Don't stay a renter forever

Why home ownership is smartest way to build wealth

By Bernice Ross
Inman News

Are your buyers waiting the market out? If so, here's how to get them off the fence and under contract.

One of the most important questions agents and brokers are asking today is, "How can we persuade our buyers to take action now rather than waiting?"

Many buyers are convinced that waiting will allow them to buy the property at a lower cost. This flawed thinking fails to consider the true costs of home ownership, not only in terms of tax consequences, but also in terms of wealth accumulation.

A down market -- the ideal move-up market

If you are in a market where there is price depreciation, this is an ideal time for your move-up owners to purchase a more expensive home. Assume that your buyers paid $300,000 for their property and the market has declined by 10 percent. Their property is currently worth $270,000. If your clients are going to purchase a property that was $600,000 a year ago, it's now worth $540,000. By purchasing this year, your clients have an instant $30,000 in savings as compared to a year ago. Furthermore, their mortgage and property taxes over the next 30 years will be substantially lower as well.

If your buyers are retiring or trading down, most real estate cycles are approximately 10 years in length (i.e., it takes 10 years to cycle through a seller's market to a buyer's market and then back to a seller's market.) If your seller can afford to wait a few years, they may be able to catch an appreciation increase later. On the other hand, they have the cost of maintaining the larger property rather than having lower overhead and more cash. To understand the exact financial ramifications, advise them to meet with their CPA, tax attorney or financial advisor before listing their property.

It's cheaper for me to rent!

How many times have you heard that objection? If you live in a pricey area, it's true that many may be unable to buy even an entry-level property. For them, renting makes sense.

On the other hand, the interest rates are so low that purchasing usually makes more sense. To illustrate this point, begin by using one of the online "rent versus buy" calculators. (Move.com has a good one.) According to the U.S. government, the average rate of inflation for the last 10 years is 2.54 percent. Check your local census or multiple listing service data to determine how much properties in your area have appreciated over the last few years as well. Furthermore, the longer a person stays in the property, the more substantial the savings are. Here are two examples that illustrate why renting is not usually a smart idea:

Example 1: Assume that your first-time buyer currently pays $1,500 per month in rent and plans to purchase a $300,000 property with $30,000 down and a $270,000 loan for 30 years at 6.25 percent. Your buyer is in the 28 percent tax bracket and will own the property for eight years. Appreciation keeps pace with inflation at 2.54 percent per year. The estimated cost of renting is $142,016 versus the estimated cost of buying, which is $117,754.04. The buyer saves $24,262 by purchasing rather than renting.

Example 2: Your buyer currently pays $2,000 per month in rent. The buyer plans to purchase a $400,000 property with $40,000 down and a $360,000 loan at 6.25 percent. The buyer is in the 28 percent tax bracket and will own the property for 10 years. The property will appreciate at 5 percent per year. During the 10-year period, the estimated cost of renting is $241,189 as compared to the estimated cost of buying (due to appreciation and equity build up), which is $68,905. The buyer saves $172,284 by buying rather than renting.

What if the prices go down?

Laurence Yun, the chief economist for the National Association of Realtors, shared the following facts at NAR's mid-year conference:

From 1995 to 2004, the average renter accumulated $4,000 of wealth. In contrast, the average homeowner accumulated $184,400. (See his presentation on "Marketing to Gen Next" slide 47 on Realtor.org.) To account for the difference of $180,400 of wealth accumulation, a $300,000 house would have to decline by 60 percent.

What many people fail to consider is that homeowners accumulate wealth by paying down their mortgage, even if their house does not increase in value. Renters lose additional wealth as their rental payments increase over time, whereas a homeowner with a fixed-rate loan has locked in his or her mortgage amount for the next 30 years.

If your buyers are sitting on the fence, help them understand the benefits of taking action in today's market. The best way to do that is to show them the true cost of home ownership and how taking action now benefits their long-term wealth accumulation.

5 Good Questions Buyers May Not Think to Ask

First-time home buyers have a lot to think about, and sometimes they don't consider all of the factors that will impact their enjoyment of their new home.

A handful of recent home buyers in St. Louis say what they wish they would have asked before buying a property. The issues they raise are valid concerns for anybody buying a home practically anywhere:

For pet owners: How welcome and comfortable will my pet be in this home? Are there any pet restrictions and is there a safe convenient place to walk a dog?
For condo buyers: How often and by how much have the condo fees gone up in the past? Is there a maintenance fund, and how large is it? While past performance is no guarantee, stable fees and good planning in the past is promising.
For homes with basements: Does water sometime seep into the basement or other parts of the home? Has this property ever been flooded?
For everyone: Who are the neighbors? Do any of them have noisy animals or hobbies?
For homes near vacant land: What is the future of the adjacent open land? Just because a piece of property doesn’t have anything built on it now doesn’t guarantee that it won’t.

Source: St. Louis Post-Dispatch, Sarah Casey Newman (06/23/07)
www.Lagretrealestate.com

When Contingencies Halt Negotiations

With the amount of time that homes are sitting on the market climbing, more practitioners are facing real estate deals that are contingent on the buyer selling a current residence. But before accepting a contract contingency, Apple Valley, Minn.-based REALTOR® Steve Fiorella urges sellers to determine whether the buyer "is marketing their home aggressively and pricing it accurately."

Buyers might want to indicate their commitment to the purchase by reducing the price of their existing home to ensure a speedier sale, Fiorella says.

However, real estate practitioner Faith McGown says buyers would be in a better position if they sell their current residence prior to making an offer. McGown suggests that those who need a contingency might want to make a full-price offer to compensate for having a contingency. Fiorella recommends they offer more earnest money — some of it nonrefundable.

Source: Lakeland Ledger (Fla.), Aimee Blanchette (06/23/07)

www.LagretRealEstate.com

Trespasser may be granted legal use of your property

Have you checked your easements lately?

By Robert J. Bruss
Inman News


Not too long ago, a neighbor asked if I knew where our sewer and storm drains are located. He apparently wants to adjust the drainage on his property to drain into the public storm sewer drain, which I knew adjoins our lots.

After that brief conversation, I checked the legal description for my property. All it says is the city has a public utility easement along the northerly 5 feet of my property. But the easement description doesn't say what underground utilities are there and exactly where they are located.

Further research in the public records might reveal exactly what underground public utility easements pass through my property and exactly where they are located.

WHAT IS AN EASEMENT? Virtually every property in an urban area is subject to one or more easements. An easement is the legal right of a public or private entity to use part of a real property owner's land.

The property that is burdened by an easement is called a "servient tenement" because the easement serves another parcel. The property that benefits from the easement is called the adjoining dominant tenement."

There is always a servient tenement. However, there is not always an adjoining dominant tenement, such as for a public utility easement.

Private easement examples include a driveway, path or garden area of a neighbor's property. Public easements include utility easements for water, sewer, storm drain, electric lines, phone lines, gas pipes and cable TV lines.

Most easements are obtained with permission of the original property owner, usually at the time a subdivision is developed. The utility easements are often granted free by the developer in return for the city or private utility bringing public services to the property.

But some easements are hostile, without the specific permission of the property owner. To illustrate, suppose I drive over part of your property to reach my garage because that route is shorter and easier than using my steep driveway to reach the public street. Even if you tell me to stop driving over your land, but I continue to do so for the number of years required by state law, eventually I can obtain a permanent prescriptive easement for that purpose.

To be valid, an easement must be recorded against the title of the property that is subject to the easement, such as a shared driveway between two houses.

A very rare easement is an easement by necessity. Most states have laws allowing creation of an easement by necessity to reach a landlocked parcel, which has no driveway or other access to a public road.

The legal theory is all land should have road access, and when the landlocked parcel was created the owner at that time forgot to include access. A quiet title lawsuit is usually required to create an easement by necessity over an adjoining parcel that has public road access and, at some time in the past, had common ownership with the landlocked parcel.

THREE BASIC TYPES OF EASEMENTS. Virtually every real estate parcel is burdened by some type of easement. To be valid, the easement must either be recorded in the public records affecting a specific parcel, or it must be capable of being perfected into a valid easement.

1. EASEMENTS APPURTENANT BENEFIT AN ADJOINING PARCEL. Where there is a dominant tenement that benefits from an easement, such as for a driveway, that is an easement appurtenant. Most easements appurtenant were created when a subdivision was developed, or when two adjoining lots were subdivided.

An easement appurtenant is usually recorded against both parcels, describing the details of that easement. To be valid, an easement appurtenant must be recorded against the servient tenement title. It is usually also recorded against the dominant tenement title.

When a parcel is landlocked without public road access, it is up to the owner of that parcel to prove entitlement to an easement by necessity. If the court approves such an easement, it becomes an easement appurtenant with dominant and servient tenements.

2. EASEMENTS IN GROSS AFFECT MOST PROPERTIES. Virtually every property with electricity, phone, TV cable, public water, sewer, and storm drain utility service is subject to one or more easements in gross. Most such easements are recorded in the public records against each property title affected.

An easement in gross has a servient tenement, but no dominant tenement. Sometimes such easements were not properly recorded. If the easement in gross is obvious, such as for overhead power lines, it is hard for the property owner to deny awareness.

But underground easements in gross, such as for water, sewer and gas pipes, might not be obvious. To avoid unexpected surprises, property buyers should insist on receiving an owner's title insurance policy at the time of purchase. If an underground easement in gross is later discovered, but it was not disclosed in the owner's title insurance policy, the title insurer may be liable to the property owner for damages.

For example, suppose you decide to build a swimming pool in your backyard. As the contractor is digging, he discovers a previously undisclosed city sewer through the middle of your backyard. If the city's sewer easement was properly recorded, but the title insurer failed to discover and disclose it, the title insurer is liable to the property owner for either the cost of moving the sewer pipe or the diminished value of the property.

3. PRESCRIPTIVE EASEMENTS REQUIRE HOSTILITY. When someone uses part of your property without your permission, and without a prior recorded easement, he or she might become entitled to permanent use of that easement.

The legal requirements to acquire a prescriptive easement over someone's land requires (a) open, (b) notorious (obvious), (c) hostile (without permission), and (d) continuous use of part of another's property without permission for the number of years required by state law.

Payment of property taxes is not required, as it is to obtain title by adverse possession.

California has the shortest prescriptive easement period, only five years. But Texas requires 30 years to acquire a prescriptive easement. Other states have varying time tests.

Because prescriptive easements can be shared, the hostile use need not be exclusive. Use can be shared with the legal owner and/or other hostile prescriptive easement claimants.After meeting the time and use requirements, a prescriptive easement acquirer can perfect the easement by bringing a quiet title lawsuit against the property's legal owner. An experienced real estate attorney is usually needed to prove the prescriptive easement requirements.

SUMMARY: Virtually every property is burdened by or benefits from an easement. Property owners should understand the legal consequences of those easements and where they are located. Unless properly recorded, an easement might not be valid except when it is obvious by long continuous use, such as overhead power lines. For full easement details, please consult a local real estate attorney.

Factory-built homes back in vogue

Many buyers attracted by energy savings, beauty, convenience

By Tom Kelly
Inman News

Remember the tight, cute "kit" cottage you saw at the annual Home Show (one of five clustered in the featured vacation-home area) that would fit just perfectly on the wooded lot you've always wanted in the mountains?

It seems that builders and manufacturers always are urging consumers to dream -- whether it be a stately primary residence or a precut timber home composed of hand-milled Montana logs trucked directly to your site.

More and more dream homes have gone inside -- at least for all or part of the construction phase -- as curious consumers research and locate the new creative designs, energy-efficient features, often lower costs and environmentally controlled production of prefabricated residences. And, the finished product absolutely demolishes the preconceived notion of a "kit."

Modular, manufactured, structural insulated panels and other types of "prefab" housing are reaching a growing segment of new-home buyers yet they are very different in the way they are built. The built-to-be-towed house -- in a custom, preassembled package or enclosed finished unit -- has changed dramatically, and so have its occupants.

For example, modular home builders have begun to target last-time home buyers: customers who know what they want and are willing to pay outside the "affordable" range.

According to Sheri Koones, author of "Prefabulous: The House of Your Dreams Delivered Fresh from the Factory" (Taunton Press, $25), "prefab" has become a generic term that describes any type of construction that is partially or mostly done in the factory. Often the term "prefab" is associated only with manufactured homes or trailers that are built to a HUD code and have a metal chassis. These homes are brought to the house site on their own wheels and are not placed on a foundation.

"Today, there are many prefab houses that are built to adhere to residential building codes and are built with a variety of different methods," Koones said. "Sometimes referred to as 'system built' houses, these include modular, panelized, timber-frame, log, concrete, steel and hybrid techniques. They are customized, beautiful and rival the most elaborate site-built homes."

Manufactured homes and modular homes are two different products built under two different codes. Modular homes typically are custom-built and usually include a concrete foundation. They are not found in mobile-home parks and are governed by the same building codes as conventional stick-built homes. They are assembled in a factory and trucked to the building site. They are usually financed with conventional loan programs.

The big change for the manufactured-home industry occurred in 1976. That's the year HUD enacted standardized building requirements for mobile homes, essentially substituting one national code for numerous state codes.

"Mobile" is a relative term. These days a custom prefab could roll into a home site with 4,000 square feet of living space and include everything except a basement, and even those have been added. The sunken bath, country kitchen and custom fireplace may be on wheels for the trip, but it's very unlikely they will move again.

The size and topography of the lot often dictates the type of prefab system that can be used. And, system typically dictates price.

"There can be a savings in modular, panelized and structural insulated panels, depending on the location and complexity of the house," Koones said. "Other methods may be more costly -- such as timber-frame, log, concrete and steel. Some of these methods, such as concrete and steel, are particularly durable and will be standing for many years. In the long run, these might be considered cost-saving investments."

Andy Constan, a Bainbridge Island, Wash.-based builder with more than a decade of experience in prefab and conventional "stick built" homes, said today's large, custom prefab package can be more predictable for scheduling, but interior finishes can still take more time than expected.

Also, some of these prefab methods reduce the carrying costs because of the energy savings that can be achieved with the method of construction. Structural insulated panels (SIPs), for example, have shown to substantially cut down on the need for heating and cooling.

Scheduling can definitely be a benefit to families on the move, especially during the colder, wetter months of the year. Think about it … materials are stored and brought finished to the site, curtailing weather-related losses and the anxiety brought by the length of time your new home is "open" to the elements. Also, there could be less disruption to the neighborhood because much of the building process is completed in a warehouse.

The possibility of having most of your home built indoors during the rainy months? Sounds like an intriguing concept.

www.LagretRealEstate.com

Get your fence off my land before I explode

Neighborly dispute could be solved with 7-foot-high divider

By Barry Stone
Inman News

Dear Barry,

Shortly after buying my home, a problem developed with my neighbor. She built a fence about 3 feet on my side of the property line and now refuses to take it down. Is it legal for her to do this? I'm afraid that she may claim ownership of that part of my property if I do nothing. Am I allowed to take down her fence if it is on my property? --Robin

Dear Robin,

Your question is one for an attorney, not a home inspector, but here are a few observations and ideas that may be of help. When someone presumes to use another person's property for a number of years, they can eventually assume permanent legal use on the basis of what is called a "prescriptive easement." Therefore, you need to set this matter straight while the issue is still young.

First on the agenda is to obtain legal advice so that you know your rights and options under law. Unfortunately, legal procedures often involve protracted litigation, and this can be so costly that you come out losing, even when you win. In some cases, the creative, do-it-yourself approach can alleviate the need for courtroom dramas and legal fees, so here's a possible solution that should be reviewed with an attorney before proceeding:

Step 1: Verify the actual location of the property line. This can be done by reviewing site maps or construction plans at the building department, or by hiring a licensed surveyor.

Step 2: Go to the building department and obtain a permit to build a fence, precisely on the property line. If you are told that a permit is not required for a fence, tell them that the fence will be 7 feet high. The building code requires permits for fences over 6 feet in height. Then proceed to have the fence constructed by a licensed contractor and approved by the municipal inspector.

Step 3: The neighbor's fence in now located within the confines of your yard, separated from your neighbor's yard by your permitted and approved fence. At that point, you simply remove the maverick fence that is within your yard. If, in response to these procedures, the neighbor sets foot on your side of the new fence, trespassing is still illegal. Simply call the police.

Best of luck with this situation.

Dear Barry,

What are the most common signs of foundation problems, and how much do repairs of this kind typically cost? --Sam

Dear Sam,

There are two basic kinds of foundation problems:

1. Cracks and displacement, usually caused by unstable soil conditions, tree roots too close to the foundation, and/or faulty construction;

2. Decomposition of the concrete or mortar, usually resulting from age, ongoing moisture exposure, or a substandard concrete mixture.

There is no formula for determining foundation repair costs. This depends entirely upon the extent of the problem, the size of the job, and numerous other variables that would affect the amount of labor and materials needed to make necessary corrections. If you suspect problems with your foundation, an inspection by a licensed structural engineer is recommended.

www.LagretRealEstate.com

Down payment too high for today's market

Townhouse buyer says 'no' to $10K deposit

By Ilyce R. Glink
Inman News

Q: I am looking into buying a new townhouse. The developer's sales representative told me I would need to put down $10,000 for a good-faith payment after I sign the purchase agreement. I told him I'd think about it.

But I just talked to a co-worker who just bought a condo unit with similar square footage. He had a real estate agent with him and only had to put down $2,500 after he signed the purchase agreement.

So, I contacted the sales rep and told her that $10,000 seemed like a lot of money. She then told me that all I had to put down was $7,500.

Is there a set amount for how much money needs to be put down in situations like this? Putting down this kind of cash seems a little off given how the market is right now.

A: Each developer sets the amount that he or she wants you to put down on the property. But as you've seen, this developer doesn't want to do anything that might scare you away in what appears to be a soft local market where buyers are hard to come by. So, you pushed back on the down payment, and the sales rep has been trained to give you what you want.

Typically, developers want to get as much of a down payment as possible so that they know you're in it for the long haul. The more you put down, the less likely you are to walk away from the deal.

However, in a slow real estate market, plenty of folks are walking away from bigger deposits than $7,500. I've heard of people who have walked away from $100,000 or more because they didn't want to close on a piece of property they knew would be worth less than they were paying.

When I've bought new construction, the developer generally asked for 5 percent or 10 percent of the purchase price in cash. But in today's market, a developer who desperately needs buyers might not be inclined to enforce that provision of the contract.

One thing that concerns me is that it sounds like you're looking for new construction on your own and are not working with a buyer's agent.

There's no reason why you shouldn't have your own representation. Developers budget for buyer's agent commissions, and then you'd have a smart, knowledgeable representative who could help you with your negotiations.

As your friend has discovered, having an agent who knows what's going on means you'll get more favorable treatment and may even buy at a lower price and receive better upgrades and options. That's because a good agent will know what's being offered around town and how to get the developer to give you the best deal possible.

Go find a great agent to help you figure out what you want to buy and what kinds of deals developers are offering in your area. Then, go back to this developer if you decide this is still the townhouse you want. The developer's salesperson will likely tell you that you can't bring your buyer's agent into the deal now "at this late date," but tell her you'll walk if you can't have representation.

Given how well she responded to your pushback on the down payment, I have no doubt you'll be able to make this work as well. If you decide not to bring in an agent, you might want to insist on a lower amount of money to put down to buy the townhome.

Q: Do you do private lending? I'm a real estate investor and would like to be able to acquire more properties.

A: Thanks for your letter. I am not in the private lending business, but if you've tapped out local banks and mortgage lenders, you might want to try a Web site called Prosper.com.

Prosper.com is a site that connects borrowers with private lenders. You post a "loan listing," which includes some of your personal financial information (you decide how much personal information to reveal) and what you're trying to do online, and various lenders will bid for the right to do business with you. You can borrow up to $25,000.

Prosper.com Founder and Chief Executive Officer Chris Larsen helped start Eloan.com. He started Prosper.com because he thought there was a market for people who wanted to borrow money outside the traditional financing channels.

According to its Web site, Prosper.com makes money by charging a 1 percent to 2 percent fee from borrowers when a loan is funded. It also assesses a 0.5 percent to 1 percent annual loan-servicing fee that is paid by lenders. The company has raised approximately $20 million and is backed by a host of top private-capital companies.

But as with any business relationship, you need to do your due diligence and make sure you understand the relationship between the parties, what you will get out of the transaction, and the pitfalls and benefits of the deal. Finally, as for Prosper.com or any other Web site you consider, make sure they are reputable and you understand the risks of doing business with that Web site.

www.LagretRealEstate.com

How reliable are square-footage figures when you buy the house?

Variables that skew public record

By Dian Hymer
Inman News

Misrepresenting square footage can get a seller into big trouble. If a buyer relies on a seller's disclosure about the living square feet in his home and the buyer later finds out that the representation was overly ambitious, a lawsuit could ensue.

Sellers have a tendency to round up the number of square feet in their home. The more cautious approach would be to round down. The safest approach would be to make no representation about square feet at all. In an ideal world, this would be the perfect solution. In the real world, however, buyers want to know how many square feet are included.

It's easy to understand why. Most buyers are busy and don't want to waste time looking at homes that won't work for them. Describing a listing by the number of bedrooms and bathrooms, without any reference to square feet, is a safe approach. But, it tells buyers little about the actual size of a listing.

In the diverse housing stock in many older neighborhoods, such as the desirable Rockridge area in Oakland, Calif., three-bedroom homes range in size from about 1,300 square feet to more than 3,000 square feet. To say a house has three bedrooms tells a buyer little about the usable space.

When the number of livable square feet -- square feet excluding such things as decks, terraces, garages, basements and storage rooms -- is not provided in the listing information, buyers often search on their own for this information.

It's not that hard to come up with a figure. Simply go to Zillow.com and type in an address. The square-footage figure that pops up is presumably from the public record. Unfortunately, the "public record" often doesn't reflect reality. It may be accurate for new homes that haven't been modified since the original building permits were approved. The figure is far more subject to error for older homes that have been remodeled over the years.

Remodels are often done without building permits, which wouldn't be reflected in the public record. However, even when add-ons are done with permits, the public record is not always changed to reflect the increase in square feet.

HOUSE HUNTING TIP: It's a good idea for buyers to visit the local building or planning department to find out what documents are on record regarding a listing they're considering buying. This should be done during the inspection contingency time period. If possible, ask for copies of all the permits that were taken out on the property, starting with the original building permit.

If permits for obvious modifications to the property are missing, this could indicate the seller, or a previous owner, took shortcuts. Or, it could reflect a shortcoming in the planning department records. For example, fires in the City of Oakland Planning Department partially destroyed the permit archives.

Buyers often like to compare listings they're considering based on the price per square foot. This is a far-from-accurate way to figure out if you're paying a fair price for a property, unless you're looking at homes in a new housing development where there is little variability.

Also, if the figures you're using are from the public record, which is often wrong, the reliability is even more in question. The most accurate source of square footage is the information from the local permitting agency. If that information is not available, a licensed appraiser can measure the house to provide square-footage calculations.

THE CLOSING: Keep in mind that an appraiser might call a room a bedroom -- even though it wasn't permitted as such by the building department -- if the work was done by licensed professionals and complies with building-code requirements.


www.LagretrealEstate.com

Moving out may bring faster home sale

Vacant homes often look larger than they appear

By Robert J. Bruss
Inman News

DEAR BOB: I plan to sell my home. Should I stay in my home while trying to sell it? We could move into our new home and leave the one we are trying to sell vacant. Which scenario will help sell our home faster? --Dana P.

DEAR DANA: Your listing real estate agent is in the best position to advise you whether to stay or move during the sales process.

The specific answer depends on whether your home shows well with you and your furniture still in the house. Or maybe it will show better if you move out, spruce it up with fresh paint and perhaps new carpets.

As a buyer, I like vacant houses because then I can easily spot most defects. As a seller, I prefer to sell vacant houses after painting and cleaning them, usually installing new wall-to-wall carpet. Vacant rooms look bigger than rooms occupied with furniture.

NO TAX DEDUCTION IF LOAN IS NOT SECURED BY YOUR HOME

DEAR BOB: To buy our first home, my wife's parents loaned us $50,000. We have been faithfully repaying them monthly, including interest. As they are retired, they need the income. However, when we were audited by the IRS, our interest deduction for this loan was denied. The IRS agent said the interest is not deductible because the $50,000 loan is not secured by a mortgage on our home. Is this correct? --Gerry T.

DEAR GERRY: Yes. For home mortgage interest to qualify as an itemized tax deduction, the loan must be secured by a mortgage on your property.

To qualify for an interest deduction, you should give your wife's parents a mortgage or deed of trust to secure their promissory note. Then you can deduct the interest you pay each year to them. For more details, please consult your tax adviser.

SHOULD HOME SELLER CREDIT BUYER FOR DEFECTIVE WINDOWS?

DEAR BOB: I just sold my house. The buyer had it professionally inspected. All went well, but the buyer asked me to replace a couple of windows that have condensation, probably due to a bad seal. My home is 12 years old and in beautiful "mint" condition. I just put more than $20,000 into it with a new roof, siding, appliances, and professional paint job throughout. I feel the buyer is being unreasonable, asking me to fix the one and only thing wrong with my home. The house is selling for $350,000. Am I being unreasonable not wanting to pay for the windows? --Joe McC.

DEAR JOE: If the buyer's purchase offer is acceptable, especially if the local home sales market is slow, why risk losing him over a few hundred, or even a few thousand, dollars?

Better than replacing those windows, however, is to offer your buyer a "repair credit" at the closing, such as $500 or $1,000. Chances are the buyer won't even replace those windows, but then you won't risk losing the sale over a petty item.

Somebody help my FICO score

Must I pay a loan assumption fee or is being on title good enough?


DEAR BOB: About three years ago, my son wanted to buy a condominium. He was earning about $75,000 per year as a CPA working for a "big six" accounting firm. However, his FICO credit score was horrible, around 600, due to his mistakes (failure to pay credit-card bills) while he was in college. So I agreed to take title and obtain the condo mortgage in my name. Since then, he paid all the mortgage payments on time. I recently signed a quitclaim deed adding him as a joint tenant with right of survivorship. When he approached the mortgage company about transferring the loan to him so he can improve his FICO score, he was told he would have to pay a 1 percent assumption fee, which will be about $3,600. He says he wants to do this so he can deduct the mortgage interest and property taxes on his income-tax returns. Do you think he should do so? --Dan F.

DEAR DAN: No. As a CPA, your son should know he is entitled to deduct the itemized property tax and mortgage interest deductions he pays on his tax returns if his name is on the condo title. His name does not have to be on the mortgage obligation to claim the interest deduction.
Purchase Bob Bruss reports online.
Millions of U.S. homeowners have purchased homes "subject to" an existing mortgage. If they fail to make the payments, they can lose their property by foreclosure. That is your son's situation.
What matters is he must be on the title and be legally obligated to make the payments or risk losing the property. When you added his name to the title, he became eligible to claim the income-tax mortgage interest and property-tax deductions.
Other than improving his FICO score, I see no advantage for him paying $3,600 to assume that mortgage obligation.

EACH MORTGAGE LENDER LOOKS AT LEASE-OPTIONS DIFFERENTLY

DEAR BOB: When a tenant-buyer goes to a mortgage lender to get a loan to exercise a lease-option, does the bank look at the option consideration money and the rent credit earned during the tenancy as part of the down payment? I am told the loan-to-value ratio will be based on the option purchase price rather than the current fair market value --Joel D.
DEAR JOEL: Having been involved in many home lease-option purchases and sales, my experience has been that each mortgage lender treats lease-options differently.
When a lease-option buyer obtains an adjustable-rate mortgage, I've found the mortgage lenders are the most flexible, giving full down-payment credit for the buyer's option money and the rent credit earned during the tenancy period.
The buyer should consult at least a half-dozen mortgage lenders to obtain their specific mortgage terms for exercising a lease-option. This is a situation where I highly recommend consulting an experienced mortgage broker who should know which lenders are the most flexible in such situations

Homeowners sue after neighbors block access road

Is property owner entitled to a prescriptive road easement?

By Robert J. Bruss
Inman News

In 2000, Richard and Lilia Aaron bought their residential property. The only access to a public road over their land is a one-half-mile-long, steep driveway, which is difficult to use, especially in inclement weather.

Regular use of that driveway had been discontinued by previous owners for about 20 years because there was a more convenient access over a paved private road, known as Texaco Road, which crosses adjoining property owned by Dallas and Patricia Dunham.

Not long before the Aarons' property purchase, the Dunhams began to limit use of the road. Evidence shows the road was created in 1982 by Texaco, which used it to reach nearby leased property.

The prior owners of the Aaron property used the Texaco Road without asking or receiving permission. But in 1999 the Dunhams wrote a letter to the prior owners, the Fullertons, revoking permission to use the road. The Aarons were aware of the dispute when they bought their home in 2000.

Shortly after purchase, the Aarons brought this declaratory relief lawsuit against the Dunhams, claiming a prescriptive easement to continue using the private Texaco Road over the Dunham land. They argued the previous owners' use of the road was adverse, open, notorious and continuous without permission of the property owners, so a prescriptive easement was thereby created.

If you were the judge would you rule the Aarons have a prescriptive easement to continue using the Texaco Road?

The judge said yes!

To create a prescriptive easement, the judge began, the nonpermissive use must be adverse, open, notorious and continuous for the time period specified by state law. The evidence shows the use by the previous owners of the Aaron property was without the express permission of the Dunhams, he added.

If the past use had been permissive, that permission could be revoked and there could be no prescriptive easement created because there was no adverse or hostile use, he commented.

But the evidence shows the Aarons and the previous owners used the Texaco Road over the Dunham property without express permission for many years, the judge emphasized.

Because they have another route, although inconvenient, to reach their property from the public road, the Aarons are not entitled to an easement by necessity, he noted. However, they have proven all the elements and are therefore entitled to be granted a prescriptive easement to use Texaco Road across the Dunham property, the judge ruled.

Based on the 2006 California Court of Appeal decision in Aaron v. Dunham, 41 Cal.Rptr.3d 32.

PRESCRIPTIVE EASEMENTS DON'T REQUIRE PROPERTY TAX PAYMENTS

DEAR BOB: About a year ago, you had a letter regarding prescriptive easements over private property. As I recall, you said one of the important requirements is whether the owners were paying the property taxes. Our private road travels through several other properties before reaching the public road. There are no recorded easements. We each pay the property taxes on our separate parcels. The property is in a rural area, outside the city. Do we have a prescriptive easement? --Delores R.

DEAR DELORES: I think you confused obtaining title to an entire property by adverse possession with obtaining a prescriptive easement over a neighbor's property.
Adverse possession to obtain title to an entire parcel requires open, notorious, hostile (without permission) and continuous use of the property, plus payment of property taxes, for the number of years required by state law.
However, obtaining a prescriptive easement only requires open, notorious, hostile and continuous use for the required number of years, but without payment of property taxes. For full details, please consult a local real estate attorney.

http://www.lagretrealestate.com/

Beware of junk fees on home equity loan

Aren't some charges usually paid by lender?

By Robert J. Bruss
Inman News


DEAR BOB: After reading your recent list of "nonsense" mortgage junk or garbage fees some lenders try to impose, when I recently applied online for a home equity loan I realized I was about to become a victim of a major lender. The lender wants to charge me a loan origination fee, appraisal fee, credit report fee, processing fee, underwriting fee, flood certification, funding fee, $100 escrow settlement fee, $150 title fee, $15 courier fee, $15 wire fee, $75 recording fee, $80 intangible tax and $235 mortgage tax. What is your evaluation of these charges for a home equity loan? --Marydelle P.

DEAR MARYDELLE: Most of those are unnecessary junk fees you should not pay.

Virtually every local bank and credit union will eagerly make you a home equity loan or home equity credit line (HELOC) without any junk fees if you have a FICO (Fair Isaac and Co.) score around 700 or higher.

I have obtained many home equity credit lines over the years from major lenders, such as Chase and Wells Fargo, without paying any up-front junk or garbage fees such as those you list.

The only legitimate home equity loan fees on your list that I wouldn't resist are the local mortgage tax, the intangible tax (whatever that is), and the recording fee. The other charges you list should be absorbed or paid by the home equity lender if they want your business.

MORTGAGE BROKER REVEALS SECRETS

DEAR BOB: I am a longtime independent mortgage broker for more than 20 years. My business comes 100 percent from satisfied former borrowers and real estate agents who know I will treat their home buyers right. If I can't arrange a mortgage for a specific situation, I tell the prospect quickly and we part as friends. Often, I know of "secret lenders" who will make mortgage loans not available elsewhere. However, I always reveal the borrower's costs up front, never imposing any last-minute junk or garbage fees as some of my dishonest competitors do. Congratulations for exposing those fees, which nobody else writes about --Jonathan C.

DEAR JONATHAN: I wish your mortgage brokerage services were available in every city. Why don't you open a nationwide franchise chain "Honest Mortgage Brokerage?"

It is refreshing to hear from an "honest mortgager broker" who doesn't trick borrowers at the last minute when they are most vulnerable and will pay unnecessary loan fees when they have no other choice to losing their home purchase.

I frequently recommend experienced mortgage brokers like you who can often arrange "impossible" mortgages for home buyers with unique situations. As long as the fees are disclosed up front, borrowers can then decide if they want to pay the expenses or not.

What especially irritates borrowers is when their loan charges are far higher than were disclosed on their so-called "good faith estimate" which we both know is a joke because there is no enforcement.

RAISING HOME SALES COMMISSION PAID OFF

DEAR BOB: Thank you for your article some time ago about real estate sales commissions. The home sale market in our town has been slow since January. Our listing agent, a trusted family friend, warned us home sales were slow so we listed with an asking price about $5,000 below market value. That didn't work. After two months, she suggested we raise our sales commission to 7 percent with 4 percent to the selling agent. It worked like gangbusters! Within a week, we had two purchase offers. We accepted the best one and took the other as a "back-up offer." Our home sale recently closed. Although we paid a higher than normal sales commission, we got an all-cash sale for almost our full asking price. Thanks for that great advice to raise the sales commission --Durk H.

DEAR DURK: In your situation, it was obviously more important to get your home sold than to net the highest possible sales price. Not all home sellers are so highly motivated.

Some home sellers prefer to cut the sales commission by one or two percent and wait "forever" to get their homes sold. Obviously, selling your home was more important than squeezing the last dollar from the sale.

www.LagretRealEstate.com

Renting the perfect apartment

First impression is a major factor in landlord's decision


By Helene Lesel
Inman News

Q: What questions should I ask when calling about an apartment?

A: With skyrocketing competition, a lot of prospective tenants are nervous and don't know what to say when calling about a place. Before you dial the number, be sure to read the advertisement carefully and have it in front of you for reference.

Pick a time to call when it's quiet and you can concentrate without interruption. Turn off the radio and be prepared to ignore the call waiting or other phone lines chirping in the background. Of course, call at an appropriate time -- between 9 a.m. and 5 p.m. on business days -- unless specified in the advertisement.

With pen and paper at your side, call the advertised phone number. No answer? Should you leave a message? It depends on the situation. If the phone number is clearly a manager or landlord's contact, leaving a message may be convenient.

In an effort to avoid phone tag, be sure to slowly and clearly leave your name, address you are calling about, your area code and phone number, best time you can be reached and the phone number again. If you haven't heard back all day or overnight, try again.

Lucky enough to get the landlord on the line? "Hi, I'm calling about the two-bedroom, two-bath rental on Maple Street," is a good way to start. "Is it still available?" Some owners have more than one vacancy and droning on about the details of the wrong unit wastes everyone's time.

Verify the rental amount and ask when the unit is available for move-in. Is the unit an upper or lower location? Which floor? If you have any obvious questions from the ad, be upfront and polite. Ask, "What appliances are included? Is there a laundry room on the premises? Does the unit include parking with the rent? One space or two -- covered or open? Are pets allowed?

Questions should be realistic and not a matter of personal opinion. For example, asking if the place is quiet and in good shape is not always useful. After all, who is going to say the rental is noisy and needs painting? Decide that for yourself at the showing.

If the place sounds reasonable for your needs and within your price range, then simply ask, "When is the place available for showing?" When setting the meeting, give a definite time and ask exactly where to meet. Front porch? Driveway? Unit itself? Ask what color the building is or any distinguishing characteristics to help find the way. If the location is unfamiliar, ask for the closest cross streets or major intersections. Getting lost and showing up late is not a great way to make a first impression.

Q: What should I do if I really like the place and want to rent it?

A: Before you start walking into rentals, consider putting together a packet: include a recent copy of your credit report; letter of recommendation from previous landlords, employer or staff; and proof of employment or student status. Some people bring a pay stub or W-2 form to prove income. Students should include proof of registration or enrolled student status. Of course a form of picture identification is a must, just in case they think you've stolen an ideal candidate's identity.

Snagging a place is more challenging than a blind date, but not by much. After all, you're presenting yourself in hopes of being in a lasting and harmonious relationship. Start by dressing decently, since looking presentable couldn't hurt for first impressions. Don't bombard the tour guide with questions when you first walk in; instead, pay attention to the details, including promises made. Promises made may be promises forgotten later.

Common-sense questions such as "How many other tenants occupy the building?" or "Where is the parking allocated?" are a good idea. Expect to need to be flexible regarding the move-in date. "Available now" means the place is sitting vacant and collecting dust instead of rent. Naturally, landlords favor the renter willing to take the unit as soon as possible.

Asking what will be replaced and/or cleaned is fair game. If there's a feature such as window coverings or appliances, inquire if they remain with the unit.

On the flip side, be wary of any inappropriate questions, especially those that reflect discrimination. Being asked about your religion, race or disability is a red flag for potential trouble.

If you really like the place, be upfront and tell the landlord as soon as possible. Offer to put a deposit on the place to secure it until your credit and application is approved.

www.LagretRealEstate.com

Smart home buyers stay for the long haul

Making a wise purchase offer

By Ilyce R. Glink
Inman News

In this two-part series, Ilyce Glink tackles some questions every home buyer should ask.

These days, life looks pretty good if you're on the buying side of a real estate transaction.

The number of homes for sale is at an all-time high and continuing to rise, according to the National Association of Realtors. The number of vacant homes is also at an all-time high. Developers are so desperate to unload houses that they're cutting prices in addition to offering free extras and upgrades.

But before you whip out a pen and fill in your offer to purchase, there are five questions every home buyer should ask:

1. How long do I plan to stay in this home?

This is the most critical question you can ask when going through the home-buying process because the answer can change what you buy, how much you pay for the property, and how you finance it.

Most home buyers tend to stay in their primary residences for five to 10 years. In the past few years, as the price of real estate was soaring and homeowners sought to capitalize on that, many people began treating their primary residences more like a piece of investment property. They'd buy, renovate (or not), and flip for big profits. Often, they'd plow their profits into a bigger, more expensive property.

With the real estate market slowing in many parts of the country, it makes sense to ask how long you plan to stay because short-term purchases will likely be money-losing propositions. It takes a savvy buyer to find a fixer-upper that can be renovated and flipped for a substantial profit in two to three years.

Once you figure out how long you plan to stay, ask yourself what would happen if you had to turn around and sell the property in a year. If you had to pay a 5 percent commission, plus other costs of sales including moving expenses, and the property didn't appreciate at all, would that change what you'd pay for the property today? Of course. You'd probably make a lower offer.

Be sure to take the length of time you plan to stay into account, but then account for a surprise move when calculating the price you offer the seller.

2. How desperate or anxious is the seller?

Sellers used to go to great lengths to avoid letting buyers know why they're moving. In most cases, people move because they accept a job offer in another location; they don't feel the local schools meet the needs of their children; or they aren't a good fit with the neighborhood.

But sometimes sellers move because of a death in the family, job loss (the property becomes unaffordable) or a divorce.

Finding out exactly why the seller is selling should be a top priority for all buyers and their agents. You also need to find out what kind of timeframe the seller is working under -- in other words, how desperate and anxious they are to sell and move.

The current buyer's market has produced record numbers of desperate and anxious sellers. In some cases, you have sellers who have already purchased and moved into their new homes. For them, every day that their property sits on the market translates simply into less cash back at the closing (assuming there is cash to be had).

You might also find sellers who are barely (or not) keeping up with their mortgages, and who are overextended financially.

If you find a desperate and anxious seller, you'll want to use that knowledge when constructing the offer. Desperate and anxious sellers are much more likely to accept a lower bid than sellers who feel they have all the time in the world to sell.

www.LagretRealEstate.com

That's funny, these pipes weren't frozen at closing

If buyers had only known about changing over utilities

By Ilyce R. Glink
Inman News

Q: On March 12, we closed on a summer home about two hours or so from our primary home. Just to give you some background, the whole process was difficult because the sellers, their Realtor, our Realtor and their lawyer were not particularly cooperative and were disorganized about details related to the closing.

We had our final walk-through the day before the closing and everything we had requested be fixed after the inspection was in fact fixed. The heat, electricity and water were on as well.

When we closed on the house, we were under the impression that the utilities would be rolled over to our name. Well, unbeknownst to us, the seller had called the utilities company on March 9 and requested that the heat and electricity be turned off on March 14. We didn't know that they did this and no one mentioned anything to us at any time.

Five days after the closing (on Sunday), we drove to the house to clean up and begin painting. When I arrived, I realized that the heat and electricity had been turned off, so I called the local utilities to turn everything back on again the next day.

On Tuesday morning, I was greeted with water spewing out of the pump outside our house. Inside, the house was flooded and everything was damaged -- walls, ceilings, kitchen, floors. Needless to say, I was in shock. I called my husband and he immediately drove over. We called a plumber and he came over to figure out what happened.

Turns out, during the time that the sellers had turned off the heat, the pipes froze and then burst when the heat was turned back on. We are now faced with thousands of dollars in damage. We want to know who is liable for this.

The Realtors never mentioned anything to us about switching the names on the account. We called the utility company, which gave us the information about when the heat was turned off and who authorized it. The utility company said they advised the seller to tell their Realtor and the buyers, which they obviously never did.

We have owned a home for more than 30 years and have never encountered a problem of this magnitude. Also, having not bought a home in so many years, we were unaware of these little details such as rolling over the utility bill into our name. We are totally and completely devastated and are looking to you for advice.

A: I wish I had better news for you. Unfortunately, you were responsible for both insuring the property and for making sure that the utilities had been changed into your name and were working as of the moment you closed on the property.

Although you're angry at the sellers, I believe that anger is misdirected. While the sellers could have reminded you to switch all of the utilities (including water, gas, electricity and cable) into your own name by the time of the closing, they gave you two extra days to get your affairs in order, by having the water and power turned off two days after the closing.

It's also not the agent's responsibility to tell you that you were responsible for changing the accounts, although reminding you would have been a kindness and an extra bit of service that they could have provided. If you used a real estate attorney, that attorney might also have reminded you of your obligation to get the utility accounts switched into your name immediately.

Whether it was because you were buying a home for the first time in 30 years or simply because you didn't ask the right questions, you wound up with a disaster on your hands.

If you were doing something for the first time in 30 years, it seems as though you might have read up on what you needed to do. There are plenty of books out there, mine included, that cover what needs to happen in the 30 days leading up to a closing.

I hope the property was insured and that you have by now recovered from this disaster and can enjoy your new home. If you want to explore any legal options you might have, please talk to a litigator who specializes in real estate.

Q: In a recent column, you indicated that the government's FloodSmart.gov Web site includes a page that would advise a property's risk of flooding by simply providing the address. I'd like to find out the specific address of that page. Thank you.

A: The federal government has a wealth of information about flooding, flood insurance and other issues at its main Web site, www.floodsmart.gov. The specific page you're looking for is at: http://www.floodsmart.gov/floodsmart/pages/riskassesment/findpropertyform.jsp.

Go to my web site: www.LagretRealEstate.com

Links to theaters and concerts around Washington

Friend of mine gave me these links:

http://www.worldaffairsdc.org/
http://tastedc.com/
http://www.roundhousetheatre.org/
http://www.cato.org/index.html
http://www.bluesalley.com/index.htm
http://www.kennedy-center.org/
http://www.bsoatstrathmore.org/

Do you know other links to Washington - Baltimore shows or theaters.

Save money when building, renovating real estate

Book's tips could eliminate need for contractor

By Robert J. Bruss
Inman News

Editor's note: Robert Bruss is temporarily away. The following column from Bruss' "Best of" collection first appeared Sunday, July 16, 2006.

If you are thinking about building a house or renovating your current home, first read "Be Your Own House Contractor, Fifth Edition" by longtime home builder Carl Heldmann. This very valuable new book explains, according to the author, how to shave at least 25 percent off construction costs of a new house. More important, it goes into great detail of what is involved with being your own home contractor.

Having been involved with renovating many houses and always hiring a remodeling contractor, I closely related to Heldmann's explanations of how to build a new house to save money or renovate an existing house without hiring a general contractor. The author explains how a general contractor's job seems almost easy (which it really isn't) and virtually anyone can save by being his/her own general contractor.


A unique aspect of this new book is Heldmann refers readers to his Web site for additional resources to make the home construction process almost simple. He compares today's procedures with those available 35 years ago when he built his first house and then built many more. "You won't believe how easy it is to save money and get the house you want," Heldmann says.

An especially enjoyable advantage of this book is the author simplifies the home construction process into bite-size pieces that any reader can understand. He doesn't go into great detail, but just enough for the reader to know if becoming a do-it-yourself contractor is right.

Even if the reader decides to hire a general contractor to build a new home or remodel an existing one, Heldmann explains how to keep costs down and to understand the home-building process.

Will this book make the reader capable of building his/her own home without a general contractor? Possibly.

But more likely, it alerts readers to what is involved and if they need to learn more before going ahead, such as by reading more advanced home construction books or taking courses at local owner-builder centers.

Heavy emphasis is placed on construction financing, with fewer details about arranging home-improvement financing, which is generally easier to obtain. Heldmann encourages do-it-yourself home builders to arrange construction loans by comparing several sources, especially community banks. Although it used to be virtually impossible to obtain a home construction loan without having a general contractor, the author says banks have become much more liberal in recent years.

Chapter topics include "Be Your Own General Contractor and Save"; "Where to Start"; "Cost Estimating"; "Financing"; "Further Preparations"; "Subcontractors"; "Suppliers"; "Building the House"; and "Add On, Remodel, or Tear Down and Start from Scratch."

This longtime best-seller home construction book is even better in its latest edition, which includes the author's Internet Web site resources. Readers might conclude, as I did, that being their own contractor is not for them even if they can save 25 percent. However, reading this book made me a much better consumer when dealing with general contractors. On my scale of one to 10, this outstanding, easy-to-understand book rates a solid 10.

"Be Your Own House Contractor, Fifth Edition," by Carl Heldmann (Storey Publishing, North Adams, Mass.), 2006, $16.95, 101 pages plus Appendix; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.

www.LagretRealEstate.com

Can sibling force sale of inherited house?

Sister refuses to give up comfortable living situation


By Robert J. Bruss
Inman News



DEAR BOB: My mother died about two years ago. Her will left everything to my sister and me equally. I was living with my mom when she died of cancer, so my sister has allowed me to live in the house if I pay the property taxes and insurance. There is no mortgage. The house is worth around $400,000. Now my sister thinks we should sell the house, but I don't want to sell, as I am very satisfied with the status quo. Can my sister force me to sell? --Naomi N.

DEAR NAOMI: Yes. As a co-owner, your sister can bring a partition lawsuit to force the sale of the house. In most partition lawsuits, the judge orders the property sold with the sales proceeds divided among the titleholders.

It is extremely difficult to defend a partition lawsuit unless there are extraordinary circumstances. To save litigation costs, you and your sister could enter into an agreement to sell the property and divide the net proceeds, thus saving court attorney fees.

NO INHERITANCE IF DECEASED SPOUSE DIDN'T HOLD TITLE TO HOME

DEAR BOB: My wife died last year. Under the terms of her will, I inherited all her assets, including the house. I just presumed as the sole heir I would receive a new "stepped-up basis" to market value, as you often discuss. However, when I recently consulted my tax adviser about selling the house, she says that because title to the house was held in my name alone, I didn't receive any stepped-up basis and am stuck with our low $47,000 purchase price many years ago. Is this true? --Marv W.

DEAR MARV: From your description, your tax adviser appears to be correct. If the title to the home was held in your name alone, when your wife died last year, you didn't inherit anything so you didn't receive a new partial or full stepped-up basis to market value. Your tax adviser appears to be correct.

NO TAX-DEFERRED EXCHANGE OF U.S. TO FOREIGN REAL ESTATE

DEAR BOB: Due to a semi-permanent overseas job transfer and big promotion, we decided to sell our apartment building here in the United States at a substantial profit. Our plan was to buy a similar rental building near London. But our tax adviser said we can't make a tax-deferred exchange of a U.S. rental property for a foreign rental property. If Uncle Sam taxes our overseas earnings, why can't we make such a tax-deferred exchange? --Richard R.

DEAR RICHARD: I don't make the tax laws. If I did, everything would be fair and just.

Although I am told it is possible to make an Internal Revenue Code 1031 tax-deferred exchange of a foreign rental or business property for another qualifying foreign property, under current tax law it is not possible to make an IRC 1031 tax-deferred exchange of a U.S. rental property for a qualifying foreign rental property, or vice versa. Your tax adviser appears to be correct.

www.LagretRealEstate.com

I should've had rental property owner's insurance

Landlord learns lesson after contractor steals fixture, damages door


By Robert Griswold
Inman News

Question: I own a condo that I've rented out for the last 13 years. My current property manager is my concern. The last tenant sublet my condo to another person who was not on the lease. This new occupant caused considerable damage before he was removed, and I found out about the damage through a third party, not my property manager. Then, without my knowledge, the property manager brought in a "contractor" he found through a small ad in a local newspaper to do the repairs. The work was never completed, but my property manager bugged me about paying this contractor that he apparently uses on many of his managed properties. After I paid the contractor I found out later that he was unlicensed and had an arrest warrant out on him. He had stolen a custom fan from the dining room and other materials I had purchased to repair the condo. The front door, which again is a custom-fit door, also was damaged and will be expensive to replace. I was able to track down the former tenant who was on the lease and got him to pay for most of the repairs except the front door. I can't find the contractor, and both the fan and the front door to the condo still need repairs that I feel I have already paid. What should I do?

Property manager Griswold replies:

Consider yourself lucky that you were able to get the former tenant to voluntarily pay for most of the damages. You will have to pay for the front door repairs and you should do this immediately through a licensed contractor or trusted handyman that you hire and supervise. The next item on your agenda should be to terminate your property management agreement as soon as legally allowed under the existing contract. As a property manager, it can happen that a tenant quietly leaves without telling you and another tenant moves in, especially if the rent payment continues to be made by the original tenant. However, the other issues about the contractor clearly indicate that the property manager is not a professional and that you are bound to continue to have problems with this unprofessional firm. I would cut your losses and hire a competent property manager. You should also file a police report about the stolen property and you may want to seek reimbursement for the stolen items with a small claims action against the property management company.

Unless gross negligence, property managers are typically not responsible to indemnify their clients in all circumstances where the rental property is damaged by a contractor, or the work is not completed properly or there are items stolen. That is why you carry rental property owner's insurance. However, this property management company apparently failed to conduct any background or reference checks on the contractor. The arrest warrant may not have been reasonably discovered by the property manager, but the lack of a contractor's license is easy information to obtain in most jurisdictions. References should always be verified if this is the first time the contractor is being used by the property manager.

Question: Isn't it illegal for a condominium homeowner association's Covenants, Conditions and Restrictions, commonly referred to as CC&Rs, to prevent a condominium owner from renting to Section 8 tenants?

James McKinley, an attorney for landlords, replies:

Section 8 housing is a federally subsidized program that pays for a portion of the qualified tenant's rent. Currently, I am not aware of any jurisdiction where a landlord would be engaging in illegal discrimination for turning down a Section 8 resident if the landlord is not participating in the program. However, a condominium homeowner association does not have the right to prohibit a property owner from participating in the Section 8 program.

Steven Kellman, an attorney for tenants, replies:

Condominium homeowner associations function like mini-governments. They many times conflict with local law and they also seem to get away with many things that they should not. They accomplish this because they are a private governing body empowered by the homeowners who sign on to the governing rules (i.e. CC&Rs) when they buy the unit. These rules may include what color you may paint your door and whether you can put a banner of your favorite football team in the window. (Before buying any condominium, read all the CC&Rs carefully.) There may also be rules about using the units as rentals or restricting them to only owner-occupied. If the units may be used as rentals, limiting the units to nonsubsidized ones only may run afoul of federal law because some subsidies such as Section 8 are governed by federal law. I believe that an association not allowing Section 8 tenants but allowing market-rent-paying tenants raises a red flag that the rule is an illegal one.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and co-author of "Real Estate Investing for Dummies," and San Diego attorneys Steven R. Kellman, director of the Tenant's Legal Center, and James McKinley, principal in a law firm representing landlords.


www.LagretRealEstate.com

What happens when neighbor builds fence on your lot?

DEAR BOB: We live about 50 percent of the year in our Florida house and the remainder of the year in our other home "up North." This past winter, when we returned to our Florida home, we were shocked to discover our neighbor had built a very ugly concrete block fence between our properties. At first glance, it looked to me like he tried to "grab" at least 5 feet of our lot. Although I didn't say anything to him, I hired a professional surveyor to determine where the lot line is located. It turned out the neighbor took almost 7 feet along our lot line. In other words, the concrete block fence is 7 feet on my side of the boundary. When I confronted him with a copy of my survey, he challenged it as probably inaccurate. What recourse do I have? --Ryan R.

DEAR RYAN: Please consult a local real estate attorney. He or she can review the facts and advise your best course of legal action.

From your description, it appears the neighbor built the new concrete block fence on your property. That means the fence belongs to you and you can remove it.

In addition, you might be entitled to damages, such as the cost of demolishing that fence, removing the debris, and restoring your property to the pre-fence condition.

The home-buying-abroad craze

Despite real estate slowdown, vacation homes are still hot


By Tom Kelly
Inman News

Nearly every day, we read about the increasing popularity of second homes in a remote Mexican seaside town, or the lure of buying a Tuscan villa or the exotic real estate possibilities in Panama. But how many North Americans are actually rolling the dice and choosing to purchase a second home outside the U.S.?

Accurate, tangible data on Americans buying abroad is nearly impossible to find, and the recent National Association of Realtors' annual Investment and Vacation Home Buyers Survey did nothing to help consumers who seek international second-home statistics. While the survey revealed that domestic vacation-home sales increased 4.7 percent in 2006 to a record 1.07 million, the poll did not contain any questions targeting international purchases.

While NAR indicated that it was possible that some of the 1,412 respondents surveyed in April purchased outside of U.S. borders, "the size of the survey wouldn't have provided enough meaningful responses."

According to the U.S. State Department, more than 4 million Americans live abroad, excluding military and government personnel. Mexico is by and far the largest with 25 percent, or 1 million American transplants, followed by Canada with more than 688,000. Central America is not far behind. In fact, an Urban Land Institute study on tourism developments estimated that up to 100,000 Americans live in Costa Rica alone.

However, international Realtors, residential developers and others providing second-home market services now say those numbers are outdated because of the torrid purchasing activity over the past 18 months.

Amada Sturges, director of Escapehomes.com, an online marketplace for buyers and sellers of second homes and resort properties, said the number of Americans interested in purchasing second homes in foreign countries jumped considerably on the site last year.

"More than ever people are looking for better value and natural beauty, both of which are often difficult to find in the U.S.," Sturges said. "Many international countries, such as Mexico and Nicaragua, are great alternatives and are now making it easier for foreigners to buy and live within their borders."

Austin, Texas-based HomeAway Inc., an online company specializing in vacation rentals, said its revenue from owner listings was up 50 percent domestically the past year and about 40 percent in Europe. About 18 percent of buyers of vacation homes who participated in the survey stated that they wanted to rent their property to others. That number was up from 13 percent in 2005, according to the NAR report.

"The vacation-home market has been extraordinarily robust here in the States and in Europe over the past four to five years," said Brian Sharples, founder and CEO of HomeAway. "We thought there would be more of a downturn because the appreciation had not been as high in early 2006 as in previous years, but people are still buying and building."

HomeAway, which raised a record $160 million last year for acquisitions and marketing, predicts the number of second homes available as vacation rentals will continue to grow rapidly. The company's portfolio of vacation rental sites includes HomeAway.com, VRBO.com, CyberRentals.com, A1Vacations.com and GreatRentals.com in the U.S., plus Europe's Holiday-Rentals.co.uk (UK), HolidayRentals.fr (France), Abritel.fr (France), FeWo-direkt.de (Germany) and HomeAway.es (Spain).

"The demographics for second homes are really in the sweet spot for the next few years," Sharples said. "The boomers' ages are in the area where they are hitting the top of their incomes and they have been enjoying considerable gains on these types of properties the past few years."

The NAR survey showed that the typical vacation-home buyer in 2006 was 44 years old, had a median household income of $102,200, and purchased a property that was a median of 215 miles from his or her primary residence. About 42 percent of U.S. vacation homes were closer than 100 miles, and 32 percent were 500 miles or further.

"The NAR survey also did not touch on the number of U.S. vacation homes and resorts that are purchased by Europeans," Sharples said. "We are seeing a phenomenal number of people from the UK and Germany buying in Florida and in other areas of the East Coast. The demographics are very similar to the age and income brackets in the states.

"However, while we might be thinking our resort prices are expensive, Europeans are looking at us as a bargain. Their pound is now worth close to two bucks. If you can get close to double your money in real estate here, you start to understand that it makes a lot of sense."

That's true even if the information is anecdotal. Real estate data that charts purchases by foreigners -- anywhere -- simply is difficult to find.

www.Lagretrealestate.com

1031 exchange advice questioned

How long before rental can become primary residence?


By Ilyce R. Glink
Inman News

Q: In a recent column, you advised the reader that a 1031 property needs to be rented for three years prior to moving into as a primary home. I have not seen any authoritative source that quantifies a three-year use period. The closest thing I've found is IRS Publication 544, which states that if a property is held for more than two years, the predominant use will be evaluated for two years. If the property is held for less than two years, the predominant use will be evaluated during the entire holding period.

Several of my clients read your article and called, questioning the three-year period mentioned in your article. I realize a 1031 property converted to primary use now has a five-year holding period to afford the taxpayer a Section 121 exclusion.

Were you alluding to this ruling? As a qualified intermediary, it is important for us to give accurate advice to our clients.

A: Many people are interested in buying investment property and then later converting it to personal use in order to shield some of the capital gains.

From the investment-side perspective, an owner can defer paying taxes on the sale of an investment property by utilizing a qualified intermediary in a 1031 tax-free exchange of properties. That is, the sale of one investment property for another while following strict rules under IRS code Section 1031. If you sell an investment property and replace it, some experts in 1031 advise their clients to hold that replacement property for two years and continue to use it for investment purposes during those two years.

On the other hand, a homeowner that has used his or her home as a primary residence for two out of the last five years is able to sell it and exclude from taxes $250,000 of gains (or $500,000 for married couples).

Using these two general rules leads to my comment on the three-year holding period. For purposes of the tax exclusion on the sale of a home, a homeowner could have rented a property only a maximum of three years out of five to qualify for the $250,000 exclusion ($500,000 for married couples).

Since you have to use the property as a personal residence for at least two of the past five years, using the property for three years as a rental would seem to make some sense. According to a qualified tax intermediary I spoke to, you could live in the home as a personal residence for at most three years after using the property for at least two years as a rental and still fall within the guidelines of both rules.

www.LagretRealEstate.com

My home warranty nightmare

Getting reimbursed for $5K furnace not an easy task


By Robert J. Bruss
Inman News


DEAR BOB: About four months ago we bought our first home. It was built around 1930 in a very charming, older neighborhood with great schools for our two kids. Although we probably bought the cheapest home in the first-class school district, we are glad we did. However, we have a big problem with our home warranty company. Our home seller paid for a one-year home warranty policy, which we understand cost her around $450. Within a week or two, the furnace gave off a bad odor. We phoned the home warranty company, which sent a repairman the next day. He said the furnace was in very bad condition and gave us a written warning not to operate it. Because the weather was cold, we had to act quickly. We expected the home warranty company to either fix the furnace or install a new one. But the warranty company denied liability since the furnace was a "pre-existing condition." Because we were desperate for heat, we bought a new furnace, which cost us almost $5,000 installed. The warranty company refuses to pay anything. Do we have any recourse? --Vince R.

DEAR VINCE: Yes. You should sue that home warranty company. Depending on the local Small Claims Court jurisdiction, you can either sue there or in the local court of general jurisdiction for reimbursement.


Home warranty companies are notorious for denying policy coverage by stating a claim was an excluded pre-existing condition, especially for large claims like yours. These warranty companies are the "pros" and homeowners like you are the "amateurs." They know that so they often deny legitimate claims like yours, realizing most homeowners just go away and never sue them.

You should report this matter to your state insurance regulator. Unfortunately, home warranty companies are very loosely regulated in most states so they continue to get away with denying policy coverage falsely based on a "pre-existing condition."

WHERE TO FIND PROFESSIONAL HOME INSPECTORS

DEAR BOB: In the past you mentioned a Web site for professional home inspectors. My mom is moving from her home she has enjoyed for 47 years. We need help getting the home prepped for sale. Where can we find a reliable home inspector? --Elwood H.

DEAR ELWOOD: You and your mom are very wise to obtain a professional home inspection before listing the residence for sale. In addition, you might want to obtain a professional pest control (termite) inspection, unless your mom's house is in Alaska.

I often recommend the Web site of the American Society of Home Inspectors (ASHI) because they have the toughest membership standards for professional inspectors. You will find it at www.ashi.org or by calling 1-800-743-2744 where local ASHI members can be located.

By having a professional home inspection before listing the home for sale, your mother can either have the home defects repaired or she can simply disclose them to prospective buyers so they are fully aware before making a purchase offer.


Go to my web site: www.Lagretrealestate.com

Steal your neighbor's property without going to jail

First step: Get into a squatting position

By Robert J. Bruss
Inman News
Editor's note: Robert Bruss is temporarily away. The following column from Bruss' "Best of" collection first appeared Sunday, June 18, 2006.

"Thou shalt not covet thy neighbor's property" is part of the Ten Commandments. But real estate law in every state says it is all right to steal your neighbor's land without going to jail if you comply with state law.

That news may be shocking. However, it's true. In fact, statutes in every state encourage the theft of your neighbor's unused property.

Purchase Bob Bruss reports online.

The selfish reason is the state wants to collect as much property tax as possible by keeping property in use.

But when a property is vacant and unused, the rightful owner often fails to pay the property taxes. So state laws encourage stealing property and returning it to the property tax rolls.

'SQUATTER'S RIGHTS' ARE THE LEGAL BASIS FOR STEALING REAL ESTATE. Every state except Louisiana adopted variations of English common law in the 1800s and early 1900s. Louisiana chose the French Napoleonic Code, which is often very "foreign" to non-residents.

For 49 states, English common law includes the tradition of "squatter's rights." Simplified, that means if I occupy your real estate without permission and pay the property taxes for the number of years required by state law, I can eventually claim full fee simple absolute ownership of your property.

For example, the house adjacent to mine has been vacant about three years. If I moved in and continuously occupied it, paying the property taxes when they come due, I could eventually acquire title to this property. However, I'm not going to do that.

The reason is I observe the legal owner occasionally visits his empty house. He has even applied for a building permit to remodel it. If he found me living in his house, he would summarily throw me out as a trespasser so I have no hope of ever acquiring title to that property by "squatter's rights."

TWO LEGAL METHODS TO STEAL YOUR NEIGHBOR'S PROPERTY. Each state has laws allowing two methods of stealing real estate without going to jail.

1. ACQUIRE LEGAL TITLE AND FULL USE. The most difficult method to steal your neighbor's property is "adverse possession." That means you must occupy the entire property without the owner's permission for the required number of years.

California has the easiest "squatter's rights" adverse possession law. Just occupy a California property for five years without the owner's permission, pay the property taxes, and you can acquire full ownership by then suing the legal owner in a quiet-title lawsuit. It's that easy.

However, Texas and several other states have much tougher adverse possession laws, requiring "open, notorious, hostile, exclusive and continuous occupancy" for 30 years. Needless to say, not many Texans claim title by adverse possession.

Other states have adverse possession limits between these five- and 30-year extremes.

The nation's leading adverse possession case is Stevens v. Tobin (251 Cal.Rptr. 587), decided by the California Supreme Court. Thomas W. Stevens sued the legal owner in a quiet-title lawsuit. He proved that he adversely possessed for 15 years the San Francisco apartment building at 1899 Oak St. in the famous Haight-Ashbury District. Stevens showed open, notorious, hostile and continuous possession. However, he was unable to prove payment of the property taxes. Therefore, he lost his attempt to gain title to the building by adverse possession.

2. STEAL PART OF A PROPERTY BY HOSTILE USE. Perhaps you don't want to acquire a neighbor's entire property without paying, but you just want to use part of that property, perhaps to plant flowers or vegetables.

All you need is a prescriptive easement. The legal requirements in each state are usually the same as for acquiring title by adverse possession, but you don't have to pay any property taxes.

In other words, you must occupy a portion of your neighbor's land by open, notorious, hostile and continuous possession for the number of years required by state law. Interestingly, use need not be exclusive so you could share the prescriptive easement area with the property owner or another user.

However, permissive use defeats ever acquiring a prescriptive easement. If your neighbor says "Sure, go ahead and use part of my property," you will never obtain a permanent prescriptive easement.

Prescriptive easement examples include driveways, paths or any portion of a property that is continuously used without permission.

To perfect a permanent prescriptive easement, after the required number of years' use, the claimant should bring a quiet-title lawsuit against the titleholder.

PREVENT LEGAL THEFT OF ALL OR PART OF YOUR PROPERTY. Periodic inspection of your property is the best way to prevent someone from acquiring title by adverse possession or partial use of a prescriptive easement for the required number of years in the state where the property is located.

If you discover someone using all or part of your property, erecting even a temporary fence or evicting a trespasser blocks the continuous hostile use without permission.

To illustrate, years ago when I was a summer student at Stanford Law School, one Sunday morning I got in my car with a few of my law school pals to drive into nearby Palo Alto for breakfast (we couldn't afford "brunch"). But the main drive was blocked with a barricade. The police officer directed us to a detour.

As a curious law student, I asked what was going on. He explained every summer Stanford blocks its private roads for a few hours on a Sunday to prevent anyone from acquiring a permanent prescriptive easement.

THE EASIEST WAY TO DEFEAT HOSTILE USE. If you are concerned someone might be occupying all or part of your property without your permission, there is a very easy way to avoid losing all or part of your property.

Just grant permission. Depending on state law, you can post a sign, record a notice or personally notify the hostile user that "permission to pass over my property is revocable." Consult a local real estate attorney for exact details.

WHEN PROPERTY OWNERSHIP OR USE IS MOST LIKELY TO BE LOST. Millions of individuals own real estate they rarely visit. Or, owners die and their heirs and friends don't know about a distant property they own.

For example, a few weeks ago I was talking with a Florida friend who bought Arkansas real estate last year on eBay. He was extolling about all its benefits. Then I asked when he last visited his land he said, "Never. I haven't seen it yet. But at a $3,000 purchase price, how could I go wrong?"

That is a property just begging for an adjacent owner to adversely possess or at least acquire a prescriptive easement.

Inspection is the best way to prevent loss of title or use of a property to be certain nobody is trying to take over your real estate. Also, be sure your heirs, relatives and others know where and what property you own.

SUMMARY: The common law of adverse possession and prescriptive easements has valid purposes to promote property use and property tax collection. However, realty owners can prevent theft of all or part of their property by periodically checking to be certain nobody is occupying all or part of their real estate without permission. For more details, please consult a local real estate attorney.