Question: I currently have a reservation for a two-bedroom unit in a resort area. Based on my research of real estate websites and listings, I strongly feel that local resort properties are grossly overpriced. The two-bedroom unit I have reserved has 1,240 sq. ft. with a 223 sq. ft. lanai and is priced at approximately $2.1 million. I am certain that right now I can find a simple, single-family home with a decent-sized lot for that price.
I understand that I am not comparing apples to apples but even with resort living, a property should not have such a tremendous premium. I personally believe that there is just too much speculation involved in this right now. What do you think?
Answer: Here's the thinking that counts, at least for the moment: Is the resort developer able to sell units at the current prices? If yes -- whether the buyers are residents, investors or Martians -- the units are priced right. If no, the units won't sell and prices will drop.
You are right to say that resort properties and individual residences differ. Whether one is more valuable than another is a function of the marketplace and the attraction of individual properties.
What would happen if you gave up your reservation? Is there a penalty? Are you allowed to assign your reservation to someone else? If you could assign the reservation at a profit perhaps your discomfort with the unit and its pricing would be resolved.
Question: I bought a townhouse one year ago in Southern California. I want to sell this townhouse and buy a single-family home in a similar area. However, I heard that if I don't keep the townhouse for more than two years, I would be taxed for capital gain. Is that true? Is there any way to avoid the taxation?
Answer: To shelter up to $500,000 in profits if married ($250,000 if single) from federal capital gains taxes you must have lived in your prime residence for two of the past five years. There are exceptions related to such things as a job move of 50 miles or more or multiple births from a single pregnancy. For details, see the IRS guidelines regarding safe harbor exceptions and then talk with a tax professional.
Question: We're in the process of buying a townhouse that's not built yet and will not be finished until May 2006. We're concerned that interest rates will increase and we need to know if it is best to lock in now or wait until our house gets closer to being built.
We are also working with the seller agent directly and her husband is also the owner of the property. She is the broker and owner. Is it a bad idea to deal directly with the seller agent and not someone who is working in our behalf?
Answer: Let's take these one at a time.
First, you need to ask what it would cost, if anything, to lock in a rate at this time. The problem is that it will be very difficult, if not impossible, to lock-in a rate seven months in advance. Also, what if you lock in a rate today and construction is delayed beyond the lock-in period?
If you could lock-in a rate now and interest levels fall as your home approaches completion, you could then switch to a lower rate with another loan -- but lose any lock-in fee. It always makes sense to shop for financing, so speak with a number of local lenders to see what is available to you.
Second, on the matter of buying from a broker/owner, it is plain that your interests as a buyer and the interests of a seller differ -- you want the lowest price and the best terms and a seller wants the highest price and the best terms for them.
In this situation, a broker/owner is also a principal in the transaction. If you do not already have a sale agreement in place, have the proposed contract reviewed by a real estate attorney. Also, consider having construction of the property monitored by a professional home inspector -- and make such inspections a part of the purchase agreement. An attorney can provide specifics.
Question: My husband and I plan on buying a newly-constructed home. We have the money to put down, but not for the closing costs as of yet. The cost of the homes and land are rising and we want to get in our new home before we will not be able to afford to buy one. There are builders who offer loans with no closing costs but we don't know if they have any hidden expenses.
Answer: Believe me there will be closing costs -- the question is whether you want to pay them at settlement or in the future in the form of higher rates or a bigger mortgage. The idea of a loan with "zero closing costs" is that the lender pays many of the transaction expenses by increasing the interest rate. However, different closing programs include or exclude given expenses.
Before going further have the lender prepare a good faith estimate of closing costs so you can see how much cash, if any, will be required at settlement for your loan -- and see what interest rate is being charged. Also look to be sure the expenses are not being paid by merely increasing the amount of the loan. Then compare with loans available from other lenders.
By way of background, I have closed a number of loans with zero closing costs -- that is, the expenses have been paid by the lender in exchange for a somewhat higher rate. In such instances, it has not even been necessary to bring a check to closing. The trick is to work with a lender you trust and to know what is included and excluded in the definition of covered closing costs.
Question: My son has a home for sale with a broker. The property was advertised on the Internet and a prospect from overseas contacted my son -- not the broker -- with an offer to purchase. The buyer claimed to be a U.S. citizen and in both the real estate and securities businesses. Should my son cancel the listing and sell to this overseas buyer?
Answer: What buyer? Does anyone know if the buyer is qualified to make the purchase? Does the buyer exist?
To cancel a listing because the broker's advertisement brought a response penalizes the broker for achieving exactly what he or she was asked to do, find a buyer. That's unfair and not grounds to cancel a listing.
Your son should instead have the buyer contact the broker. If the buyer wants the property then working through the broker should not be a problem. The broker will be able to provide a proper contract form, hold deposit money in an escrow account, arrange required inspections, etc.
Question: We're first time home buyers. We've made an offer on a home, put down a deposit and had a home inspection. The home inspection showed water on the basement wall, so we agreed that the owner could repair it and that we would be able to get in to view the repairs.
We tried to get into the property all this week and the owner would not let us in because she said she had company. Yesterday morning we found out the basement floor had water and that this was a past problem that was not disclosed to us in the seller's disclosure sheet. Can we get back our deposit?
Answer: The last thing anyone wants or should want in real estate is a messy transaction -- one involving lots of lawyers, claims, counterclaims and reviews by investigators from state real estate commissions.
The sellers will likely return your deposit in exchange for your willingness to forgo any further claims. Make sure you have an attorney to represent your interests and provide the right wording for an agreement.
Question: I have an investment property which I have been fixing up to sell. I know that even though I have not rented it out, it qualifies for the 1031 exchange because I have owned it for more than a year.
I also own vacant land in which I have a mortgage. Is there any way to use the house sale as a 1031 exchange with this vacant property to pay off the mortgage? I have a feeling I cannot, and to pay the mortgage off on the vacant property I would have to treat the house sale as a sale and not an exchange.
Answer: That you have owned investment real estate for a year does not mean it qualifies as a property suitable for a 1031 exchange. It does mean that it qualifies for the long-term capital gains tax rate if you sell.
The property must be used in business, trade or held for investment to have a tax-deferred exchange.
In a 1031 exchange you can swap one qualified property for another -- what you can't do is trade a personal residence for an investment property or use an investment property to trade for a property that will be instantly used as your residence.
The real problem here is that the current investment property produces no revenue. Rent it and it will generate monthly dollars that can be used to help pay off the cost of the investment property and perhaps the lot as well. It may be possible to solve the revenue issue without a 1031 exchange. For specifics regarding an exchange, see an experienced attorney.
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