Q-About six months ago, I signed a contract to buy a new home in a new subdivision. Construction wasn’t started until October. When we went to inspect the house, part of which is built on a slab foundation, we noticed just a few weeks after the concrete was poured, that there is a very noticeable crack. My husband’s friend is a contractor and he says this problem will get worse.
When we confronted the developer’s salesman, he said not to worry because we have a 10-year warranty policy and the slab will be covered by carpet in the family room. Should we worry about this? Incidentally, I looked at the other houses under construction on our block and none of them have any slab cracks like ours.
A-There should not be any cracks in a concrete slab poured just a few weeks ago. The problem is probably due to poor ground compaction and/or incorrect rebar placed before the concrete was poured.
If that was to be my home, I would notify the builder in writing that I would not accept that home until the slab was removed and correctly repoured. Another alternative is to buy a different home in the subdivision that does not have this problem.
Perhaps your attorney should write the letter to the builder to reinforce your determination to have this problem corrected. If the builder refuses to correct the problem, since you really want that house, your attorney may recommend a specific performance lawsuit with a lis pendens recorded to cloud the title to that house.
P.S.: Collecting on those 10-year home warranties is often very difficult, so don’t count on that for security.
Q-I just turned 54, and my wife is 50. I had to take disability retirement because of a bad back. We want to sell our large home because it has too many steps for me to climb. Our problems are that our sale profit will be about $110,000, and we don’t want to buy a replacement home costing as much as our old home so we can avoid paying profit tax. Since I am over a year away from qualifying for that “over 55 rule” $125,000 home sale tax break, is there any way we can sell our home now and avoid paying profit tax?
A-Yes. But before giving you the solution to your problem, let’s review the “over 55 rule” $125,000 home sale tax exemption. The rules are: (1) at least one co-owner must be 55 or older on the day of sale, (2) that person must have owned and lived in the principal residence any three of the five years before the sale, and (3) neither spouse can have used this tax break before.
It appears you qualify, except for not yet being 55. I’ll presume your name is on the title as a co-owner or the owner.
The simple solution is to lease your house for a year with the tenant holding an option to buy the house during the 90 days after you become 55. You can collect a substantial up-front option fee, called nonrefundable consideration for the option. The larger the option money, the greater the probability the buyer will exercise the purchase option.
In addition, you should give the resident a rent credit toward the down payment. This helps compensate your buyer for the lack of homeowner income tax deductions during the lease period.
Since the option will be exercised less than two years after you and your wife move out, you will still meet the three out of five year occupancy requirement of Internal Revenue Code 121. Further details are in my report, “How Realty Buyers and Sellers Can Maximize Profits with Lease-Options,” available for $4 from Tribune Media Services, 435 N. Michigan Ave., Suite 1408, Chicago, Ill. 60611. (Allow eight weeks for delivery.)
Q-I am in the market to buy a house. My cousin is a real estate agent in a town about 400 miles away. She says when I get ready to buy I should phone her and she will refer me to a good realty agent in my town. That way, she says, she gets a referral fee.
But what if I don’t like the agent she selects? Am I obligated to use that agent when I buy a home? Does this sound like a legitimate idea or should I avoid her?
A-Your cousin probably belongs to a real estate referral network. If she refers you to a local agent who sells you a home, that agent will pay your cousin a referral commission of 10 to 20 percent of the agent’s commission. Agent referrals are very common in the real estate sales business.
You will be under no obligation to the agent recommended by your cousin unless you sign an exclusive buyer’s agency agreement with that person. I do not recommend you do so until you are satisfied that agent will capably represent you as a buyer’s agent.
Q-I have been appraising homes since 1984. When new license requirements were imposed by the state a few years ago, I became a certified appraiser. But business is terrible now and I am thinking of changing fields. My fellow appraisers are crying the blues, too. They are dropping out of the business like flies. Do you see any future for real estate appraisers?
A-Automation is rapidly taking over appraisals. Just last week I received a mortgage solicitation letter from a lender tjat included the lender’s appraised value of the rental house. When I phoned the lender, the agent had a computer screen that even told him the two-story house has three bedrooms, two bathrooms and a one-car garage. All an appraiser needs to do is drive by the house to be sure it’s still there and to verify three nearby comparable home sales.
Computers are now being widely used to provide property valuation details which appraisers formerly gathered. Many mortgage lenders can now use computer-provided details about a residence and hire unlicensed appraisers to verify that information for homes worth below $250,000. As you know, appraisal fees have dropped as appraisers compete for the limited available business.
Fewer licensed appraisers will be needed in the future. With the current surplus of appraisers, unless you are well-established to weather the competitive storm, I suggest you look for other employment.
Q-I am considering buying a modest house. Do you think I would be smart to limit my search to homes advertised by do-it-yourself sellers so I can save the sales commission?
A-No. It costs you no more to use the services of a professional real estate agent. The reason is the market sets the value of a home. Whether or not a home is listed for sale with an agent, it is worth the same amount. The market value of most homes is determined by recent sales prices of nearby comparable homes.
Sometimes a do-it-yourself home seller will reduce their price slightly below market value to get a sale. However, when dealing face-to-face with the seller, negotiation can be extremely difficult. Most of these people are greedy, otherwise they wouldn’t be trying to save the sales commission. Also, without a licensed realty agent you are at the seller’s mercy, whereas an agent must treat you fairly, disclosing all known defects in the house.
If you risk buying a house from a do-it-yourself seller, please be extremely careful. You will earn every dollar you think you might save because you will do most of the work normally done by the agent, such as arranging the inspections, financing, and sale closing. Be sure to have a real estate attorney looking out for your best interests.
Q-I am the president of a 158-unit condominium homeowner’s association. Although we advise Realtors who have condos listed for sale to give their buyers copies of the rules, by-laws, and CC&Rs (covenants, conditions and restrictions), many fail to do so.
Just last week, for example, I met a new owner who had a cute French poodle in her condo. I had to politely inform her our rules prohibit pets. The lady broke into tears. Her agent knew about her dog but failed to tell her about our no-pet restriction, which we have even enforced in court. Fortunately, the woman could give the poodle to her daughter.
Please suggest to your readers that before buying a condominium they read the CC&Rs, by-laws and rules.
A-Thank you for that valuable reminder. Incidentally, condo no-pet and no-rental rules are becoming more widespread as condo associations try to make condos more desirable places for owner-occupants to live.
Q-A few months ago, I received the deed to my mother’s house when the probate of her estate was finally completed. It took over two years after her death to sort out everything. As I’m undecided whether to keep this house as a rental or sell it, I need to know if my basis is my mother’s low cost for the house or its market value when I received the deed. Please clarify.
A-Inherited property receives a basis of its market value on the date of death. In your situation, that was over two years ago. Perhaps the estate executor can assist you by giving you the valuation used for estate tax purposes.
Your situation shows why it is better to inherit property than to receive it as a gift before the owner dies. Many property owners think they should give away their major assets before death. This is usually a disservice to the receipients. The reason is, the donee then takes over the donor’s basis for the property. That means you would take over your late mother’s low cost basis if she had given you the house before she passed on.
Incidentally, your circumstances are an excellent example of why everyone should have a living trust rather than to pass on their estate via a will, as your mother did. If your mother had placed her major assets, such as her house, in a living trust, there would have been no probate costs or delays. Ask an attorney who specializes in living trusts for further details.
Q-My home has become outdated in the 23 years I’ve lived here. But I don’t have the money to fix it up other than to have it painted before selling. A friend says to sell it “as is” and save the cost of painting. What do you advise?
A-I’m certain your friend means well, but a coat of paint, inside and outside, will do wonders. Paint is the most profitable improvement you can make to a home. Unless your home is in horrible condition and needs extensive repairs, avoid an “as is” sale because it discourages buyers.
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Robert Bruss’ report, “Three Ways to Earn Big Profits from Foreclosures in Today’s Realty Market,” is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Suite 1408, Chicago, Ill. 60611. Allow eight weeks for delivery.
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. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
