Ask Realty Times

How can I sell in a saturated market?

Question: I'm a real estate broker. My customer just purchased a ground floor condo by the beach. After escrow closed the adjacent unit had plumbing problems that caused my customer's toilet to back up.

The HOA determined that it was the fault of the adjacent unit. The owner there does not have insurance and has ignored the claim for reimbursement. Meanwhile, the room adjacent to the problem unit has mold on the wall and cannot be advertised for rent in that condition. The HOA is not taking responsibility. What are my customer's rights on this?

Answer: Go back to the part about the adjacent owner not having insurance. That's not your customer's problem and it does not reduce such responsibility as the neighbor may have, it simply says the neighbor will need to dig into his own pocket to pay any judgments.

Your customer may have a substantial claim -- loss of rental income, clean-up costs, etc. Why not tell the neighbor that the matter will go to court if the dispute cannot be immediately resolved? The view of the HOA will be an important plus for your customer. A local attorney can write an appropriate demand letter.

Question: I'm a student at American Intercontinental University. Currently, I am studying Economics in a Global Environment. Can you explain to me why housing prices vary from city to city?

Answer: Yes. Housing values vary extensively on a city-by-city basis because supply and demand, land costs, construction expenses, taxes, population growth, incomes, weather, local industry, infra-structure and other factors all differ.

In the U.S., most people prefer to live in major metro areas, especially along the coasts and in warmer climates. Demand for space in such areas means that property is more expensive than an equal amount of space in the middle of a northern wheat field. Alternatively, there seems to be a renewed interest in rural areas and the pace of life they represent.

Question: I'm hearing that I can write off the minimum payment and the deferred interest on a negative amortization ARN at the end of the year. Is this true?

Answer: Will your lender send you a Mortgage Interest Statement, Form 1098 at the end of the year? If the lender does not report negative amortization on this form then it must be something other than deductible interest.

As the IRS explains, "Generally, home mortgage interest is any interest you pay on a loan secured by your home." The catch is that with negative amortization no interest is actually paid, it's just an addition to principal.

For details, check any Form 1098 sent by your lender, use tax preparation software such as that available from Turbo Tax and see a tax professional as required.

Question: We've recently purchased a new home that's scheduled to be completed sometime end of July or mid-August. We have not selected a lender yet. The way interest rates are rising, should we select a lender now and pay the extra fee to lock in a rate? Or should we wait it out and select one 30 days before the completion of the house.

Answer: Let's say that you lock a rate today and interest levels rise -- you're ahead. Or, let's say that you lock today and rates decline -- you could then get another loan but you would lose the lock-in fee.

That may be a cheap cost compared to years of higher mortgage payments.

In today's rate environment, locking is a good defensive approach to fixed-rate financing.

However, you need to be careful since you do not know when the property will actually be completed. For instance, if you lock through mid-August and the property does not settle until September 1st, you could lose both the locked-in rate and the lock-fee. Thus it would be a good idea to get a longer lock-in or, if possible, a lock-in tied to the actual closing of the property rather than a particular date.

Question: My husband and I are in the process of buying a home. It was in pre-foreclosure or "short sale." The house originally sold for $261,000 two years ago. We're buying the house for $228,000. It's a nice home only two years old. The homes that are for sale in the neighborhood are going for around $279,000 for four bedrooms and ours is a five bedroom. I was surprised at the appraisal it came in at exactly $228,000. Should I be bothered by this? Is this wrong or is the appraiser being overly cautious because the market is "cooling off" a little? The house is in perfect condition.

Answer: Are you buying this property from the lender, the borrower or a third party? What form of title are you getting? Is the transaction contingent on a home inspection satisfactory to you? Have your attorney examine such issues before going forward.

The property is worth what an informed buyer is willing to pay and an informed seller is willing to accept. The appraisal reflects the reality that the home did not sell for $261,000 or $279,000 -- it sold for $228,000. Until a buyer is willing to pay more, that's all the property is worth.

Question: I have a few questions for school: How much is the average starting salary for a real estate broker with and without benefits and bonuses (if any)? What are the benefits and bonuses?

Answer: There is no average starting salary. Real estate is a performance-based service. Earnings reflect production -- the more you produce, the more you earn. A typical broker in 2004, according to statistics from the National Association of Realtors, had a gross personal income of $52,800 while a salesperson was likely to earn $37,600. Interestingly, gross incomes were higher in 2002 -- $65,300 for brokers and $39,300 for salespeople.

Individuals in real estate typically obtain health insurance and other benefits from their own funds, though they may have access to group plans.

Question: We bought our first house about 20 months back. The seller had advertised the square footage as 1,960 sq. ft. While going through the closing documents recently, I saw the appraisal which only listed 1,850 sq. ft. I agree that we should have looked at it before, but those were stressful times, trying to close on a house after looking for six months in an environment of multiple bids. Do we have any recourse now?

Answer: You may not have any problem at all. There are different ways to measure square footage and, interestingly, there is no official, standard approach.

The American National Standards Institute (ANSI), under Protocol Z765-2003, provides one way to calculate square footage. However, the standard is voluntary.

You might want to ask the sellers or their broker how they calculated the square footage.

Question: A home with extensive repairs was recently placed under contract. The home inspection was fine but the title examination showed there had been a fire at the property a year earlier.

The listing broker says it was unnecessary to disclose the fire because all repairs had been made. We think it should have been disclosed. Would the sellers owe a brokerage commission if the buyers back-out of the contract?

Answer: Determining what has to be disclosed likely depends on state rules and court decisions. As well, there are some complexities here: a minor fire may not require disclosure, but then who is to say what is or is not "minor."

But why have a debate? The better course is to disclose the fire -- that way the buyers would have had a better basis to make a decision, pro or con, and the matter of a brokerage fee would not be uncertain.

Also, if the sale is contingent on condition satisfactory to the buyer and the buyer doesn't like the place, then there will be no fee to anyone if the buyer backs out. In other words, there may be other aspects of the agreement which impact the question of whether a commission has been earned. Have an attorney review the documents for specifics.

Question: I want to sell my house, but there are three other houses on my block just like it. In fact the entire area is saturated with properties for sale. What can I do to give my property an edge?

Answer: If you have the same house you cannot have the same deal. You can reduce the price, offer a "seller contribution" to lower buyer costs at closing (buy now, no cash to close) or you can increase the commission paid to local brokers. Speak with your broker to see what might work best in your neighborhood.

Have a real estate question? Send your inquiry to Ask Realty Times. Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here. For past columns in this series, please press Ask Realty Times.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.
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