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Ask Realty Times - August 20, 2004
by Peter G. Miller
Question: What is the best way to measure appreciation in local homes? Answer: Once you know which properties you want to check you must then ask some questions: What is to be measured? One approach is to look at increase in average sale prices from one period to another. Do you want to consider inflation? Dollars don't buy as much as they used to. Alternatively, value increases above the rate of inflation can be seen as increases in buying power and real wealth. The Bureau of Labor Statistics has an inflation calculator to correct prices from 1913 through 2004. Do sale prices count? A better measure is to consider what people paid in cash to acquire the property versus appreciation -- monthly payments, taxes and such can then be seen as a kind of economic rent. How much of that appreciation does the owner net? There are costs to acquire and costs to sell. Also, there may have been capital improvements during the owner's term of possession.Question: A local home is for sale at a price which we think is about $75,000 below the market. The agents said they would collect offers until yesterday, then they would send counter offers to all the top original bidders. The remaining bidders would then have exactly one round to put their best foot forward, but blindly. We like the home, but how do we avoid over-bidding? Answer: However the home is sold, it has only so much value to you. Put forward the bid which makes the most sense in terms of the local market, your finances and your preferences. Bid no more. To bid properly you need to have a good knowledge of the local market, especially recent sales of like, nearby properties. As well, you need to think about terms and contingencies -- although in a hot market it may not be possible to require contingencies. A buyer broker can assist you in this process. Question: What is a LIBOR mortgage? Answer: There are fixed-rate loans and adjustable-rate mortgages (ARMs). The rate for an ARM can move up and down, according to an index. There are many types of indexes, and one of those is the LIBOR, the London interbank offering rate. You can check LIBOR rates by pressing here. In addition to the index, you need to consider such issues as the margin (the fixed amount that when added to the index gives you the full interest rate), whether the index tends to change quickly or slowly, the specific terms associated with the loan: does it have a prepayment penalty, how much can the rate go up, how much can the monthly payment rise with each change, is negative interest allowed, etc. Question: Are you allowed to use a broker when you buy from a new-home builder? Answer: Yes. A new-home builder is simply a seller. Sellers have no right to prevent your use of professional services. Some builders are pleased to have buyer brokers involved in the sale (because there is a sale) while others greatly prefer that purchasers not have independent representation. You need to look at builder attitudes and at the costs involved to see how the broker you hire will be paid. In addition to a real estate broker, it's also a good idea to use a home inspector in conjunction with your purchase and to check loan rates with several lenders. Question: We believe the owners did not provide us with an accurate seller disclosure form. What action can we take? Answer: You could sit down with an attorney. However, you might also want to look at the form itself: Some are broadly written and vague, many have language which says the form has been completed to the best of the seller's knowledge -- not much incentive for a seller to carefully investigate the property. Moreover, many sellers honestly complete such forms but know little about construction. Given the nature of seller disclosure forms, it's best to have a home inspection satisfactory to you as a condition of the purchase. Question: I had an appraisal done on my property to prove I have more than 20 percent equity. However, even with my equity the lender will not end the requirement to carry private mortgage insurance (MI). Can they do that? Answer: For most loans issued after July 29, 1999, but not all, MI must be canceled once the original loan balance is reduced 22 percent. Borrowers, however, can request an end to MI once the loan balance has fallen 20 percent. The key is reducing the loan balance, not increasing equity. More information is available at PrivateMI.com. Question: We are about to move and have folders and files from past real estate settlements. How long should we keep these papers? Answer: Many people have a situation where they have owned a string of residences over many years. For tax and estate purposes it's important to keep the closing paperwork so you can calculate what taxes, if any, are owed. It's probable that you won't need to pay any taxes, however you may need to prove that no taxes are owed -- thus the reason to hang onto settlement papers. If you have not already done so, sit down with an attorney who specializes in elder law and obtain a will, living will and such other paperwork as may be required. Also, speak with a tax professional.
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. | 
