Why do I think appreciation figures are understated? Here's why: Imagine that you buy a home for $100,000 and the next year it's worth $105,000. It would appear that there has been 5 percent appreciation.

But rarely do people buy real estate with cash. Instead, a more-likely approach is to buy with financing. Suppose the home above was bought with 10 percent down, or $10,000. If the value increased by $5,000 then the value of the cash investment has grown by 50 percent.

Unlike stocks or bonds, real estate can also be used for shelter. There is a value to shelter, thus the monthly mortgage cost must be seen as a type of "rent" because an owner gets to use the property. If the property were occupied by a tenant instead of an owner, then the use value of the property would be seen immediately in the form of a monthly rental fee to the owner.

Question: I'm considering purchasing "subject to" but the seller has a steep mortgage with high payments that may cost more than the house is worth. Should he refinance or is there another way to bring the costs down?

Answer: In essence, a home is for sale where instead of a lender the owner will hold the mortgage. You describe the mortgage as "steep" and the payments as "high." Why is this a good deal for you? If you could get lender financing what would you pay for the property?

Why should the owner refinance? Do you have poor credit or limited funds?

Before going further, meet with several lenders to see if you can qualify for a loan, perhaps a mortgage backed by the state or a loan guaranteed by the VA, FHA or private mortgage insurance. If you can qualify for financing, you can then look at a variety of houses, perhaps homes with a lower cost and more-affordable monthly payment. A local broker can show you homes that will fit your budget and preferences.

And what if lenders feel you're not a good candidate for mortgage financing? Then it may make sense to delay purchasing, add to your savings, reduce debt and build a record of full and timely payments.

Question: I own a 9 ft. strip of land beside my office building. The town has used the land as an alley for many years with my permission. There are no easements granted on the property and our deed is clear on my ownership. The space has become too narrow for vehicle traffic and fallen into bad condition.

We have decided to develop the area into a courtyard and have notified the town and adjacent property owners. We have drawn our plans in a way as to provide the adjacent owners access to their property in all cases. The town says that they wish to keep the alley open to traffic and will take the area by adverse possession or condemnation procedures.

There is no logical reason to keep the area open and we feel that we as owners have the right to remove our permission of use to the town and develop our property as we see fit as long as we don't block access to our neighbor's property.

What can we do?

Answer: As an owner you have the right to develop your property within the bounds of zoning and other rules. However, by taking the property through condemnation (adverse possession) the property will no longer belong to you -- it will belong to your local government.

The Constitution does not demand that government be logical, but within the "taking clause" of the Fifth Amendment government is required to pay "just compensation" to owners when property is taken.

You could fight the local government on the basis that their offer is insufficient, but it costs bureaucrats nothing to battle such efforts in court -- it is taxpayers who pay the government's legal fees. You might also speak with your local media, perhaps reporters would find the matter worthy of coverage and comment.

Question: I just bought a 2-unit income property and the previous owner did not disclose an existing termite problem. The long-term tenants say the previous owner never did anything about the termite problem and that he knew about the problem because they sent him numerous letters about it over the years.

I had a professional home inspection done prior to escrow closing, but the inspector did not document any termite evidence. The lender did not require a termite report. Can I demand that the previous owner pay for termite treatment and displacement of the tenants during the treatment process?

Answer: The home inspector did not find the "problem" and the lender did not require a termite inspection. Regardless of what the lender required, did you make a termite inspection satisfactory to you a condition of the purchase offer?

It's possible that the property has been treated for termites and wood-boring insects through exterior injection or spraying -- thus you might find damage from years ago but no active infestation.

If termites are now a problem, why have the tenants stayed at the property? Given the inspection report, is it possible there is no termite problem and that the tenants are incorrect?

Did the tenants save their letters? Do they have any written responses from the owner? Is the damage extensive or minor? What would it cost to take the former owner to court? Was the property sold as-is? Do residential disclosure rules in your jurisdiction apply to commercial transactions such as the purchase of investment property? Will the tenants have any displacement costs if the property is treated externally?

Before going further, have a licensed termite inspector examine the property and document both the damage and any required treatment. Get cost estimates, then consider what to do next -- if anything.

Have a real estate question? Send your inquiry to . Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here.

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.