Q-I recently attended a free real estate seminar on how to buy a home and invest in real estate. The speaker said smart home buyers don`t make any earnest money deposits. He explained that the buyer and seller only need to agree on the price and terms in writing to form a binding contract. I always thought the buyer had to put up an earnest money deposit to create a legal contract. Who is right?
A-Both you and the speaker are correct. Legally, a binding contract is formed when the real estate buyer and seller sign the sales contract. But in the real world very few home sellers will accept a purchase offer without a substantial earnest money deposit by the buyer.
If you were selling your home to me, no matter how good my purchase offer bid might be, I doubt you would accept my offer without seeing some deposit money (unless you were a desperate seller). This usually amounts to several thousand dollars. Although I have bought properties with only a $1 deposit accompanying my purchase offer, those were special situations such as rundown properties and highly motivated sellers.
Incidentally, if you want to convince the seller you are a serious buyer, even when making a low-ball purchase offer, a large earnest money deposit usually works wonders. However, be sure the deposit is not given to the seller until the sale closes because the seller might lose the motivation to sell. I recommend having the deposit held wherever the sale will be closed, such as in the office of a title or escrow company, bank or attorney.
Keep equity lean
Q-My husband is a commissioned salesman. Business is either feast or famine for him. Thankfully, 1990 has been excellent and he has earned over $240,000 this year. But he says 1991 looks dismal for his business. We live in a very nice home in which we have about $100,000 equity. My husband says we should borrow $50,000 on a home equity loan, but I think we should try to pay off our mortgage, so we can own our home free and clear. We filed bankruptcy about 10 years ago, so we know what hard times are. Do you think we should borrow on our home equity now?
A-Yes. Smart people are aware the time to borrow money is when you don`t need it. If times should get tough for your husband`s business in 1991 and his income decreases substantially, it may become difficult or impossible to borrow on your home equity. You may need that $50,000 to live on. In a cyclical business like your husband`s, it is not wise to be property rich and cash poor. Take the money while it is available.
`Median price` deceptive
Q-I read in a weekly newspaper that the median price of homes in our town has dropped 4.6 percent in the last year. Yet the home next door to ours sold a few months ago for almost $14,000 more than the sellers paid in May 1989. If home values are dropping, how can the price of my neighbor`s home go up? I ask because we plan to sell our home in mid 1991, but are wondering if we should sell now.
A-Please don`t believe those median home prices printed in newspapers. They are very misleading. All they mean is an equal number of homes are selling for more and for less than the median home price.
When the median price is declining, as it currently is in most towns, there are more sales of the cheaper homes than of the expensive homes. A declining median price does not mean the market value of your home, or your neighbor`s house, has dropped.
I wish the Realtors would stop publicizing median home sale prices because these figures are misleading and virtually meaningless. Unfortunately, some newspaper headline writers love to publicize declining median home prices and then the stories on median home prices rising get buried on the back page.
Rental won`t cancel loan
Q-Having lived in my home for several years, I now am considering moving out and renting to tenants. Will this cause the mortgage company to call my loan?
A-No. Changing your home from owner-occupancy to rental status will not allow the mortgage lender to cause your loan to become due. Please consult a local real estate attorney for further details.
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Please note: 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, P.O. Box 280038, San Francisco, Calif. 94128.
The special new report ”How to Avoid Enforcement of Mortgage Due on Sale Clauses” by Robert J. Bruss is available for $4 from NewspaperBooks, 64 East Concord St., Orlando, Fla. 32801.
