Q–About a month ago, I read that new home sales were down. Then I read in another article that Realtors said home sales were up. Now I hear on the radio that new home construction is expected to drop next year. Home mortgage interest rates are down. I would think that should increase home sales, since the economy is doing well. I hear home sale prices are generally going up.
Who’s right? Are there any reliable home sales statistics?
A–I share your frustration trying to make sense out of the conflicting home sales statistics coming from different sources. Each group has its own method of computing sales and price statistics. Often they conflict with each other.
If you are interested in local home sales volume and price trends, the statistics supplied by the local association of Realtors and the local building association groups are usually the most reliable.
However, their information often is not complete. For example, “for sale by owner” home sales do not go through the local Multiple Listing Service, so they are excluded from local sales volume and price trend reports. These do-it-yourself sales are as high as 20 percent of sales volume in some communities.
Another example: Home building permits taken out are not reflected in home sales until about six months later, when the home sells. In summary, don’t put much faith in home sales volume and price statistics. As for home mortgage interest rates and trends, the Fannie Mae and Freddie Mac reports are the most reliable.
Q–My wife and I are talking about selling our large home, which we own free and clear. As I recently took early retirement and we are well-off financially, we would like to be free to travel and we don’t want to worry about our house while we’re away. We’re talking about selling and renting a luxury apartment. We should net around $250,000.
However, we’re worried about taxes if “President Bill” doesn’t come through with his promised tax relief for home sellers. We don’t want to buy another house or condo. If you were in our situation, would you wait to sell?
A–Under current tax law — presuming you or your wife are 55 or older, have owned and lived in your principal residence any three of the five years before its sale, and qualify for the “over 55 rule” — up to $125,000 of your home sale profit will be tax free. But your profit above that amount is taxable. Your tax adviser can give you full details.
Since it sounds like you don’t need the money from your home sale, my suggestion is to sell for a 10 to 20 percent cash down payment and carry back the mortgage for your buyer. In today’s market, you can earn at least 8 percent interest.
More important, by making an installment sale, you will spread out any profit tax over the years of the mortgage.
An additional, major advantage of carrying back the mortgage for your buyer is that you’ll make a quick home sale for top dollar. Be sure your realty agent gets a credit report on your prospective buyer to minimize any collection problems. Even if you should have to foreclose, you can get your home back to sell again for a second profit.
Q–My wife and I want to build a home in the country, about 30 minutes outside of town. We found an ideal site with a Realtor’s for sale sign on it. With a 20 percent down payment, the seller will even carry the mortgage for 10 years. Our purchase is now ready to close. However, we are worried because the seller’s attorney has provided only a quit claim deed. My attorney says not to worry. Should I worry?
A–A quit claim deed conveys whatever title the grantor owns. It could be fee simple absolute title. That’s the best. Or, if the grantor doesn’t own the property, you receive no title. Also, a quit claim deed does not include any warranties or representations.
However, quit claim deeds are widely used, especially in divorce situations where neither ex-spouse wants any obligations.
Your best protection is to insist on receiving an owner’s title insurance policy. If the title insurer has checked the title and is willing to insure the quit claim deed without any exceptions, you are well protected. Since you are buying rural property, have a survey made and have that survey insured by the title insurer.
Q–My wife and I found a townhouse whose seller has agreed to a 24-month lease-option with a 50 percent rent credit. But what can we do to prevent our seller from recording a second mortgage? Should we record our option?
A–Congratulations on negotiating that excellent lease-option with a big 50 percent rent credit. Will you negotiate my lease-options for me?
If your seller will let you record either your option or a memorandum of it, that will effectively prevent a second mortgage lender from making a loan on the townhouse. However, most owners won’t let their tenants record their option. I won’t. The reason is, if you don’t exercise your option to buy, the recorded option is a cloud on the title.
You are well-protected without recording your option since you will be occupying the townhouse. Anyone lending or buying the property does so subject to your lease-option rights. Only if you were not going to live in the townhouse would I recommend you insist on recording your purchase option.
Why do you want to prevent the seller from obtaining a second mortgage? He still has an obligation to sell to you on the terms specified in the lease-option. Most lease-option buyers get a new first mortgage, so you needn’t worry about the seller’s financing.
Q–We saw a “for sale by owner” newspaper classified ad for a home being sold by an elderly man. It’s definitely a fixer-upper house, but the low price is a steal.
I had our lawyer prepare a very simple sales contract and the old man signed it. He insists on waiting until January to close the sale, and that’s all right with us. But we’re worried his visiting relatives during the holidays will talk him out of selling. We are also concerned he may not be mentally stable. How can we best protect ourselves?
A–Unless your seller has been declared mentally insane, he is capable of conveying title to you. However, after the sale, he or his conservator might try to undo the sale if he is later proven to be mentally incompetent.
If the seller fails to honor his sales contract with you, you can bring a specific performance lawsuit to force him to deliver the deed. Be sure to obtain an owner’s title insurance policy. That’s your best protection, in addition to having your attorney advise you.
Q–In 1972 I was talked into investing in undeveloped land near San Diego by a friend. Recently I called my friend and he told me he was “cashed out” several years ago. I requested confirmation the investment company still owns the land. They showed me a tax bill. When I sent my share of the property taxes, I got no answer.
What should I do?
A–If you invested in a real estate limited partnership, you should be receiving annual partnership tax returns for filing with your income tax return. If you are a stockholder in a corporation, you should be receiving an annual report.
If you are a tenant in common co-owner, you should insist on an annual statement from whomever is managing the property. If necessary, a real estate attorney can investigate the situation for you.
PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
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Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
