Q — My wife and I, ages 72 and 68, have decided to sell our home and move to a lifecare retirement home. We have enough money for the entrance charges, but the monthly $3,200 fees will take 70 percent of our income from Social Security, pension and stock dividends.
Our daughter, a CPA, suggests we sell our home for a 20 percent down payment and carry back a mortgage at 8 percent interest. This would greatly ease our income situation. But we’re worried the buyer might not make the monthly mortgage payments to us. Would this be dangerous for us?
A–Your smart daughter gave you excellent advice. If your buyer defaults, you can foreclose and either be paid off at the foreclosure sale or regain the house to resell for a second profit. However, don’t get your foreclosure hopes up, because homeowners rarely default.
That 8 percent return is an excellent investment for you. It will be well-secured by your former residence. Seller carryback mortgage financing is a superb way for retirees to increase their retirement income and quickly sell their home for top dollar.
Q–There is a vacant lot down the street from our home. The out-of-town owner offered to sell it to me for $40,000.
Real estate friends are giving me conflicting advice as to whether that’s a good buy. If I buy the lot and build a home on it, is there a rule of thumb about the ratio of lot value to home value? Houses in our neighborhood sell for around $225,000.
A–A rough rule of thumb is the land should cost 20 to 25 percent of the total market value of the home. Using this guideline, if homes in your neighborhood sell for around $225,000, buying that lot for $40,000 means it would cost 18 percent.
So far, it looks like a good deal. Your next step is to get estimates to learn what it will cost to build a comparable home which, including the land, will be worth around $225,000. I suggest you don’t tell the contractor the lot location because he might try to buy it and deprive you of the profit opportunity.
Q–We own a two-bedroom house that our family has outgrown. We’ve been looking at three- and four-bedroom homes in the suburbs where the schools are better for our two kids.
Should we buy the new home first or sell our old home first?
A–Sell your old home before buying a replacement home. Then you won’t be under pressure to sell quickly for a below-market price.
A possible exception occurs if the seller of the home you want to buy will accept a contingency sale. That means you make your home purchase contingent on the sale of your old home.
Q–As a long-time real estate broker, I often receive phone calls from appraisers after one of my sales has closed. In a cooperative spirit, I used to answer their questions, because we need each other.
However, I’ve learned such cooperation is not a two-way street. I no longer assist or even return appraiser’s phone calls. My experience is that it has become too difficult, often impossible, to obtain a copy of the appraisal for which I, or my client, has paid. The rule seems to be that the lender owns the appraisal even though the borrower paid for it, and appraisers won’t even furnish a copy to the borrower. For example, on my sale that closed last August, I paid the appraisal fee but have not yet received my often-requested copy of the appraisal.
Another bad appraisal rule is that the appraisal for lender A can’t be used by lender B without the consent of lender A. Why is the appraisal industry so uncooperative?
A–For years, many people, including me, felt appraisers should be licensed. In 1986, appraisers started to become licensed by the states. In 1991 the federal government required licensed appraisers for most appraisals. But licensing has not corrected the appraisal abuses. In my opinion, it’s made matters worse.
Unfortunately, federal law created the Appraisal Foundation in Washington, D.C. which dictates appraisal rules. A better name would be the “Appraisers Protective Society” because the foolish rules you mention come from this in-bred appraiser-controlled group.
Blame the Appraisal Foundation for deciding the “client” is the lender, rather than the borrower who, one way or anothery, pays for the appraisal. A borrower who pays for the appraisal is supposed to get a copy, but appraisers say it is up to the lender to deliver it to the borrower.
I don’t blame you for no longer cooperating with appraisers. They need sale details from real estate brokers like you, but they refuse to share their appraisals with borrowers and others with a need to know.
I’m probably putting my life at risk running your letter. Now I’ll receive nasty letters and threatening phone calls from appraisers eager to defend their industry. For example, The Appraisal Institute once published my home phone in its newsletter. I received a few calls from appraisers, but they were all very favorable toward my remarks criticizing the appraisal industry for its terrible attitude toward borrowers and realty agents.
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PLEASE NOTE: Real estate law varies from place to place. Be sure to check the laws of your state, county and municipality before making decisions on real estate matters.
Write to Robert Bruss at 251 Park Road, Burlingame, Calif. 94010.
