Q-My husband and I are trying to buy a home but are upset at all the obstacles the realty agents put in our way. We have excellent credit and income, but we can barely afford a 20 percent cash downpayment and will require an 80 percent mortgage. I understand that is a typical way to buy a home, but since we don`t have lots of cash the real estate agents treat us like welfare cases.
Almost every Sunday afternoon we visit realty open houses. Some agents are very friendly and say they want to help us find a home. We always leave our name and phone number but rarely do we hear back from the agents.
How can we find an agent who will look out for our interests, find us a house meeting our simple needs and not act like they are doing us a big favor?
A-You raise a very touchy issue in the real estate world. As you probably know, the listing agent represents the seller of the home that is available for purchase. Until recently virtually all agents who located buyers for listed homes acted as subagents of the listing agent, and no one represented the buyer.
Some states have enacted laws that allow agents to represent buyers even when the seller pays the entire sales commission to the listing agent who then gives part to the agent who produces the buyer.
In other words, nothing has changed except buyers think they have an agent looking out for them.
There are true ”buyer`s broker agents” who work strictly for the buyer and receive their commission from the buyer. But these buyer`s agents are few and far between.
The principle reason, as in your situation, is that you barely have enough cash for a downpayment and cannot afford to pay an agent to represent you. Buyer`s agents are used most often by investors in commercial properties. In your situation the best you can do is to ask friends and business associates for recommendations of top realty agents who will help you find a home.
Also keep visiting the weekend realty open houses. Eventually you will find the right home for you. Be persistent. Don`t give up.
Q-We recently bought a beautiful semirural home. Our mortgage is $180,000, and the savings and loan made us buy a homeowner`s insurance policy for this amount. But our insurance agent said the replacement cost of our home is only about $130,000, and that is the amount of insurance he recommends. To get the sale closed he wrote a $180,000 policy, but he then wrote us a letter stating our house is overinsured and his insurance company might cancel the policy because they don`t like overinsurance. We talked to the mortgage loan officer, but she said her company insists on fire insurance policies for the amount of the mortgage. Not only can we save a bundle by reducing the amount of our insurance but also I think it is wrong for the mortgage company to force us to overinsure. What can we do?
A-I share your frustration at the stupidity of many mortgage lenders who, to make their lives easier, insist that borrowers overinsure for the amount of the mortgage even in situations such as yours in which much of the property value is in the nondestructible land.
Fortunately, some states have laws that require mortgage lenders to accept guaranteed replacement-cost insurance policies even if the amount of the policy is less than the mortgage.
California is the latest state to jump on the bandwagon. But even in states without such laws, if you have a guaranteed replacement-cost insurance policy, most progressive lenders will accept such policies if you deal with a top-level official. Ask your insurance agent to negotiate with your lender.
Q-I would like to invest in real estate and make big profits. Do you think Dallas and Houston are the best places to invest? Which cities do you believe offer the best realty opportunities?
A-The best real estate opportunities are available within a half-hour drive from your home. I hear from correspondents all over the United States who are making realty profits even if their local market is not especially
”hot.”
The key is to find local properties that can be acquired below market value. These are often fix-up houses that need minimal work that the seller refuses to do. I do not recommend your moving to Dallas or Houston, which, according to my informants, still have depressed realty markets.
Q-I work as a carpenter for a building contractor. Although I make good money, when the weather is bad I don`t work. Since I know about construction, what would be the best way for me to make money in real estate without quitting my job, which I enjoy?
A-Take all the evening real estate classes at a nearby community college. You probably can handle one or two courses a semester. Only after you learn the basic real estate fundamentals will you be ready to earn big profits investing in real estate. Meanwhile, save as much money as possible so you will have a nestegg ready to invest.
Q-We thought we had sold our home. That was in late December. When we phone our realty agent to see how the buyer is doing getting a mortgage loan, she says she doesn`t know because neither the buyer`s realty agent nor the buyer returns her phone calls. The scheduled closing date has come and gone. We only have a $500 deposit from the buyer being held by the other agent, so we think the buyer decided not to buy. What should we do?
A-Your situation shows why it is so important for a home seller to obtain a large earnest money deposit from the buyer. The bigger the deposit, the better the chances the buyer will go through with the sale.
If the other realty agent doesn`t return your listing agent`s calls, something is seriously wrong because agents usually will level with each other as to the true situation.
Your suspicions probably are correct, and you should put your house back on the market for sale. As for getting your hands on the $500 forfeited deposit, don`t get your hopes up because the buyer`s agent probably won`t release the money to you. Please consult your attorney for further details.
Q-In 1986 we sold our home, took a 10 percent cash downpayment, let the buyer assume our first mortgage and we carried back an installment-sale second mortgage. But when the IRS audited our tax returns it zinged us for taxes because the IRS said our refinanced first mortgage, which the buyer assumed, exceeded our cost basis, so we owe tax on the $14,000 excess. Does this sound reasonable?
A-Yes. You should have consulted your tax adviser before you let the buyer assume your ”excess mortgage.” Such a mortgage usually is created, as in your situation, when the mortgage is refinanced for an amount larger than your home`s purchase price. This circumstance is not unusual if the home has appreciated in value.
When you sell on an installment sale the taxable portion of your profit includes the buyer`s downpayment plus the amount of your excess mortgage that exceeds your home`s adjusted cost basis. Ask your tax adviser to explain further.
Q-I want to invest in vacant land that I would hold until it appreciates in value. Are there any tax benefits of land investments?
A-No. Vacant land is probably the worst investment unless you are 100 percent certain it will go up in market value. There are no special tax benefits. You can deduct mortgage interest and property taxes, but land is not depreciable. Please consult your tax adviser for full details.
Q-A severe storm damaged the roof of our home. Although I think our homeowner`s insurance company was wrong to deny our claim and we are now suing them, we did not receive any insurance payment. Can we deduct our loss of about $4,500 for repair costs on our income tax returns?
A-Probably. If your loss was ”sudden, unexpected or unusual,” then you qualify for the casualty loss tax deduction if the loss was more than 10 percent of your adjusted gross income. Other examples of casualty loss deductions include uninsured losses because of fires, floods, earthquakes, thefts and windstorms. Ask your tax adviser for more details.
Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Robert Bruss will answer inquiries addressed to Tribune Real Estate Features Service, Box 6710, San Francisco, Calif. 94101.
