Ask Realty Times - September 9, 2005 - 9/9/2005 - Home Remodeling Interior Decorating Design

Ask Realty Times - September 9, 2005

by Peter G. Miller

Answer: This is a situation which is awful for everyone.

In the usual case, a real estate agreement requires a seller to deliver a property to a buyer in substantially the same condition as it appeared when the contract was signed. In this case such a requirement is unlikely to be met, thus the agreement cannot be completed unless the seller is able to bring the property up to par by the end of the month.

In normal times you would want your deposit instantly returned and a release of liability. You could sue for "specific performance," an effort to make the sellers go through with the transaction.

But these are not normal times for the people of the Gulf Coast. In the context of a massive disaster, you will need to work with the sellers and their broker to get back your money. Hopefully they are safe and at least have insurance coverage but you can imagine how terrible things are for them. You can also imagine that paperwork is lost and banks are shuttered. Your goal should be to make things as easy as possible for the sellers.

Question: Two weeks before Hurricane Katrina, my wife and I entered into an agreement to buy a vacation home in the Gulf Coast area of Mississippi. The home is supposed to be completed in November.

The home survived the storm, while beach-front homes three blocks away were destroyed. Now we feel horrible to use precious local builder resources to finish a second home, with the thousands of primary residences destroyed -- we haven't decided what to do or talked to the builder. Emotions aside, we also worry about the long term real estate market implications. Is there any history for other markets in post-disaster events?

Answer: You raise a decent and moral concern, the use of local labor and materials to first bring shelter to those most in need.

You can be certain that your property will not be finished in November. Typical builder contracts allow for construction delays because of material and labor shortages. The probability is that many local workers have lost their homes and that it is now impossible to deliver building supplies. And while your property may have survived the storm it may also lack access to electric, gas, water and sewage services.

The best approach is to contact the builder and explain that you understand completion will be deferred given the impact of Katrina, it's not a problem and that more important matters must first be resolved.

As to future values, no one knows what will happen in any given market, much less one devastated by a natural disaster.

Communities damaged in the past by hurricanes in such places as Florida and the Carolinas have been re-built and values have been re-established. New construction can invigorate a local economy and also replace older and more vulnerable structures.

Each Gulf Coast community hit by Katrina will have a separate set of concerns. Contact the local mayor's office to see how you can help.

Question: I am currently living in the UK. I'm planning on buying an apartment in Atlanta in the next couple of months but I'm worried that the demand for houses in that area will dramatically increase as a result of hurricane Katrina. I am worrying unnecessarily?

Answer: There is an argument to be made that home prices and renovation costs will rise nationwide because of the need to get supplies and labor to the Gulf Coast area.

That said, while the demand for housing is clear, the ability to pay is not. Many people have lost homes, possessions and jobs. While insurance may help those with coverage, insurance is unlikely to cover all costs and it certainly offers nothing to those without flood policies.

To this point most evacuations have been west to Texas and north to other parts of Louisiana. Atlanta is roughly 475 miles northeast from New Orleans and thus outside the immediate flood and relocation area.

Still, it would be reasonable to expect Atlanta -- like many metro areas -- to take in a share of Katrina victims.

Please contact local Atlanta brokers for specific market trends.

Question: I have a condo on the Intracoastal Waterway in Florida that has been listed for five months. My listing has expired. The broker has held open houses, and advertised my property. Other condos in the building are priced lower and higher than mine, so my unit is definitely in the price where it should be. Should I re-list?

Answer: It sounds as though your broker has made a good effort to sell the property. That said, there are some questions to ask:

First, did the broker follow the marketing plan established when the property was listed?

Second, is there something the broker promised and did not do?

Third, about that pricing. The question is not whether other units generally sell for more or less, what about like units in similar condition? Also, has market demand changed since the property was first listed?

Fourth, is there some characteristic which makes your property unique, for better or for worse? How does it impact marketing?

Fifth, rather than change pricing, why not change the deal -- offer a "seller credit" to reduce buyer closing costs, as an example.

Recognizing that no broker can guarantee success, it sounds as though your broker has done what a broker is supposed to do. But if you want to test the waters, speak with other brokers who actively sell condos in your community. See what they suggest.

Question: I'm an associate broker with a large firm and I plan to open my own brokerage. I currently have new construction contracts on the books that I have worked on for months. I represent the builders.

The homes are being built. Can the brokerage firm keep my commissions if I leave at the end of my contract? It is not addressed in the policy manual.

Answer: You have no contracts with builders. Your broker has contracts with builders that you have executed on his behalf.

The fact that termination matters are not fully addressed could well lead to lawsuits by both you and the broker. A judge might say that since the agreement was written by the broker, it was his obligation to get the terms right -- or maybe not.

What has happened when others have left the firm? Is there a clear practice in place? You are best served by sitting down with the broker, giving as much notice as possible and trying to work out an arrangement that makes sense to you both. Consider that you will both be working in the same market down the road and will benefit from a good mutual relationship. You are also well served by anticipating this issue when you establish agreements with salespeople and associate brokers with your firm.

Question: I have three years remaining on a 15-year mortgage for a rental property. The interest rate is 6.5 percent. Currently, I'm paying less than $1,100 year in interest. I have the cash to pay it off, which is currently earning 3 percent. Should I pay off the mortgage or continue to take the mortgage interest write-off? I want to be in the position to purchase a vacation property with the built-up equity in this rental when the market starts going the other way.

Answer: Cash spent to pay down the rental loan is simply less money for other purposes such as paying off credit card debt and other expenses -- or for making a larger downpayment.

Speak with lenders. The betting here is that they will advise you to keep the current rental financing in place.

Question: I have rented from the same landlord since 1992. She increases the rent every two years by $10 to $20 a month. She increased the rent by $35 a month in April and wants to increase it again in November. I do not have a lease. Can she do this?

Answer: Do you live in an area with rent control? Is there a state or local law limiting rent increases to one per year?

Without a lease you are renting the property on a month-to-month basis at the owner's sufferance. When she decides to suffer no more she can raise the rent or end your tenancy with proper notice.

Why not enter into a lease so that your rent is set for the next year or two? As a good tenant you may have some leverage since no landlord wants a vacancy or the cost to re-let a property.

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.