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Ask Realty Times - August 27, 2004
by Peter G. Miller
Question: I am in the final stage of purchasing property. As a part of my purchase agreement, I inserted a contingency that the appraised value of the home must meet or exceed the selling price. The appraisal came in $14,000 less than the selling price, giving me the right to re-negotiate or to rescind the purchase agreement. At this point, I allowed the seller to obtain a second appraisal of the property. The second appraisal came in at almost exactly the asking price. This $15,000 difference in appraisal on this property has me both concerned and confused. How do I determine which appraisal is correct? Answer: You had an appraisal contingency in your purchase offer. It allowed you to back-out of the transaction in the event of a low appraisal. There was a low appraisal. Now the question is this: If you could buy the property how much would you pay? Either the seller will accept your revised offer or not. Be aware that the lender will only finance the transaction on the basis of the sale price or the appraisal, whichever is lower. As to the two appraisals, you only needed one as required by your offer. The second valuation has muddled the issues. Question: I am in the process of remodeling my home (Cape Cod, story-and-a-half) by putting a bathroom in upstairs (there is a full bath on the first floor). The remodeling company is telling me that I need to put in a shower/tub unit in the bathroom and not just a shower stall if I plan on listing the home as having two "full" baths. Not having a tub in the second (although it will have a shower) would only allow the home to be listed as a one full and one half-bath. Is this right? Answer: Generally, a "full bathroom" is something with a toilet, sink and bathtub. A "three-quarters" bathroom has a toilet, sink and shower stall. A "half bath" has a toilet and a sink while a "quarter bath" has just a toilet. However, it's possible for such definitions to vary. In my area, as an example, the term "three-quarters" bathroom is rarely used. A room with a toilet, sink and shower is routinely described as a "full bath." Definitions may also vary depending on whether the term is being used for an appraisal or sales brochure. Before going further, call several local real estate brokers and ask what's necessary to have a "full" bath for listing and marketing purposes in your community. Question: I am in the process of searching for a home. The whole process is new for me as a first-time buyer. I take full advantage of websites like yours and appreciate the information very much. I've recently qualified for a loan at a rate of 7.99 percent. I was told by the lender that she took the lowest credit score from the three reporting agencies and based my rate on that score. I did request my score (pre-application) and it was 715. Is this a good rate? What is the current rate? Will there be a charge from the lender if I decide to go with another company? Answer: At this time conventional, 30-year, fixed-rate financing is available at 5.81 percent with .7 points according to Freddie Mac. A credit score of 715 is excellent and should entitle you to a good rate, assuming all other aspects of your loan application are within the usual bounds. Your next step should be to speak with other lenders to see if better rates and terms are available. You may not get 5.81 percent exactly because rates constantly change, but given your credit score it would not be surprising if you did substantially better than 7.99 percent. As to any fee from the first lender, there may be a charge for obtaining a credit report and perhaps a loan application fee if you have actually applied for a loan. However, most lenders will discuss rates and terms at no cost prior to application. But, let's say the first lender has a fee and you will lose your money. It's the cost of being a newbie. It is far cheaper to get a better loan, if you can, than to worry about the lender's fee. For instance, if you borrow $100,000 at 7.99 percent your monthly cost for principal and interest over 30 years would be $733.07. At 6.25 percent the same loan would cost $615.72 monthly. That's a first-year saving of about $1,400 -- far more than the cost of a loan application and only part of what will be saved over the life of the loan. Question: My brother and I are on the title of my mother's house, she is not on the title anymore. We are both single and would like to know how much capital gains taxes we would have to pay if we sold the house. I have lived in the house for the past seven years. The house is valued at $540,000 and $50,000 is owed on the mortgage. Answer: This is far more complex than it seems. First, your mother was on the title. What happened to her interest? By any chance, is your interest in this property a gift? An inheritance? Second, the capital gains cost would depend on such issues are whether or not you are an owner-occupant (you live there but what about your brother?), the percentage interest you each hold, your acquisition cost, length of occupancy, the value of any capital improvements, the cost to sell, etc. Before going further, sit down with a tax professional (a CPA, enrolled agent or a tax attorney) and review questions such as those above. It's possible you may have no tax liability (if you have both lived there for two of the past five years and the property was worth at least $40,000 when acquired). or you could owe tens of thousands of dollars. Moreover, what you owe and what your brother owes may be different if you are not both owner-occupants. Question: I understand that HOA Boards help with the community bylaws and fees. Is a management company really necessary; can a community be self-governed? Answer: If within the homeowners association there are people with the skills and time to run the community then, no, professional management may not be necessary. However, as HOAs become larger it takes more time and skill to operate such residential governments. There's a huge difference between an HOA with five units and one with 25, 50 or a 100 units. If you opt for the do-it-yourself approach, at least have professional advisers such as an outside attorney, tax pro, real estate broker and insurance broker to provide assistance. Question: How can I know if a lending company is predatory? I will be a first-time home buyer this year and I don't know who or what to trust. These people have my personal information. I am scared. Answer: In rough terms, about 7 million new and existing homes will be bought this year. Of this number, about 40 percent will be purchased by first-time buyers -- that's about 2.8 million people. These numbers tell you that being a first-time homebuyer is an entirely common experience. Others have done it and so can you. Speak with people you trust who have bought in the recent past and ask for their recommendations. Check with community groups and see if your employer or co-workers can make suggestions. If you're in the military, check with the base housing office. Question: My condo board wants to pass a restriction so that unit owners would no longer be allowed to rent their own units. The board also wants to require a minimum of 15 percent down payment for new buyers. They believe these restrictions would increase the value of the property. Are they on the right track? Answer: Half and half. It makes sense for a condo to restrict rentals so that all units are not regarded as "investment" properties by lenders. As investment real estate, more cash and tougher restrictions would be required for buyers, standards that limit sales and hold down prices. As to requiring 15 percent down, that seems far outside the scope of a condo association. With a condo, units are owned and financed by individual owners. Unlike a co-op which actually owns the property, a condo board has no right to review individual purchasers. If you have a ready, willing and able buyer and a condo owner who wants to sell, everyone should be happy. If someone wants to buy with 3 percent, 5 percent or 10 percent down and a lender will finance the transaction then why not? Requiring 15 percent down -- if it can be done -- merely limits the pool of potential buyers, a sure way to stall prices and make properties harder to sell. | 
