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Ask Realty Times - February 6, 2004
by Peter G. Miller
Question: I'm a first-time home buyer earning approximately $100,000 in the NYC region. Although the interest rates are low, prices have escalated so quickly that I'm concerned I don't have quite enough to cover the cost of a home. I'm only seeking a two or three bedroom townhome in Staten Island, yet prices often exceed $350,000. Given all the hype around foreclosures, are they worth pursuing? Answer: As with anything else in business -- and that's what foreclosure are -- there's enormous competition to get the best deals. Despite what may be said among instant-wealth gurus, foreclosures are not a quick and sure way to either riches or habitable real estate. To start, the first loan holder will typically bid at least enough to repay the first loan and related fees. Foreclosures wipe out all old debt associated with the property, so those with second and third liens against the property must also bid if they do not want to lose the value of their loans. In effect, at least one bidder besides you is likely to be interested in the property and the price is likely to equal or exceed the existing loan amount. As well, foreclosures are sold in "as is" condition and that condition may be costly to repair. The owners may not want to leave, meaning they will have to be evicted. However, if you can get a home at a bargain price and are willing to do the necessary repairs, then there may be attractive foreclosures out there. Before going further, attend local foreclosure auctions. Get to know the players and the rules. Follow foreclosure sales -- see what happens after homes are sold. Before bidding, hire local brokers and attorneys to protect your interests. A list of foreclosure resources can be found at http://www.ourbroker.com/zfore.htm. Question: We retired and moved to another city. We kept our house and rented it for the last four years. Last month we sold the house for more than we paid for it. Since we have never claimed capital gains on any house that we have ever sold, must we a pay capitol gains tax on this sale? Answer: In general terms, Uncle Sam says that when you sell a principal residence you have owned and occupied for two of the past five years you do not need to pay taxes on as much as $500,000 (if married) or $250,000 (if single). In this case you rented the property for four years, meaning you could not have lived there two of the past five years. Given the passage of time you have likely lost the ability to shelter profits from the sale of a principal residence. See IRS Publication 524 for general information and consult with a tax professional for specifics -- a CPA, tax attorney or enrolled agent. Question: I live in the Reno/Tahoe area and have been thinking of getting my real estate license. What are the pros and cons? Answer: Just having a license means you have at least passed the course required to take the real estate sales test. That course includes a lot of good information for anyone with an interest in real estate, especially those who want to buy a first home. No less important, if you pass the state test you then have a new or additional career option. Are there cons? As one who favors more education because it leads to more options and opportunities, the only reason not to take a basic real estate class is because your time is better spent doing other things. Question: I recently purchased a home out of state through a local agent where the property is located. After living in the new home for several months we are now finding that we have severe water drainage problems with rain flooding around the foundation and coming into the basement. Answer: Is it possible that these water problems somehow arose after your occupancy? Think of a down spout that turned and now directs water toward the home. If this was an existing problem, would you have seen evidence of substantial damage the moment you moved into the home? Say damp areas, discolored floors and walls, or mold? As a first step, speak with your broker. Question: I am looking for some help in wording an amendment to our purchase contract. The original agreement was contingent upon home inspection. The home inspector found water leaking around the blower motor in the furnace. The water was leaking onto the wires and into the lower furnace. He also stated the furnace was 12 - 13 years old and at the end of its design life. The sellers have been great to work with, but I want to make sure we word the amendment correctly to cover ourselves. What we would like is to have the furnace replaced. Since there was evidence the water has been leaking for quite some time, I am expecting there to be more damage to the furnace. We are calling in a heating contractor. How can we word the amendment to reflect we would like a new furnace without offending the sellers? I am expecting (hoping) the heating contractor recommends the furnace be replaced also considering the age and the water problem. Answer: Furnaces often show water damage because water can get into the chimney. Is there a properly-positioned and maintained chimney cap to keep out the elements? Does the heating system work? Is there a carbon monoxide problem? The life of a central heating system may be debatable. The Department of Energy says "it is important to remember that heating systems are only replaced about every 20 years, so you will have to live with your decision for some time." The Federal Energy Management Program assumes in its projections that a gas furnace will last 20 years while Better Homes & Gardens Television says of central heating systems that "a new one should last 20 to 25 years." Of course -- as the expression goes -- your mileage may differ. Many sellers will not accept a recommendation from a heating contractor to replace the furnace. Sellers might feel that a negative report by the contractor could produce work for him or her -- an obvious conflict. Instead, owners would most-likely argue for a check by an independent party such as a home inspector acceptable to both buyer and seller. What does your inspection clause actually say? Does it only give you a right to an inspection? Or does it say if the inspection is not "satisfactory" to you that you have a right to withdraw from the agreement without penalty? Does it obligate the seller to make repairs? Is there a dollar limit to that obligation? Depending on the wording you may have the right to demand a new furnace -- or no repair rights at all.
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