unit, you may demand that he stop both activities right away. This is in the best interests of your property and the neighbors who do not want to be impacted with offensive smells or increased rent to cover damage costs.

You may view the tenant's behavior as a breach of the part of your lease that requires the tenant to maintain the unit without damaging it. In that case, you would give him a legal notice to cure that behavior thus saving the property and his tenancy. If you feel the damage is significant, you may then try to view the conduct as a nuisance, which may result in a termination of the tenancy with a different legal notice. In either case, the appropriate legal notices can be tricky so advice from an experienced local tenant-landlord attorney is recommended before taking such action. If you are forced to wait to the end of the lease, you should be sure to terminate the lease without renewal and handle the deposit as James advises.

Property manager Griswold replies:

The attorneys seem to have covered what to do at the end of the lease, but I think you are also asking what can you do now and I would like to give you an option. While it isn't popular with many tenants, you do have the legal right upon proper notice to increase the security deposit from the current $200 to an amount that would be more likely to cover your anticipated costs of repairing the damage that may be caused by the pet and/or the tenant. Make sure that you comply with any local restrictions or maximum amounts, but in most jurisdictions you can simply raise the security deposit upon lease renewal or by giving written notice if the tenant is on a month-to-month rental agreement. The purpose of the security deposit is not just to have funds to cover damages but it can also be an effective incentive for tenants to maintain the property during their tenancy as well as make efforts to leave the property in good condition. Most tenants really want and need those funds when they move. If you ever want to see what damage can be done to a rental unit, rent your property to a tenant and don't charge a security deposit or, better yet, offer a $99 move-in special!

How to sell in a buyer's market

You've got to be proactive on price, marketing and more. Here are 10 steps to take before you plant the "for sale" sign.

By Dana Dratch, Bankrate.com

If you're selling your home this year, be prepared for a marathon, not a sprint.

In most places, those heady days of putting a property on the market, receiving multiple bids, getting more than you expected, and accepting an offer in just days or weeks are over.

Now, for most houses in most parts of the country, it's a buyer's market. That means that more houses are for sale, there are longer stretches on the market, and prices have slowed, plateaued or, in some places, decreased.

Sellers "need to be prepared for a sustained effort," says Colby Sambrotto, chief operating officer of ForSaleByOwner.com.

Homes are staying on the market for about four months, according to the most recent averages from the National Association of Realtors.

If you plan to plant your "for sale" sign, here are 10 things you can do beforehand:

1. Recognize every market is different. Your state, town or neighborhood could dovetail with national numbers or buck the trend entirely. "There really is no national market," says Sambrotto. "There's a patchwork of regional markets." Never rely solely on one person's advice or opinion. Talk to a handful of professionals, do your own research and listen to your gut instinct.

2. Get your home inspected. "Before I would even call a real-estate agent, I'd have my home inspected," says attorney Diana Brodman Summers, author of "How to Buy Your First Home." Some real-estate agents advise against spending the money (basic inspections range from $200 to $400, according to a 2004 survey from the American Society of Home Inspectors), because the buyers will get one anyway prior to closing. Others recommend it because it gives sellers an early warning on any repairs they might have to make.

But in this market, says Summers, it's better to be proactive. "I would rather know what the inspector is going to find and be able to fix it -- and pick who will fix it," she says. This method also allows you to shop around for the best price instead of perhaps paying an inflated price later on.


3. Shape up before marketing. A buyer's market means you've got more competition. "You want to put your best foot forward," says Eric Tyson, co-author of "House Selling for Dummies." If your home isn't appealing and in good repair, potential buyers won't even stop. Some sellers think it's OK to skip this step and take less, but if the house is not appealing, you may not get the chance to negotiate. "Six weeks before you want to put it on the market is a great time to get it done," says Summers. You don't need to renovate, but make sure everything looks good and works well. Easy ways to make your home stand out:

New paint. Paint the whole house, if it needs it, or just the trim, shutters and door to freshen up.
A clean entryway. Sweep or pressure-wash the front walk and porch. Polish the outdoor metalwork, clean the windows and glass, and replace any burned-out bulbs in outdoor lighting. And, if you can, add planters with flowers.
Lush landscaping. Think new mulch, sharp edging, a healthy lawn and beds of flowers.
"Maximize your chances of people being excited about your listing when it hits the market," Tyson says.

4. Devise a marketing plan. Do you want to use a real-estate agent or would you rather sell it yourself? If you try doing it yourself, set a time limit after which you want to enlist the aid of a professional. Selling it yourself can save you the real-estate commission (usually about 6 percent), which can be an advantage in a tight market. But in a buyer's market -- or rapidly changing market -- it can help to have a little professional expertise to price, market and move your property. And don't forget, potential buyers may think that if there's no agent involved, the price should already be 6 percent less. Both buyer and seller can't save the same 6 percent.

5. Check into company relocation assistance. Are you moving to take a new job? If so, the company might offer resources to make selling your house easier, says Summers. Some companies will even provide a list of real-estate pros who will work with you at a discount. If you're selling in a tight market, every little bit helps. Best source: Call your human-resources department.

6. Interview real-estate agents. If you're interested in using an agent, interview several early on about listing your home, says Tyson. "Ask them for their advice," he says. "That's a good way to select an agent." What would they highlight about your home? What would they change before it goes on the market?

Ask to see an activity list -- a list of all the buyers and sellers they've represented, the areas of town and the price ranges. You don't want private details, says Tyson. But you want to see if they've worked in your neighborhood, in your price range and if they have a track record of successful sales.

How old are the comparable sales (often called "comps") they are showing you? A few years ago, you could study comps that were six months or a year old. This year, because many markets are changing, you want neighborhood comps that are no more than three months old, says Summers.

And find out how long each has been a professional. Experience counts. "If you're going to pay 5 to 6 percent, you might as well get the best your money can get," says Tyson.

7. Set a price. The rules are different in soft markets. "You don't overprice your house 20 percent to leave wiggle room for negotiating," says Tyson. That kind of strategy might never be a good idea, but it can really backfire in 2007. It's not a matter of being willing to negotiate. If your price is too high, potential buyers may not even look at it. And they may very well see a negative message in such a high price. "Those who overprice their homes in this market are wasting everyone's time," he says.

If you're not using an agent, get your own comps -- from the local paper, from sites such as Zillow.com and Realtor.com -- to see how similar houses in the area are priced. Also find out which newspaper in your area publishes notices when properties are sold. Sometimes it's the local daily or legal paper. Tracking those is a good way of learning actual sales prices, as opposed to asking prices.

Then set a realistic figure. Your goal: to maximize the chances that the perfect buyer will actually see it, Tyson says.

To get an idea of what's going on now, you want recent comps. But you may also want to look at comparables from the past six months. "You will see trends," says Patricia Fitzgerald, broker/owner of Coastal Properties in Jupiter, Fla. Are properties moving? Are prices holding steady or are sellers dropping prices?

Pricing is strategy. And much of it comes down to just how motivated you are to sell -- or how quickly you have to leave.

If you plan to pad the price, it's "an art, not an exact science," Tyson says. "Five to 10 percent is one thing. Fifteen to 20 percent and you have a problem."

Two more points to consider:

Modern technology. Agents and buyers most likely are using computers to search for properties. If you want to sell yours for about $400,000, consider listing it at $399,999 rather than $400,500. That way, a computer search of anything between $350,000 and $400,000 will include your listing.
Commissions aren't add-ons. Don't add the real-estate commission to the value of the home to come up with your asking price, says Tyson. If you use an agent, the fee comes out of your share of the profits. Otherwise, "you're going to get penalized for overpricing your house," he says. Instead: Try negotiating your commission with the agent. When the recent seller's market was in full swing, it was easy to get agents to list your property for as low as 4 percent (split with a co-broker). They knew the property would sell in days or weeks and their marketing costs would be low. Now it's reversed. Agents commonly are looking at four to six months to sell a property, which increases their marketing expenses. This makes them hesitant to offer a discount.
Beware of hidden financing costs. Not all financing is the same from a seller's point of view. With some types of financing, such as FHA and VA home loans, the seller pays the points on the loan. Understand the different types and what will be required of you as a seller, because that could affect how much you net in a sale.

8. Understand your price. While you don't want to undervalue your house, many sellers today won't make as much as neighbors who sold last year, says Summers. If you have your heart set on a certain amount and find out that houses aren't selling for that, you may "have to change your mind and sit on the house," she says.

9. Get rid of the junk. "This year, it's more important because buyers are going to be more fussy," says Summers. "Buyers are going to come in with an attitude." Throw things out, ship them early or rent a storage locker. But clear out that clutter. Buyers look for space and light. To show it off, you need to be able to tour a group comfortably through the house, as well as actually walk into those "walk-in" closets.

10. Stay on top of the market. "You must be aware of market changes," says Summers. That's one reason she recommends using an agent. Stay on top of what is happening with mortgages and finance rates, keep looking at comps and "see trends before they happen," she says. "The real-estate market is still in a time of correction. You have to be so careful with both buying and selling."

Does soldier qualify for $250K tax break?

Sudden overseas deployment leaves 2-year occupancy rule unsatisfied

By Ilyce R. Glink
Inman News

Q: I have a friend who is in a bind. He is an active-duty Marine. Less than two years ago he was transferred to Camp Lejeune (North Carolina) and bought a home. He just received orders to report to Okinawa, Japan, by the end of the month. His home is for sale and will sell soon.

The problem is that his property has appreciated somewhat and he will make a profit after his expenses are factored in. According to the IRS, you have to live in your house for two of the last five years in order to keep up to $250,000 in profits tax free.

Is there a special clause or waiver for someone in his situation where he can sell his home now and still receive his capital gains up to $250,000 per person tax free? Or is there any chance with his particular case that waiting until the two-year mark before escrow closes that he may receive this capital gain tax free?

Also, if he is allowed to receive his gains tax free, is there a time limit established on how long he has to spend this capital gain?

A: The IRS allows homeowners to avoid having to pay any taxes on the gain from the sale of their home up to $250,000 for a single homeowner or $500,000 for married couples. However, the homeowner must have lived in the home as his or her principal residence for two years out of the last five years. If your friend has a gain from the sale of his home and it is less than $250,000, he would want to avoid having to pay federal income taxes on this profit.

But the IRS has some exceptions for people like your friend who have to move because of certain unforeseen circumstances, including death, divorce, taking a new job that is at least 50 miles from your previous job, health problems, and having twins or triplets. Other unforeseen circumstances include natural disasters and terrorist attacks, according to the IRS.

Your friend's job change to Japan seems to qualify as an "unforeseen circumstance" and he should be entitled to get part of the exclusion. The IRS publication has a table your friend can use to determine the percentage of the $250,000 exclusion that he will be entitled to.

Here's how to calculate his exclusion: If he lived in the property for 18 months, or 75 percent of the time needed to keep up to $250,000 in profits tax free, then he would be able to keep up to 75 percent of the $250,000 exclusion, or up to $187,500.

The formula would change if he had bought the home more than two years ago, rented it for some time and then lived in it for some of the time. But unless there is something extraordinary about the situation, the IRS will allow some of the exclusion to be used by your friend.

As an additional consideration, as a member of the armed forces, if he decided not to sell the home, he could disregard that time that he moved out of the home and rented it while he was serving in Japan. When he is reassigned back in the states, the five-year time period would be back in force.

There are certain rules he must follow, but the IRS effectively tells a member of the armed forces (Uniformed Services, as the IRS refers to it) that he or she will be given a pass on the five-year rule under certain circumstances.

The IRS offers a free booklet that explains the process of determining who qualifies for the exclusion and the various rules that must be complied with to avoid having to pay taxes on the gains from the sale of a home. Go to the IRS's Web site, www.irs.gov, and look at Publication 523, "Selling Your Home."


www.Lagretrealestate.com

Real Estate for Sale

Rent-to-own deals gain clout in today's market

Situation a win-win for buyers and sellers alike


By Ilyce R. Glink
Inman News

What do you do if you want to buy a home but don't have the cash for a down payment or even the credit score to qualify?

You might try to find a "rent to own" situation where you can lease the property and purchase an option to buy it down the road when you're ready.

When the real estate market was steaming along and sellers had buyers lining up out the door, renters found themselves out of luck.

If a seller can sell a property and get rid of it, why play landlord? It's better to have the buyer's cash in hand and move on. That's why rent-to-own properties were more difficult to find in the last six to seven years.

But now that the real estate market has turned, there are hundreds of thousands of sellers who are desperately searching for buyers. While being a landlord isn't the typical seller's first choice, rent-to-own situations can help a seller turn a renter into a buyer.

Here's how a rent-to-own situation typically works: The renter/buyer agrees to rent the property for a certain period of time. An option to purchase the property at a specific price is agreed to, and a nonrefundable option fee is paid. Sometimes this fee is credited toward the down payment at the time of purchase. In addition, a portion of the rent paid is often credited toward the down payment as well. At the end of the lease term, the renter/buyer decides whether to buy the property or pay another option fee and continue renting the property.

Sellers might like a rent-to-own situation if they've had trouble finding a buyer for their property, and if they can get enough rent to carry the property without losing any money. Often, a renter/buyer will be more motivated to pay the rent and take better care of the property if he or she is seriously considering buying the property at the end of the lease/term.

If you're a first-time buyer looking for a rent-to-own situation, here are some issues you might want to consider:


Companies advertising rent-to-own properties may not be what they seem. If you search Google, Yahoo! or even your craigslist for local rent-to-own options, there are thousands of listings that come up. But if you click through, you'll see that many are developers looking to unload property. Or, they're Web sites that claim to help you find the rent-to-own house of your dreams. Except that once you sign up, nothing happens.


Check out the "houses for rent" and "houses to buy" sections of your local newspaper or Web site. Sellers may not know whether they'll attract a tenant/buyer if they advertise their property for rent or sale. So, they may advertise in both sections. You should also look at some of the more popular for-sale-by-owner (FSBO) Web sites for sellers who appear open to a rent-to-own or lease/option deal.


Ask for what you want. A seller may not want to be a landlord, but local market conditions or his personal finances may force him to rent because he can't sell. As a tenant/buyer, you can ask the seller to fix up items in the house, repaint, and replace or clean the carpet (if the property needs it).


Take the time to explore the neighborhood before you sign on. If you're serious about buying a home, you'll need to seriously think about the neighborhood. That means making sure you're in a good school district, with plenty of shopping, services and restaurants nearby. Is there public transportation and good access? Who is on the streets during the day and evening? While you're renting now, the goal is to turn you into a home buyer.


Negotiate the rent credit and pick-up price before you sign the lease/option agreement. If the landlord/owner has promised to credit a portion of the rent and the entire option fee toward your down payment, get it in writing. You'll want to know what percentage of the rent will be credited and if that credit will earn interest over the course of the year. Do the numbers before you agree to anything. If the reason you're renting instead of buying is because you don't have enough cash for a down payment, be sure to negotiate for a sufficient rent credit so that you have enough for a 5 to 10 percent down payment if you pick up the option to buy the property.


Rent-to-own and lease/options are legal transactions. Before you sign any documents, be sure you talk to a local real estate agent who can help you figure out if the price is right (you don't want to overpay for the property if you buy it down the line). You'll also want to have an attorney review your documents to make sure you're protected. Like any purchase agreement (which is what a lease/option is), you'll want the right to cancel the deal for certain reasons.

Reasons to Sell First and Then Buy

From Elizabeth Weintraub,


Simultaneous Home Buying and Selling

Homeowners who are planning to move up often wrestle with the dilemma: "Should we sell first or buy first?" You'll find plenty of agents advising you to buy before you sell, but that's rarely in your best interest. It's in the agent's best interest because if you buy, you will need to sell, and the agent will be guaranteed two sales, regardless of how much it cost you to do it this way.
If you decide to sell first and then buy but, say, your home doesn't sell or it attracts very low offers that you do not want to accept, the agent will get nothing. Think about it.

Of course, which comes first, the chicken or the egg, depends on the market -- is it a buyer's or a seller's market -- and your personal motivation. However, for most sellers and buyers, the smart thing to do is to sell before you buy.

Ability to Negotiate.

By selling first, you have the luxury of time. You don't have to take the first offer that comes along because you already have a place to live. It's called your home.

Higher Sales Price.
Sellers who aren't under pressure to sell often obtain higher sales prices because buyers realize the sellers are not desperate. Nothing yells "discount your offer" like a listing that reads: "seller motivated, bought another."


Contingent on Concurrent Closing.
By making the sale of your home contingent on closing concurrently with your new purchase, you have basically said to the buyer, "If I can't find the home I want to buy, I'm under no obligation to sell to you." You don't have to name the property address. You can simply state: "This sale contingent on closing concurrently with the purchase of seller's replacement home."

In fairness, a smart buyer's agent won't let a buyer sign a contract with a contingency clause like that; however, I get away with inserting that clause because few agents understand its implication.


Contingency Period.
OK, let's say the buyer's agent is smart enough to strike a concurrent closing clause from the contract. The next best thing to ask for is a time period during which you are free to look for a replacement home. A contingency period will give you the right to cancel the contract during that time period if you so choose, which can range, on average, from 7 to 21 days.


Renting After Closing.
Some sellers who want to take their time to find the perfect home, that one-in-a-million, will often opt to rent after closing. If the buyer doesn't require immediate occupancy, the seller might rent back their own home for the amount of the buyer's new mortgage payment. Or the seller might move out, put their belongings into storage and rent a furnished, short-term apartment.

Can we claim $500K tax break if renting to tenants?

Couple learns tax implications of selling primary home, rental

By Robert J. Bruss
Inman News

DEAR BOB: We have rented out a legal apartment in our primary residence for 17 years. My wife and I intend to sell our house and shelter $500,000 of our gain. In order to do so, must we be "tenant free" for 24 of the last 60 months? --Bruce C.

DEAR BRUCE: No. You can sell your principal residence with the tenant still living in the apartment.

For capital gains tax purposes you will be making two sales. One is the sale price of your principal-residence portion. The other sale is the sales price of the rental apartment.

But the Internal Revenue Code 121 principal-residence-sale tax exemption up to $500,000 for a qualified married couple (up to $250,000 for a single home seller) applies only to your capital gain profit on the principal-residence portion. That's presuming you both occupied your primary residence at least 24 of the last 60 months before the sale.

The capital gain on the sale of the rental apartment has two components. One is the "recapture" tax at the special federal tax rate of 25 percent for the depreciation you deducted after May 6, 1997. The other part of the capital gain on the rental apartment is taxed at a maximum federal tax rate of 15 percent. For full details, please consult your tax adviser.

EVICT TENANTS IF YOU FEEL STRONGLY ABOUT THEIR BREACH OF LEASE

DEAR BOB: What recourse do I have when my rental tenants don't honor the terms of their lease? The house they rent from me has a nice yard. The lease terms require them to maintain the property. But the trees look like they are dying. I asked my tenants to water the trees, but they say they don't have time. What are my options to have them honor their agreement to maintain the property? --Lisa D.

DEAR LISA: Even if your tenants have a lease, if it requires them to maintain the yard and they fail to do so, you can evict them if you feel strongly about their breach of the lease terms.

Just follow the state unlawful detainer (eviction) procedure, such as delivering a "Notice to Quit" and then filing the court lawsuit. If this is your first eviction, I suggest you hire a local attorney who specializes in evictions so you can learn how it is done.

If the lease is about to expire and you don't want to evict, you have another alternative. It is to substantially raise the rent (presuming no rent-control limit applies). The tenants will then either move out or you will have the extra rent money to hire a gardener to keep the yard and trees looking good.

CHECK SPOUSE'S DEBTS BEFORE ADDING HER TO HOME TITLE

DEAR BOB: I want to add my spouse (not married) to my deed. We want to take advantage of that $500,000 tax break when I sell our home. But I want to be sure she has no liens before I do this. She had several loans with her ex-husband and then a bankruptcy. She went to our local courthouse and was told there were a couple of liens but it looks like they were cleared. How can I verify this before proceeding? --Harry G.

DEAR HARRY: You say you want to add your spouse's name to your deed but you're not married. If she is not married to you, she is not your spouse.

The only way to be sure she doesn't have any liens that could attach to your home's title if you add her name is to obtain a new owner's title insurance policy. Before issuing such a policy, the title insurer will thoroughly check for possible judgments and other liens against her. Her informal search at the courthouse was a waste of time.

However, if you are legally married to her and you want to claim the Internal Revenue Code 121 principal-residence-sale tax exemption up to $500,000 (instead of $250,000 for a single home seller), her name does not have to be on the title. However, to qualify for the $500,000 exemption, you both must occupy your principal residence at least 24 of the last 60 months before its sale. For full details, please consult your tax adviser.

www.LagretRealEstate.com

It's not a gift, it's an investment

Family member seeks healthy return for help with down payment, mortgage

By Jack Guttentag
Inman News

Gifts of equity within the family are common. Parents often provide the down payment on their child's first home purchase. Many parents, however, can't afford a sizeable gift -- among other things, they may be concerned about the adequacy of their assets for retirement. Yet they might welcome an opportunity to help their children if it took the form of a reasonably safe investment yielding an adequate rate of return.

A house purchase by a family member may provide such an investment. Over the years, I have advised a number of families who asked me about how to set up a plan that would meet their particular needs. I even wrote a few articles describing such plans. On reading these articles now, however, I am not very pleased because they provide limited help when the individual circumstances differ from those in the article, as they often do.

Usually the investor contributes to the down payment, but some home buyers may need help with the monthly payment as well. In addition, sometimes the investor is a co-occupant, though not necessarily for half the house.

I have come to believe that there is a large untapped market for intrafamily investments in house purchases. The reason that so few actually materialize is that every deal is different, and designing it properly is very complicated. To remedy this, I have developed a spreadsheet that accommodates a wide variety of preferences of the home buyer and the investor.

The spreadsheet calculates the percent of the home equity (property value less mortgage balance) that is owned by each party at the end of each year. The respective ownership shares depend on the amount they each contribute to the initial cost of the home, the amount they each contribute monthly, the rent that is credited to the investor, and the interest rate that is used to calculate the future value of each party's contributions, including the rent credit.

The spreadsheet has two purposes. First, it is a simulation tool that allows the buyer and investor to see how each will fare under alternative combinations of interest rate, rent credit, investor contribution and property appreciation rate. They can try different scenarios to find the one that leaves them both satisfied.

Second, the spreadsheet provides the accounting record of where the parties stand at any point in time. They can watch their equity shares change over time, and can use the simulation capacity to forecast what they will be in the future.

The spreadsheet is a tool, not a contract. To use the tool effectively, the parties should have a contract that addresses four major issues.

Rent Credit: The parties must agree on the rent payment credited each month to the investor. The rent credit ought to approximate what the home could be rented for in the market, net of taxes, insurance, utilities and routine maintenance, all of which the occupant should pay. If both parties are occupants, the rent credit disappears or, if they occupy different amounts of space, is scaled down.

In addition, there must be agreement on how often the rent will be adjusted, and how. One possibility is to adjust the rent credit every year in line with changes in the rental component of the Consumer Price Index.

Interest Rate: The parties must agree on the interest rate used to calculate the future value of the contributions. The rate should approximate what the investor could earn if the funds were placed in investments of comparable risk. In many cases, the mortgage rate might serve quite well as the investment rate.

Property Improvements: Because of the potential for conflict, it is useful for the parties to agree beforehand on how improvements are to be handled. The spreadsheet treats expenditures on improvements in the same manner as other payments, recording a credit to the party making the expenditure. However, investors and occupants won't necessarily have the same interest in an improvement. For example, the occupant might want a swimming pool, which might add little to the value of the property.

One approach would be to reduce the credit on improvements initiated and paid for by the occupant using a credit schedule based on general experience. For example, an added bedroom might be a 100 percent credit while a swimming pool might come in at 40 percent.

Termination: Most investors, even within the family, want to terminate the deal and get their money after 5-10 years, so a termination provision needs to be included. Assuming the buyer has not sold the house before the termination date, the investor must be paid off. This may require the buyer to do a cash-out refinance based on the equity remaining after the investor has been paid off.

Where to market your home on your own

Craigslist.org: Craigslist has listings for cities all over the world and posting is simple. A recent look at the London and Frankfurt Craigslists found many Florida homes for sale. Be sure to list your home in euros or British pounds, not U.S. dollars.

Homesonsale.co.uk: A UK-based site offers free advertisement of a home for 365 days or until home is sold with up to five photographs. Forums include discussions about buying homes abroad.

Listnlook.com: Free listing with one photo, $25 for Web site with four photos, $50 for two-page Web site with up to 16 photos, virtual tour and featured on home page. Listings remain active until sold.

Homesgofast.com: Based in UK with an office in Florida. Lists houses offered by real estate agents. Individuals can also list homes for sale. One-time fee of $69, $129 or $189 depending on services you choose, but all listings include eight photographs and no commission.

When home won't sell, consider 'rent-to-own'

Despite above-market rent, all parties benefit

By Robert J. Bruss
Inman News

You've been looking for months for your first home, or you want to upgrade to a nicer home in a better community. It's a great time to buy a home, everybody tells you.

Finally, you find the ideal home for sale, which has most of what you want (there is no such thing as the "perfect home.")

But when you sit down with the mortgage lender to go over your income and credit to see if you can obtain the home loan you need, the lender says your FICO (Fair Isaac Corp.) credit score is too low to get an affordable interest rate. A mortgage at 7.5 percent interest is the best he can arrange, but he's not sure you can qualify for the high payment.

Will you give up, resigned to waiting a year or two before buying a home? Of course not.

You know the house you want to buy has been listed for sale three or four months so the sellers must be anxious. The eager real estate agent phones to ask if you got your mortgage preapproval. You report the bad news that you're not willing to pay 7.5 percent interest.

Fortunately, you're working with an experienced realty agent. She suggests renting the house for up to two years until you can improve your FICO score. Then she explains you can lock in the purchase price at today's market value. "Tell me more" is your swift reply.

WHAT IS A LEASE-OPTION? Your real estate agent then explains a lease-option, also known as "rent to own" in many communities, is a combination rental, sales and finance technique that has been used by thousands of home buyers and sellers.

However, a lease-option is not the same as a lease-purchase, which obligates the buyer to buy, usually within a year or two. With a lease-option, if home prices plummet, the buyer doesn't have to exercise the option to buy.

Personally, I bought my current residence with a lease-option when I realized I was "cash challenged" without enough money for a down payment. Through my buyer's agent, I offered the sellers a 12-month lease at $1,500 per month with $10,000 nonrefundable option money. As the vacant house had been listed for sale about six months, I asked for a 100 percent rent credit toward my option purchase price, which was just slightly below the asking price.

After hesitating about 10 days, my sellers accepted, but only for a six-month rental term. I readily agreed. Three days later, I hired a moving van and moved into my new home. About five months later, I exercised my purchase option and took title. At the closing, I received credit against the option price for my $10,000 option money plus the $7,500 total rent paid for five months.

Lease-options work especially well when there is an oversupply of homes listed for sale, such as the current "buyer's market" in many cities. When a home seller needs someone to pay enough rent to cover the mortgage payment but doesn't require an immediate cash sale, a lease-option can be ideal.

THERE ARE ALWAYS MORE LEASE-OPTION BUYERS THAN SELLERS. For some unexplained reason, there are usually more "rent to own" buyers than sellers. Having used lease-options to buy and sell houses for almost 30 years, I've learned a properly marketed lease-option can solve problems for both buyers and sellers.

The key to lease-option success is the amount of rent credit the tenant will earn each month toward the down payment. Although I negotiated a 100 percent rent credit when I bought my present home, as a seller I usually agree to only a 33 percent rent credit. As a motivated seller, I've agreed to 50 and even 100 percent rent credits.

Although the lease-option buyer doesn't get any income-tax deductions, the buyer's rent credit is far better, like a "forced savings account." Of course, if the buyer doesn't exercise the purchase option, the rent credit plus the option money is forfeited.

Here is an example of how to advertise lease-options in the newspaper under the "Houses for Sale" and "Houses for Rent" classified ad categories:

$5,000 MOVES YOU IN
3 BR, 2 BA home, Rent-to-Own, $2,000 Total Monthly Rent
$500 per month Rent Credit Toward Purchase Price
Open Sunday 1-3 PM, Bring Your Checkbook; Won't Last!
777 Easy Street, Pleasant Heights

Of course, the numbers should be adjusted, depending on the market value of the home and its monthly rent. My experience has been, as a seller, lease-option renters are willing to pay at least 10 percent above fair market rent in return for the rent credit and locking in the option purchase price at today's market value. As a seller, I prefer a one-year lease-option, but I have been known to agree to a two-year term.

LEASE-OPTION PROS AND CONS FOR SELLERS. If your home hasn't sold "the regular way," consider the lease-option "rent to own" advantages for sellers: (a) continued income-tax-deduction benefits, including depreciation, until the option is exercised; (b) upfront cash from the buyer, which is the first month's rent plus the nonrefundable option money; (c) monthly rent cash flow instead of having a vacant house or condominium; (d) there are usually more lease-option buyers than sellers; (e) above-market rent; (f) lease-option tenants usually treat the property very well; and (g) lease-option buyers will agree to a top-dollar option purchase price. The only significant seller disadvantage is the lack of an immediate cash sale.

LEASE-OPTION PROS AND CONS FOR BUYERS. Among the many lease-option benefits for buyers are (a) low upfront cash requirement as compared to buying; (b) it's usually cheaper to rent than own; (c) the rent credit toward the down payment is like a "forced savings account"; (d) if the home goes up in market value, the buyer benefits from the locked-in option purchase price; and (e) buyers can try out the home before buying.

Possible disadvantages for buyers include no itemized income-tax deductions (this is more than offset by the rent credit) and uncertainty knowing if you will be able to afford to buy before the purchase option expires.

HOW DOES THE REALTY AGENT GET PAID? When a house is listed for sale but it hasn't sold, some listing agents are reluctant to recommend a lease-option because they won't immediately receive a full sales commission.

But I often suggest to agents, "Isn't it better to take part of the commission now and part of the commission when the option is exercised, rather than earn no sales commission at all?"

HOW TO FIND HOUSES AND CONDOS TO LEASE-OPTION. Because there is usually a shortage of lease-options, buyers need to get creative. One strategy is to read the "houses for rent" and "houses for sale" classified newspaper ads for clues. Often a landlord can be converted to a lease-option seller by dangling some nonrefundable option money (after you decide you want to "rent to own" the house or condo).

Another strategy is to run your own "House for Rent Wanted" or "House Wanted" classified ad. I learned this technique from a real estate investor who advertises "Executive needs 3 BR, 2 BA house on five-year rent to own. $5,000 option money. Call Jimmy (555) 555-5555." He doesn't get many phone calls, but one or two from motivated home sellers, landlords and real estate agents will be enough.


www.LagretRealEstate.com