Q–We want to refinance our home to take advantage of the current low interest rates. Our present mortgage lender approved us for the mortgage we want, but the appraiser hired by the lender appraised our house very low.
When we protested, the mortgage company in essence said, “Take it or leave it.” They refuse to give us a copy of the appraisal. The result is that we would have to reduce the mortgage amount we need, and that won’t give us enough funds to remodel our kitchen.
To make matters worse, the mortgage company won’t refund our $350 loan application fee. We called the Realtor who sold us our home about four years ago, and she gave us detailed computer printout information on recent neighborhood home sales to justify our opinion that our home has appreciated in market value. But the appraiser refuses to revise her appraisal upward. What should we do?
A–You have just discovered the weakest link in the multibillion-dollar home mortgage business–the appraisal.
Ask again for a copy of your appraisal. When a lender refuses to give you an appraisal copy, you know they’re hiding something. The best lenders eagerly give borrowers an appraisal copy. Legally, the borrower is entitled to a copy only if the borrower paid for the appraisal.
I had a similar experience about a year ago, when my refinanced mortgage was approved by the lender, who then sent an out-of-area appraiser, who low-balled the appraisal. The mortgage company refused to request a review appraisal or a reappraisal.
Looking back, I’m glad I didn’t refinance because interest rates plummeted since then.
But before you give up on the lender who approved the mortgage you want, make a few phone calls to talk with an executive at the firm. Ask to speak to the lender’s president. You probably won’t get him, but you will get an assistant who might take an interest in your refinance.
If the lender remains unreasonable, go to another mortgage lender. There is plenty of cheap mortgage money available. Thankfully, all lenders are not the same. After you get a mortgage from another lender, ask the first lender for a refund of your $350 application fee since the lender chose an incompetent appraiser.
If necessary, don’t hesitate to take that lender to Small Claims Court for a refund.
Q–You often recommend home sellers interview at least three realty agents before selecting the best one to list the home for sale. I agree that this is excellent advice. But in our area there are many Coldwell Banker offices. We know several C-B agents with different offices whom we’re considering for our listing. Do you think we should interview two or three different C-B agents or should we select the three agents from different firms?.
A–When choosing a realty agent to list your home for sale, you are selecting the best individual agent, not the firm. Forget the famous name on the brokerage door. It’s very important the agents you interview work for successful brokerages, but each individual agent’s success record is far more important than the well-advertised name on the firm’s door.
Interview three successful agents who work at different brokerages. The reason: Each firm’s marketing procedures are different. Home sellers need to compare different firms’ sales methods.
Q–Several weeks ago, you ran a letter from a low-paid real estate office secretary who wanted to get into realty sales but needed a steady income. You recommended she get her real estate license and get into renting apartments and houses so she can receive almost-instant commission income. That was good advice, but there’s another alternative.
About four years ago, I got into property management, primarily because I needed a steady paycheck. I went to work for a large management firm. I found I loved the work managing buildings. Gradually, I got into leasing commercial and office space. The high commissions were far better than I’d ever dreamed.
When I first started out, I took anything that walked in the door. I often spent days showing clients properties and they didn’t lease anything. But I quickly learned to seek the listings on big spaces for lease. The commissions are excellent, far more than I could earn renting apartments and houses.
A–Thanks for the excellent suggestion. Managing and leasing commercial property is indeed another great way to get started in real estate.
I recall learning that when I was selling real estate at Grubb and Ellis Co. Realtors, in San Francisco. The award for top salesman of the year was won by a young man who made only one transaction that year. But it was a multimillion-dollar, long-term lease that would pay him a commission for 10 years. That’s how I learned about the huge commercial leasing commissions.
Q–My home is listed for sale with a fine Realtor. Another agent brought us a purchase offer, which contained a clause that we must buy the buyer a one-year home warranty policy. Our listing agent says it will cost us about $375. Since the offer price was pretty good, we accepted the offer. But now we’re wondering if we can get out of paying that $375. Is a one-year home warranty good or bad for the seller?
A–A one-year home warranty policy is good for the seller, buyer and realty agent. It pays for repairs to the home’s plumbing, wiring, furnace, water heater and built-in appliances that are needed within 12 months of the sale. It doesn’t include problems with the roof, plumbing outside the house perimeter, pool, foundation, and air conditioning, unless an additional premium is paid.
Paying $375 for that policy is a wise expenditure to help get your home sold. Also, it relieves you and the agents of the possibility of troublesome calls if something goes wrong with a home component shortly after the sale.
Q–We are selling our home and carrying back the mortgage for our buyer. In our area it is customary for the buyer to pay for title insurance. Our realty agent says we should insist the buyer provide title insurance for us. Is this really necessary? I hate to add to the buyer’s closing costs.
A–Yes, you need a mortgage lender’s title insurance policy. All the institutional mortgage lenders insist on title insurance. You should, too. It protects you in the remote chance an insured title risk causes a loss of the property.
Q–We contracted to buy a house, but a week later, my husband got an unexpected out-of-town job offer. The seller refuses to cancel our purchase unless we forfeit our $5,000 deposit, which we don’t want to do. My husband’s new employer won’t pay the $5,000. I asked the seller if we could “sell” our purchase contract, but she doesn’t like the idea. Can she stop us from doing so?
A–Unless prohibited by its terms, or unless there is a personal service element of the contract (such as the seller carrying back a mortgage for you), the contract is assignable. Ask a local real estate attorney to review the contract to further advise if it can be assigned without the home seller’s approval.
Q–We are in the process of refinancing our home mortgage. Due to financial reverses, our credit is not the best, but a mortgage broker says she can get us an adjustable rate mortgage. However, she recommends we take one that’s tied to the LIBOR index. Is this a safe index?
A–No. The LIBOR (London Interbank Offering Rate) index is based on European cost of funds and has nothing to do with the U.S. monetary situation. It favors lenders, not borrowers. A far safer choice is the very popular 11th District Cost of Funds index, which moves extremely slowly up or down. It is based on interest rates paid to savers in the Western states. Stay away from indexes such those based on Treasury bills, Certificates of Deposit and other volatile criteria.
Q– We have enough cash to pay off our mortgage of about $87,000. It has a 7.85 percent interest rate. How much of a discount should we expect for an early loan payoff?
A–Zero. Zip. Nada. Mortgage lenders haven’t offered discounts for early payoffs since the early 1980s. When you pay off your mortgage, the lender will be lucky to re-lend that money to earn 7.5 percent interest. Be sure to read the mortgage’s fine print to be certain your loan doesn’t contain a prepayment penalty.
Q–I am a new real estate agent. I’ve sold three houses so far. Recently I attended a seminar about becoming a buyer’s agent. Do you think I can earn substantial sales commissions specializing in working only with buyers and forgetting about obtaining listings from sellers?
A–Some buyer’s agents are very successful. But most are not. Over the long term, concentrating on being a listing agent is usually the most profitable, because they control the inventory of homes for sale. Whether the listing agent or a buyer’s agent obtains the buyer, the listing agent earns at least part of the sales commission.
If you work with home buyers for a long period of time, you’ll soon learn there are many non-serious buyers (called “tire kickers”), who will waste your time and never buy a home from you. For this reason, I cannot recommend you specialize exclusively on working as a buyer’s agent if you expect to prosper over the long term. It’s best to concentrate on being a listing agent, but occasionally working with serious buyers.
Q–I know you advise getting the biggest available mortgage and making the smallest possible down payment when buying a home. That’s smart for young home buyers who have a lifetime to pay off their mortgage. But what about us senior citizens? I’m 60, a widower, and plan to buy a “villa” in a retirement community. Most of my money earns the one-year T-bill rate of around 6 percent. I will have to pay at least 7.5 percent if I get a fixed-rate mortgage. At my age, should I keep renting? Would it make sense to get a large mortgage if my cash earns so little interest?
A–One of the worst things that can happen to senior citizens is they become “house rich but cash poor.” That means their equity is tied up in their home and they don’t have liquid investments for emergencies.
If you have plenty of cash, it’s fine to spend it on a retirement home and skip the mortgage. But if paying cash for your retirement residence will leave you short of cash, please reconsider.
In just the last two years, a new alternative has become available for retirees with big home equities. If you pay cash for your retirement home, but later find you are short of cash, you can now obtain a reverse mortgage.
Q–I am a Realtor with an ethics question. About two months ago, I showed a townhouse to a young man and his girlfriend. They asked lots of questions and I spent considerable time finding out the answers from the condo homeowner’s association. But they didn’t make a purchase offer. Last month I learned the townhouse was shown by another Realtor to the same couple and they bought it through her. When I told her I first showed it to them, she said she wondered how they knew so much about the complex. Since I did so much work on this sale, don’t you think I should pursue a commission claim against this realty agent?
A–No. Forget it. Unless your local Association of Realtors is one of the very few that has a “first showing rule,” you are not legally or ethically entitled to any part of the sales commission. I’m presuming you were not the listing agent.
Since you weren’t able to get a purchase offer from the couple, you did not obtain a “ready, willing and able buyer.” That is the criteria for being entitled to a commission as the selling agent. Sorry.
Q–My wife and I hold title to our home in joint tenancy. I have cancer, but it is in remission. My wife is frail, but healthy. We are concerned that if anything happens to both of us, our relatives might try to grab the equity of about $250,000 in our house. A friend suggests adding our children, ages 12 and 14, to the title. Is this a good idea?
A–No. Minors can receive title to real property, but they cannot convey valid title. If you and your wife decide to sell the family home, in most states a guardian must be court-appointed to represent the children’s interests. This can be expensive and time-consuming.
A far better alternative is to deed title to your home into a living trust. You and your wife can specify in the living trust what happens to the house and your other major living trust assets such as stocks, bonds and bank accounts when you die.
The living trust can protect the children without tying up your home. It also avoids probate costs and delays. An attorney specializing in living trusts can arrange one for less than $1,000 unless your situation is very complicated.
Q–I own an 18-acre parcel that fronts on a state highway. Several years ago, some people inherited a landlocked parcel adjoining mine. It is mostly swamp. About six months ago, they talked to me about getting an access driveway over my land to the highway. I told them I don’t want that because it would split up my parcel into two sections separated by their driveway. Recently, they sued me for an “easement by necessity.” My lawyer says they have a good chance of winning. How can I be forced to give a stranger an easement over my land since they could get access over two other adjoining parcels?
A–The legal theory behind an easement by necessity is that all land needs access to a public road. If your neighbors can prove in court that at some time in the past, your land and their land had common ownership (other than government ownership), then they are entitled to an easement by necessity over your land to reach their landlocked parcel.
However, an easement by necessity is only available if the landlocked parcel has no other access to a public road. At some time in the past, so the theory goes, a common owner separated the two parcels but forgot to reserve access over the parcel (yours) with access to a road. It is immaterial that the landlocked owners could elect an easement by necessity over another parcel.
Q–I recently saw a newspaper ad by a real estate broker for a $39 course in “How To Buy a Home.” Among the topics listed is the best day of the month to close your home purchase. As we expect to close on the purchase of our first home next month, could you please tell me the best day to close?
A–For a home purchase, the best day to close the sale and take title is the last business day of the month. However, if that is a Monday, take title as of the previous Friday so you won’t have to pay mortgage interest over the weekend without having possession.
Home buyers should close at the end of the month because then they only have to pay a day or two of mortgage interest at the closing. However, if you close early in the month, you must pay all the mortgage interest until the end of the current month.
Since mortgage interest is collected in arrears, your first mortgage payment will be due on the first day after your first full month of ownership. If this seems confusing, ask your mortgage lender to explain further.
Q–I am being audited by the IRS. The auditor says I am not entitled to deduct the interest I pay on the mortgage on my mother’s house. Since I support my mother, and she would be on welfare if I didn’t, aren’t I entitled to deduct the interest I pay on her home loan?
A–No. Only property owners who are obligated to make the mortgage payments can deduct mortgage interest and property taxes. That means you must be on the title to your mother’s house.
If she adds you to the home’s title, then you can deduct the interest you pay on its mortgage (plus the property taxes you pay). Your tax adviser has complete details.
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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.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
