Ask George & Chuck: Questions from Consumers February 27, 2007 by George Stephens & Chuck Jacobus
Question (CA): My husband and I are first time home buyers in Southern California. Given the market conditions in that state, we know that we will be paying anywhere between $800K to over $1M for a home that on average is 2,000 square feet. What are our best financing options? We have over $200K to put down and we both have excellent credit scores. Should we do a 7 or 10 year interest-only loan and refinance later? Or should we consider bringing down the interest rate by paying for points? What do you suggest? Answer: The first step we recommend is to have a professional financial consultant analyze your entire financial picture. By all means tell him or her about your goals, both financial and quality of life. Then after you have provided this consultant with all the pertinent facts regarding your complete financial data, you are in a much better position to make an informed decision regarding which is better, an interest only loan or one of the other alternatives you outlined in your email to us. The basic problem, as we see it, is that an interest-only loan makes it darn-near impossible to sell the home in the event you need to if the bottom falls out of the market. The inherent danger of interest-only mortgages is that there is no build up of mortgage reduction, only an equity appreciation if there is any. This cuts the potential advantages of home ownership in half when there is little or no equity appreciation! "Postulate the events that you choose but be prepared for the occurrence of the opposite" is a workable approach, in our opinion. The basic reason why first-time homebuyers look at interest-only loans is to be able to qualify for "more home" for the purchase price. There is an old adage among experienced real estate professionals throughout this country pertaining to residential real estate purchases: "Never buy the most expensive home in a subdivision. Allow yourself to be in the position of buying cheap and selling dear." Question (KY): I signed a contingency offer to purchase a home in March 2006. The owners of the home signed several 30 day extensions while we were waiting for my existing home to sell and they had no other offers. We used the same listing agent. In October 2006 the sellers took their home off the market, but my listing did not expire until the end of December 2006. When my listing expired, I asked our agent to refund the $1000 deposit that I put down when I made the contingency offer. It is now the middle of February 2007, but I have not received my deposit. I have called the agent four times over the past month. Each time she promises to refund the money but I have still not received anything. How do I handle this? I think I am entitled to interest dating back from November, since that money should have been returned as soon as the sellers of the other house took the house off of the market! Please provide me some guidance. Answer: We assume that the real estate agent is aware of the Kentucky Statute KRS 324.111(4), which provides that money can only be removed from a broker's escrow account and held in trust for the protection of both parties upon performance on the contract, a mutual release signed by both parties, or a court order. Since the agent has committed to refund your deposit we must assume she deposited it into the broker's escrow account which is a normal and usual procedure in Kentucky. We must also assume that she has received a mutual release signed by you and the seller since the property never closed and neither party performed on the contract. Therefore, we suggest that you inform her you will file a complaint against her with the Kentucky Real Estate Commission unless she refunds the full amount of your deposit. As to interest, if you signed an agreement with your agent that calls for interest to be paid to you, then definitely do add interest at a reasonable rate. If the agreement states that no interest will be paid on your deposit, then it probably is going to be difficult to claim interest. If the agreement is silent regarding interest, or there was no agreement, then make your claim for the interest. FYI, 4 months interest on your $1,000 deposit (November 2006 – February 2007) even at 8.5 percent would be $28.33. Question (NC): I am considering purchasing a $600,000 newly built home on 1.5 acres in a small sub-division with about 7 similarly priced/sized homes. The location and features of this home are exceptional, but there is an established mobile home / trailer park community adjacent to this sub-division separated only by a line of evergreens. The home we are considering is not directly in sight of the mobile homes so there is no aesthetic impact, but we are nevertheless concerned about the effect on the value and resale potential of our home. Do we have a legitimate concern? Answer: We believe you do have a potentially legitimate concern depending upon the physical attributes of the property in which you're interested and the status of the real estate market in your area. For example: - Is the property in which you're interested in a gated community?
- The line of evergreens separating your community from the mobile-home / trailer park community could become non-existent. If that were to happen, would that impact your subdivision's market value?
- Do communities in your market area generally locate next to mobile home/trailer parks?
These are just a few of the potential legitimate concerns (and good for you for raising them!) that should be addressed. The best way to address them is to look at the home through a local Realtor's eyes. He or she has the training, expertise and experience -- or can obtain any or all three for you, to provide you with the very best advice regarding your purchase. Question (VA): Can I be sued if I cancel a ratified contract to purchase a home before the closing date. I understand that I might lose my deposit or earnest money but can the seller, agent, or Realtor take me to court because of a change in decision after a ratified contract. Answer: Those are questions you should ask a Virginia attorney you hire for that purpose. Generally, however, a person can be sued for any breach or other default of a contract, according to the provisions of that contract. The Virginia purchase contract form is a non-promulgated form. That is, the State of Virginia does not provide Real Estate Commission forms it requires regulants (real estate licensees) to use. Therefore, the actual purchase form used can take on a variety of terms and conditions as well as formats. However, the "typical" default provision for a Virginia Purchase Agreement for the purchase of real property, enables the non-defaulting party to bring legal action "... in addition to all other remedies available at law or in equity ... ." When you signed the contract you took on a duty of care to perform the obligations you took upon yourself, none of which involves changing your mind. Having said that, however, we don't believe you can be forced to close before the closing date or "Settlement Possession" date specified in the Purchase Agreement. | 
