Properties

Keys to Buying and Selling
Owning Your Home

Avoid Foreclosure - Q & A


Q: Can a home seller sell a home for less than its mortgage?

A: This situation is known as a "short sale." Sometimes home owners can negotiate with lenders and have them split the difference between the sale price and loan amount, which still must be paid.

A short sale may be complicated if the loan has been sold to the secondary market because then the lender will have to get permission from Fannie Mae or Freddie Mac, the two major secondary-market players.

If the loan was a low-down-payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan.

Resources:

  • "How to Fight Foreclosure," Jeff Jensen, Jensen Publications, 200 Main Street, Suite 104-201, Huntington Beach, CA 92648; (714) 843-0321.

Q: How does a home go into foreclosure?

A: Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale.

Q: What happens at a trustee sale?

A: Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice.

In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

Q: When does foreclosure begin?

A: Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction.

A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale.

Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them.

Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history.

Q: How bad is a previous foreclosure on credit?

A: A property foreclosure is one of the most damaging events in a borrower's credit history. In terms of the effect on credit history, a deed in lieu of foreclosure or a short sale is not as adverse an event as is a forced foreclosure.

Q: Can I protect my home from creditors?

A: Your state may provide you with special protection from creditors through the filing of a homestead exemption, which exempts some or all of the value of the owner's equity in the homestead from claims of unsecured creditors.

Deciding whether or not to file a homestead exemption often depends on an individual's situation. Contact your county recorder's office for details.

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Building Permits & Zoning - Q & A


Q: How do building codes work?

A: Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

Resources:

  • "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.

Q: Where do I get information on remodeling?

A: Try these sources:

  • National Association of the Remodeling Industry, 4301 N. Fairfax Drive, Suite 310,Arlington, VA 22203; (703) 575-1100.
  • "Rehab a Home With HUD?s 203(K)," published by the U.S. Department of Housing and Urban Development, 7th and D St., S.W., Washington, DC 20410.
  • "Cost vs. Value Report," by Remodeling magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC 20005. $8.95 per copy; call (202) 736-3447 for credit card orders.
  • "The Do-able Renewable Home," by the Coordination and Development Department, American Association of Retired Persons, 601 E St., N.W., Washington, DC 20049.

Q: When are building permits needed?

A: Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

Resources:

  • "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.

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Fixer-Uppers - Q & A


Q: Are there gov't programs for rehab?

A: The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

For a list of participating lenders, call HUD at (202) 708-2720.

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.

Another program is the Federal Housing Administration's Title 1 FHA loan program.

Resources:

  • "Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.

Q: Can you deduct the cost of home improvements?

A: What you spend on permanent home improvements, such as new windows, can be added into your home's cost basis, or amount of money invested in a home, which reduces capital gains when it comes time to sell. Capital gains are determined by the difference in price from the time a home is purchased and the time it is sold, minus the cost of any permanent improvements.

However, the 1997 tax changes virtually eliminate the capital gains tax for most homeowners (the exemption is $250,000 for single homeowners and $500,000 for married homeowners).

Still, it is worthwhile to save all receipts for permanent home improvements just in case. They also can be useful documentation when it comes to marketing your home when you sell.

Q: How do building codes work?

A: Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

Resources:

  • "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.

Q: Are there any special tax breaks for historic rehab?

A: Qualified rehabilitated buildings and certified historic structures currently enjoy a 20 percent investment tax credit for qualified rehabilitation expenses. A historic structure is one listed in the National Register of Historic Places or so designated by an appropriate state or local historic district also certified by the government.

The tax code does not allow deductions for the demolition or significant alternation of a historic structure.

Resources:

  • National Trust for Historic Preservation, Washington, D.C.; (202) 588-6000.

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Hiring a Contractor - Q & A


Q: What are some guidelines to follow when trying to find a contractor?

A: While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out first. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.

If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.

If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.

Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.

Q: Where do I get information on remodeling?

A: Try these sources:

  • National Association of the Remodeling Industry, 4301 N. Fairfax Drive, Suite 310,Arlington, VA 22203; (703) 575-1100.
  • "Rehab a Home With HUD?s 203(K)," published by the U.S. Department of Housing and Urban Development, 7th and D St., S.W., Washington, DC 20410.
  • "Cost vs. Value Report," by Remodeling magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC 20005. $8.95 per copy; call (202) 736-3447 for credit card orders.
  • "The Do-able Renewable Home," by the Coordination and Development Department, American Association of Retired Persons, 601 E St., N.W., Washington, DC 20049.

Q: How do I find a home inspector?

A: In order to find a home inspector, Dian Hymer, author of "Buying and Selling a Home A Complete Guide," Chronicle Books, San Francisco; 1994, advises looking for someone with demonstrable qualifications. "Ideally, the general inspector you select should be either an engineer, an architect, or a contractor. When possible, hire an inspector who belongs to one of the home inspection trade organizations."

The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite.

One can usually find an inspector by looking in the phone book or by inquiring at a real estate office or sometimes at an area Realtor association.

Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection.

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Home Price Appreciation - Q & A


Q: What is the difference between market value and appraised value?

A: Appraised value is a certified appraiser's opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $200 to $300.

Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

Q: How do you increase the value of your property?

A: The biggest factor outside of a homeowner's control is market conditions. But other issues—including the condition of the property, specific home improvements and neighborhood stability and safety—can influence property values.

The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing.

Though markets vary, that has occurred twice in recent history—in the early 1970s and the late 1980s. However, single-family homes appreciated much more than condominiums. While overall market conditions are out of the homeowner's control, other factors are not.

For example, specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent.

Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability.

If you live in a high-crime area, an organized community watch program not only will lower the crime rate but also have been known to enhance property values.

Q: What are the standard ways of finding out what a house is valued at?

A: A comparative market analysis and an appraisal are the standard ways consumers, lenders and realty agents determined what a home is worth.

Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. You also can research "the comps" yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location.

This information is not only available at your local recorder's or assessor's office but also through private companies and on the Internet.

An appraisal, which generally cost $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality.

Q: How can I improve the value of my property?

A: The biggest factor outside of a homeowner's control is market conditions. But other issues—including the condition of the property, specific home improvements and neighborhood stability and safety—can influence property values.

The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing. Though markets vary, that has occurred twice in recent history—in the early 1970s and the late 1980s.

Specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent. Remember, quality pays. Well- planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability.

The safety and security of a neighborhood can affect property values, too. If you live in a high-crime area, an organized community watch program not only will lower the crime rate but give home values a boost, too.

Q: Should I add on or buy a bigger home?

A: Consider these questions before making a choice between adding on to an existing home or moving up in the market to a bigger house:

  • How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
  • How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
  • What do local zoning and building ordinances permit?
  • How much equity already exists in the property?
  • Are there affordable properties for sale that would satisfy housing needs?

Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.

Q: What kind of return is there on remodeling jobs?

A: Remodeling magazine produces an annual "Cost vs. Value Report" that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

Q: Where do I get information on housing market stats?

A: A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards.

For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.

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Homeowner Associations - Q & A


Q: Do condos have to be made accessible to the disabled?

A: The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made accessible. But all new construction of public accommodations or commercial projects (such as a government building or a shopping mall) must be accessible. New multi-family construction also falls into this category.

In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled.

Two educational brochures, "Housing Rights" and "Discrimination is Against the Law," are available through the Department of Fair Employment and Housing by calling (800) 884-1684.

Q: Can condos ban smoking?

A: A homeowners association's board of directors can restrict smoking if it applies to indoor common spaces such as hallways or recreation rooms. Outdoor spaces are a different story, say legal experts. Any restriction would probably hinge on local laws (i.e. if a city banned smoking outdoors, a homeowners association probably could restrict smoking in its outdoor spaces).

Typical covenants, codes and restrictions (CC&Rs), which govern condo associations, give the board authority to make and enforce reasonable rules for the use of common property. But that would not apply to interior spaces owned by smokers themselves. Resources:

  • Common-interest development brochure available free from California Department of Real Estate, Book Orders, P.O. Box 187006, Sacramento, CA 95818-7006; (916) 227-0938.
  • Various Internet sites specializing in common-interest developments, such as those operated by the Community Associations Institute and CIDNetworks.

Q: Can a condo association ban nudity?

A: Could you sunbathe in the nude on your own balcony? Not necessarily. In a condominium development, a balcony is not considered private property but common property assigned to your exclusive use but a common area nonetheless.

Covenants, codes and restrictions (CC&Rs) usually spell out what activities can and cannot be conducted on common property. Some associations prevent people from barbecuing on their balconies or hanging large plants from the railings. However, the larger issue of regulating personal conduct is not so clear-cut. It literally depends on what side of the fence you're on.

If the sunbather can be seen from a public vantage point—not by someone who must climb a tree or peer through binoculars—then the rule probably would be considered reasonable, say legal experts.

Incidentally, there are places where nudity is tolerated but again, only out of public view.

Q: Are condos a good investment?

A: Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the last few years than when they first came on the scene in the late 1970s and early 1980s, experts say.

While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past.

Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets.

Q: What's a house worth?

A: A home is worth what someone will pay for it. Everything else is an estimate of value. To determine a property's value, most people turn to either an appraisal or a comparative market analysis.

An appraisal is a certified appraiser's estimate amenities, energy efficiency, the value of a home at a given point in time. To make their determination, appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account.

A comparative market analysis is an informal estimate of market value, based on comparable sales in the neighborhood, performed by a real estate agent or broker. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder's or assessor's offices, through private companies or on the Internet.

Q: Where do I get information on condo association laws?

A: Resources:

  • "The Condominium Bluebook" by Branden E. Bickel, B&B Publications, San Francisco, CA; 1994; call (415) 433-1233).
  • Community Associations Institute, Alexandria, VA; (703) 548-8600.

Q: Where do I get information on condos?

A: The major interest group for condominium projects and other so-called common-interest developments is the nonprofit Community Associations Institute,1630 Duke St., Alexandria, VA 22314; (703) 548-8600. Also, check the Internet where CAI operates an informative site as does CIDNetworks.

Q: How are fees and assessments figured in a homeowners association?

A: Homeowners association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold. For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, need to be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work.

To find out more about how the IRS views condo association fees, look to IRS Publication 17, "Your Federal Income Tax," which includes a section on condos. Order a free copy by calling (800) TAX-FORM.

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Improving Your Real Estate - Q & A


Q: How do you increase the value of your property?

A: The biggest factor outside of a homeowner's control is market conditions. But other issues—including the condition of the property, specific home improvements and neighborhood stability and safety—can influence property values.

The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing.

Though markets vary, that has occurred twice in recent history—in the early 1970s and the late 1980s. However, single-family homes appreciated much more than condominiums. While overall market conditions are out of the homeowner's control, other factors are not.

For example, specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent.

Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability.

If you live in a high-crime area, an organized community watch program not only will lower the crime rate but also have been known to enhance property values.

Q: How can I improve the value of my property?

A: The biggest factor outside of a homeowner's control is market conditions. But other issues—including the condition of the property, specific home improvements and neighborhood stability and safety—can influence property values.

The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing. Though markets vary, that has occurred twice in recent history—in the early 1970s and the late 1980s.

Specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent. Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability.

The safety and security of a neighborhood can affect property values, too. If you live in a high-crime area, an organized community watch program not only will lower the crime rate but give home values a boost, too.

Q: Should I add on or buy a bigger home?

A: Consider these questions before making a choice between adding on to an existing home or moving up in the market to a bigger house:

  • How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
  • How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
  • What do local zoning and building ordinances permit?
  • How much equity already exists in the property?
  • Are there affordable properties for sale that would satisfy housing needs?

Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.

Q: What kind of return is there on remodeling jobs?

A: Remodeling magazine produces an annual "Cost vs. Value Report'' that answers just that question. The most important point to remember is that remodeling a home not only improves its livability for you but its curb appeal with a potential buyer down the road.

Most recently, the highest remodeling paybacks have come from updating kitchens and baths, home-office additions and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey.

Q: Are there gov't programs for rehab?

A: The U.S. Department of Housing and Urban Development's Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

The 203(K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

For a list of participating lenders, call HUD at (202) 708-2720.

If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility.

Another program is the Federal Housing Administration's Title 1 FHA loan program.

Resources:

  • "Rehab a Home With HUD's 203(K)" brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.

Q: Can you deduct the cost of home improvements?

A: What you spend on permanent home improvements, such as new windows, can be added into your home's cost basis, or amount of money invested in a home, which reduces capital gains when it comes time to sell. Capital gains are determined by the difference in price from the time a home is purchased and the time it is sold, minus the cost of any permanent improvements.

However, the 1997 tax changes virtually eliminate the capital gains tax for most homeowners (the exemption is $250,000 for single homeowners and $500,000 for married homeowners.).

Still, it is worthwhile to save all receipts for permanent home improvements just in case. They also can be useful documentation when it comes to marketing your home when you sell.

Q: How do building codes work?

A: Building codes are established by local authorities to set out minimum public-safety standards for building design, construction, quality, use and occupancy, location and maintenance. There are specialized codes for plumbing, electrical and fire, which usually involve separate inspections and inspectors.

All buildings must be issued a building permit and a certificate of occupancy before it can be used. During construction, housing inspectors must make checks at key points. Codes are usually enforced by denying permits, occupancy certificates and by imposing fines.

Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines.

Resources:

  • "The Ultimate Language of Real Estate," John Reilly, Dearborn Financial Publishing, Chicago; 1993.

Q: What are some resources for info on home improvements?

A: If you're getting ready to embark on a home improvement project involving contracting help, "Ready, Set, Build: A Consumer's Guide to Home Improvement Planning Contracts" lays out a road map for selecting the right contractor, obtaining competitive bids up to what to include in a contract. There also is information on consumer rights, liens and financing.

The book is available for $9.95 through Consumer Press and Women's Publications, Inc., Dept. SR01, 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153.

Resources:

  • Profiting From Real Estate Rehab, Sandra M. Brassfield, John Wiley & Sons Inc., New York; 1992.
  • Remodeling magazine's annual "Cost vs. Value Report", available for a nominal fee from the magazine; call (202) 736-3447 to order a copy.

Q: Will a neighbor problem reduce the value of my property?

A: While it may not reduce the actual value, a cluttered landscape can detract from the positive aspects of your home. Review your local laws, which should be on file at the public library, county law library or City Hall.

A typical "junk vehicle" ordinance, for example, requires any disabled car to either be enclosed or placed behind a fence. And most cities prohibit parking any vehicle on a city street too long.

It also may be worthwhile to check into local zoning ordinances. An operator of a home-based business usually is required to obtain a variance or permanent zoning change in residential areas.

In addition, if a neighbor's repair work produces loud noises, he may be breaking local noise-control ordinances, which are enforced by the police department.

Before bringing in the authorities, you may want to make a copy of the pertinent ordinance and give it to your neighbor to give them a chance to correct the problem.

Resources:

  • "Neighbor Law: Fences, Trees, Boundaries and Noise," Cora Jordan, Nolo Press, Berkeley, Calif.; 1991.

Q: What are the pros and cons of adding on or buying new?

A: Before making a choice between adding on to an existing home or buying a larger one, consider these questions:

  • How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
  • How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
  • What do local zoning and building ordinances permit?
  • How much equity already exists in the property?
  • Are there affordable properties for sale that would satisfy housing needs?

Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value. According to Remodeling magazine's annual "Cost vs. Value Report," remodeling a home not only improves its livability but its curb appeal with potential buyers. The highest paybacks come from updating kitchens and baths and, most recently, adding on a home office, according to the survey.

For more information, check out "The Do-able Renewable Home," a free booklet available from the American Association of Retired Persons, Fulfillment Department, 601 E St., N.W., Washington, DC 20049; (202) 434-2277.

Q: What are some guidelines to follow when trying to find a contractor?

A: While hiring contractors recommended by friends is usually a safe route, never hire a construction professional without first checking him or her out first. If your state has a licensing board for contractors, call to find out if there are any outstanding complaints against that license holder. Also, call your local Better Business Bureau to see if there are any complaints on file.

If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of worker's compensation insurance they carry and get policy and insurance company phone numbers so you can verify the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy.

If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want.

Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money.

Q: How much will I spend on maintenance expenses?

A: Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.

Q: Where can I get a list of architects?

A: For information on architects, contact the following: American Institute of Architects, 1735 New York Avenue, N.W.; Washington, DC 20006 or call (202) 626-7300.

Q: Where do I get information on remodeling?

A: Try these sources:

  • National Association of the Remodeling Industry, 4301 N. Fairfax Drive, Suite 310,Arlington, VA 22203; (703) 575-1100.
  • "Rehab a Home With HUD?s 203(K)," published by the U.S. Department of Housing and Urban Development, 7th and D St., S.W., Washington, DC 20410.
  • "Cost vs. Value Report," by Remodeling magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC 20005. $8.95 per copy; call (202) 736-3447 for credit card orders.
  • "The Do-able Renewable Home," by the Coordination and Development Department, American Association of Retired Persons, 601 E St., N.W., Washington, DC 20049.

Q: What repairs should the seller make?

A: Most sellers like to make all minor repairs before going on the market in order to seek a higher sales price. In addition, nearly all purchase contracts include a buyer contingency "inspection clause," which allows a buyer to back out if numerous defects are found. Once the problems are noted, buyers can attempt to negotiate repairs or a lower price.

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Insurance - Q & A


Q: What kind of home insurance should I get?

A: A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.

Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents.

A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business.

Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000.

For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property.

Some experts recommend an inflation rider, which increases coverage as the home increases in value.

Q: What is guaranteed replacement cost insurance?

A: Guaranteed replacement insurance is a more comprehensive policy. They tend to cost more, but they promise to cover the complete costs—less deductible—of replacing a destroyed house. With these sorts of policies, limits on the policies are not as common, because complete coverage is more explicit.

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Neighbor Disputes - Q & A


Q: Can a condo association ban pets?

A: A homeowners association can both enact and enforce such pet restrictions. As the following case illustrates, it important to read a development's covenants, conditions and restrictions (CC&Rs) before you buy into it. Pet restrictions sometimes appear there. Also, if you have talked to other owners, you will know whether or not there is tolerance for pets.

In the case of Nahrstedt v. Lakeside Village Condominium Association, Natore Nahrstedt, a resident of Lakeside Village Condominiums believed it was reasonable for her to keep three cats even though her deed restrictions read, "No animals (which shall mean dogs and cats), livestock, reptiles or poultry shall be kept in any unit."

Nahrstedt filed suit after the board assessed fines of $500 a month against her. The California Supreme Court ruled in favor of the association.

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Property taxes - Q & A


Q: How do property taxes work?

A: Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5 percent of the property's current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.

Q: Are property taxes deductible?

A: Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.

Q: Where can I learn more about appealing my property taxes?

A: Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal process, which begin with an appeal filed with the appropriate assessment appeals board.

Q: How is a home's value determined?

A: You have several ways to determine the value of a home.

An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house.

A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hopes of winning your business.

You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites.

Q: Are taxes on second homes deductible?

A: Interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

Q: What is an impound account?

A: An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.

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Refinancing - Q & A


Q: When is the best time to refinance?

A: The traditional answer to that question is when interest rates fall 2 percent below your current mortgage interest rate. However, in recent years some experts have argued that refinancing may be appropriate with a smaller point spread.

Some weight is often given to the length of time the owner anticipates holding on to the property. If the owner expects to keep the property for at least three or four years, then refinancing may be worthwhile.

While refinancing can involve upfront costs, in many cases it is possible to roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment.

Q: What about these ads for no-cost loans?

A: In many states, real estate regulatory agencies are cracking down on such advertising. The very term, "no-cost" loan, is misleading because borrowers are actually paying a higher interest rate in exchange for not having to pay fees or closing costs up front when the loan is secured.

A "no-points" loan is one for which the lender does not charge points (one point is equal to 1 percent of the loan amount). But there are other fees involved in no- point loans, as with most loans.

Q: Where do I get information on refinancing?

A: For information on refinancing, the following booklet may be helpful:

  • "A Consumer's Guide to Mortgage Refinancing;" Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120; call (415) 974-2163 to order.

Q: Can I refinance after bankruptcy?

A: Refinancing may be prudent but could be difficult after a bankruptcy. If you're considering bankruptcy, you may want to go to your current lender first and explain the situation. If you have been current on your payments, the lender may be accommodating and refinance your loan, easing your financial situation.

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Reversed Annuity Mortgages - Q & A


Q: What is a reverse mortgage loan?

A: A reverse mortgage is a special type of loan available only to equity-rich, older homeowners. Such owners can borrow against the equity they have built up over the years, but no repayment is necessary until the borrower sells the property or moves elsewhere. If the borrower dies before the property is sold, the estate repays the loan (plus any interest that has accrued.

These loans have become increasingly popular. If you believe you qualify for such a loan, be sure to have the document reviewed by an attorney or another expert.

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Tax Considerations - Q & A


Q: Are taxes on second homes deductible?

A: Interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

Q: What home-buying costs are deductible?

A: Any points you or the seller pay for your home loan are deductible for that year. Property taxes and interest are deductible every year.

But while other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees.

Q: Explain the home mortgage deduction?

A: The mortgage interest deduction entitles you to completely deduct the interest on your home loan for the year in which you paid it. You must itemize deductions in order to do this, which means your total deductions must exceed the IRS's standard deduction.

Another point to remember is that the amount of interest on your loan goes down each year you pay on your mortgage (all standard home-loan formulas pay off interest first before significantly paying into principal). That's why paying extra on your principal every year can help you pay off your loan early.

Q: Should I buy a vacation home?

A: Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits.

Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it less than 14 days a year.

Resources:

  • "Real Estate Investing From A to Z," William Pivar, Probus Publishing, Chicago; 1993.
  • "The Ultimate Language of Real Estate,'' John Reilly, Dearborn Financial Publishing, Chicago; 1993.

Q: Can you deduct the cost of home improvements?

A: What you spend on permanent home improvements, such as new windows, can be added into your home's cost basis, or amount of money invested in a home, which reduces capital gains when it comes time to sell. Capital gains are determined by the difference in price from the time a home is purchased and the time it is sold, minus the cost of any permanent improvements.

However, the 1997 tax changes virtually eliminate the capital gains tax for most homeowners (the exemption is $250,000 for single homeowners and $500,000 for married homeowners.).

Still, it is worthwhile to save all receipts for permanent home improvements just in case. They also can be useful documentation when it comes to marketing your home when you sell.

Q: How do I save on taxes?

A: Here are some ways to save money on taxes:

  • Mortgage interest on loans up to $1 million is completely deductible for the year in which you pay it to buy, build or improve your principal residence plus a second home.
  • Points, or loan origination fees, also are deductible no matter who pays them, the buyer or the seller.
  • Most homeowners, except the wealthy and those living in high-priced markets, no longer need to worry about capital gains taxes. The exemption has been raised to $500,000 for married couples and $250,000 for single owners. It can be taken every two years. Homeowners should always keep all receipts of permanent home improvements and of mortgage closing costs. If you do have to pay capital gains taxes, these costs can be added to your adjusted cost basis. Consult your tax adviser for more information.

Resources:

  • "Tax Information for First-Time Homeowners," IRS Publication 530, and "Selling Your Home," IRS Publication 523. Call (800) TAX-FORM to order.

Q: What are the rules on capital gains when inheriting a house?

A: When children inherit a home, the Internal Revenue Service determines their basis in the property on the date of the person's death. The cost basis is not the amount the owner originally paid for the house. It is the property's fair market value on the date of the mother's death, says Pamela MacLean, assistant public affairs officer with the IRS.

Cost basis is a tax term for the dollar amount assigned to a property at the time it is acquired, for the purpose of determining gain or loss when it is sold. Assume the property was divided up equally. If one of the three siblings sold her share, she must pay capital gains tax for whatever profit she made over one-third of the new basis, MacLean said.

Other tax consequences include estate taxes. However, the estate must total $600,000 or more before tax issues become a concern. The IRS allow residents to pass on property, cash and other assets worth up to a total of $600,000 before charging the heirs any taxes, according to MacLean.

Regarding the transfer of ownership, quit claim deeds often are used between family members in situations such as this when an heir is buying out the other. All parties must be agreeable to dropping a name from the title. Other resources: IRS Publication 448, "Federal Estate and Gift taxes." Order by calling 1-800-TAX-FORM.

Q: Can I deduct the loss I suffered when I sold my home?

A: The IRS allows no deductions for losses on the sale of your own home. There's no way to use a loss to your advantage on your income tax return. It won't matter what type of misfortune you may have run into, write Edith Lank and Miriam Geisman in Your Home as a Tax Shelter, Dearborn Financial Publishing, Chicago; 1993.

Q: Are points deductible?

A: Points paid by the buyer or the seller are deductible for the year in which they are paid.

Q: Where do I get information on IRS publications?

A: The Internal Revenue Service publishes a number of real estate publications. They are listed by number:

  • 521 "Moving Expenses"
  • 523 "Selling Your Home"
  • 527 "Residential Rental Property"
  • 534 "Depreciation"
  • 541 "Tax Information on Partnerships"
  • 551 "Basis of Assets"
  • 555 "Federal Tax Information on Community Property"
  • 561 "Determining the Value of Donated Property"
  • 590 "Individual Retirement Arrangements"
  • 908 "Bankruptcy and Other Debt Cancellation"
  • 936 "Home Mortgage Interest Deduction"

Order by calling 1-800-TAX-FORM.

Q: How do I reach the IRS?

A: To reach the Internal Revenue Service, call (800) TAX-1040.

Q: What tax benefits are there to homeowners?

A: Homeowners benefit from several generous tax advantages. The most important benefit is the mortgage interest deduction. People may deduct interest paid on mortgage loans totaling up to $1 million used to buy, build or improve a principal residence plus a second home. The IRS calls such loans acquisition debt.

Points paid by the buyer or seller on a new mortgage loan for the purchase or improvement of a principal residence are deductible for the year in which the home was purchased.

Any points paid on a refinance mortgage, a loan to purchase a second home or a mortgage on income property must be spread over the life of the loan, according to Edith Lank and Miriam S. Geisman, authors of "Your Home as a Tax Shelter," Dearborn Financial Publishing, Chicago; 1993.

Note that when obtaining a new mortgage, the borrower usually is asked to pay interest from the closing date until the first of the next month. Check whether that charge is included in the year-end report.

Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income, say Lank and Geisman.

"A homeowner cannot deduct maintenance expenses, nor can he take depreciation deductions on his personal residence," states the "Realty Bluebook," 30th Ed., Dearborn Financial Publishing, Chicago; 1993.

Some moving expenses are deductible for people who changed jobs and relocated as a result. The IRS requires that the new employment be located at least 50 miles away, among other considerations, said Analisa Collins-Sears, a public affairs officer with the IRS' Bay Area office.

Resources:

  • "Tax Information for First-Time Homeowners," a free guide published by the Internal Revenue Service. Order by calling 1-800-TAX-FORM.

Q: How are fees and assessments figured in a homeowners association?

A: Homeowners association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold. For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, need to be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work.

To find out more about how the IRS views condo association fees, look to IRS Publication 17, "Your Federal Income Tax," which includes a section on condos. Order a free copy by calling (800) TAX-FORM.

Q: Are the costs of a natural disaster deductible?

A: Damage, destruction or loss of property from fires, floods, earthquakes and other disasters are deductible from both state and federal income taxes. In such a case, the IRS only allows a deduction less than or equal to the fair-market value of the property before the disaster.

Losses on the sale of your own home are not deductible, through they are deductible for rental properties.

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Whom to Contact (Maintaining & Improving) - Q & A


Q: Where can I get a list of architects?

A: For information on architects, contact the following: American Institute of Architects, 1735 New York Avenue, N.W.; Washington, DC 20006 or call (202) 626-7300.

Q: Where do I get information on remodeling?

A: Try these sources:

  • National Association of the Remodeling Industry, 4301 N. Fairfax Drive, Suite 310,Arlington, VA 22203; (703) 575-1100.
  • "Rehab a Home With HUD?s 203(K)," published by the U.S. Department of Housing and Urban Development, 7th and D St., S.W., Washington, DC 20410.
  • "Cost vs. Value Report," by Remodeling magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC 20005. $8.95 per copy; call (202) 736-3447 for credit card orders.
  • "The Do-able Renewable Home," by the Coordination and Development Department, American Association of Retired Persons, 601 E St., N.W., Washington, DC 20049.

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Whom to Contact (Other Ownership Issues) - Q & A


Q: Where do I get information on homes with historic value?

A: For information about homes with historic value, contact the National Trust for Historic Preservation, Washington, D.C. at (202) 673-4000.

Q: Where do I get information on housing market stats?

A: A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards.

For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.

Q: How do I reach the IRS?

A: To reach the Internal Revenue Service, call (800) TAX-1040.

Q: Where do I get information about finding a real estate attorney?

A: To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience.

Q: How do I monitor my ARM loan?

A: Consumer Loan Advocates publishes a book with form letters and worksheets to help people who want to check mortgage payments or adjustments on their own. It costs $19.95 plus $4 shipping and handling. For a copy, write or call Consumer Loan Advocates, 655 Rockland Road, Lake Bluff, IL 60044; (847) 615-0024.

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This Q&A Section is Copyright © 1999 Inman News Features