Pros, cons of ‘as is’ home sales

DEAR BOB: What are the pros and cons of an “as is” home sale for the seller? Are there any advantages for the home buyer? – Mary B.

DEAR MARY: An “as is” home sale means the seller must disclose all known defects in the property to prospective buyers, but the seller will not pay for any repairs. The obvious “as is” sale advantage for the seller is there aren’t any repair costs. However, many prospective buyers are wary of “as is” sales because there will probably be repair costs and the seller might have “forgotten” to disclose all defects.

Purchase Bob Bruss reports online.

An “as is” sale is not a positive way to sell a home. However, it is often used by home sellers to guard against buyers who discover a defect after purchase and expect the seller to pay for repairs.

A possible “as is” home sale advantage for the buyer is the seller might sell for a lower price than an ordinary sale. But most buyers believe an “as is” home seller might be hiding undisclosed defects that will become obvious after the purchase.

HOME INSURANCE CAN BE A MAJOR PROBLEM FOR HOMEOWNERS

DEAR BOB: My homeowner’s insurance company sent me a letter saying they would not renew my policy because I had two theft claims within 10 years. After talking with my insurance agent, I agreed to put in an alarm system if the insurer would reinstate my policy. I had to sign a year’s agreement with the alarm company and pay $25 to the local sheriff’s office in case of a false alarm. It infuriates me that insurance companies can force this on their customers and cancel policies for filing a claim. Isn’t that why we pay for insurance? Is there anyone sticking up for homeowner’s rights? – Carol H.

DEAR CAROL: Unfortunately, the situation you describe is perfectly legal for an insurer to cancel your policy. The insurance companies give millions of dollars to state legislators, who regulate insurance companies, not to tighten current laws to prohibit unjustified policy cancellations.

If you had tried to buy homeowner’s insurance from another insurer you would either have been refused, because of the two theft claims, or you would have to pay an inflated high-risk insurance rate. Sorry, but I don’t think legislators are sticking up for insurance policy holders because they need insurance money to get re-elected.

‘LIKE KIND’ TAX DEFERRED EXCHANGE DOESN’T MEAN ‘SAME KIND’

DEAR BOB: You had a recent item about an Internal Revenue Code 1031(a)(3) Starker tax-deferred exchange. It provoked a heated debate with a friend. I interpreted your article to mean I can sell my undeveloped investment acreage and use the sales proceeds to buy a single-family rental house. But my friend says a “like kind” exchange means I can only trade for other undeveloped land. We both understand the acquired property value must exceed that of the sold property and no funds can be taken out of the transaction. A dinner at a fine restaurant rides on your reply – Mrs. G. D.

DEAR MRS. G.D.: You win the dinner. Your friend is mistaken. The words “like kind” in IRC 1031(a)(3) do not mean “same kind” of property, such as a trade of land only for other land.

“Like kind” means all properties in a tax-deferred exchange must be held for investment or for use in a trade or business. Your personal residence or “dealer property” (such as a home builder’s inventory of houses) would not be eligible because they are “unlike kind.”

You can make a tax-deferred exchange of your vacant land for a rental house, warehouse, apartment building, shopping center or other like kind property, presuming you trade equal or up in price and equity without taking out any taxable “boot,” such as cash or net mortgage relief. For full details, please consult your tax adviser.

MOM WORRIES ABOUT SON BUYING A HOUSE WITH A FRIEND

DEAR BOB: My son is buying a house with a friend. They have adequate income to support the expenses. There is also a furnished apartment in the basement that they will rent for income. My problem is with their partnership. What protection does my son have if no special papers are drawn up by an attorney to protect his interest. What if something goes wrong with their friendship? – Marion S.

DEAR MARION: You are very wise to be concerned. Presumably, they will take title as tenants in common, each owning a 50 percent interest in the property. Each co-owner’s share will then be subject to their will.

However, such a deed doesn’t specify what happens, for example, if there is a disagreement and one owner wants to sell but the other doesn’t. Or suppose one co-owner can’t pay his share of the expenses but the other has to make up the deficit to avoid losing the house by foreclosure?

A written partnership agreement can specify what happens if problems develop. Keep suggesting your son and his friend have an attorney prepare a partnership agreement for their signatures now while everything is going well.

PROPERTY MARKET VALUE UPON DEATH, NOT PURCHASE PRICE, IS WHAT COUNTS

DEAR BOB: My wife and I own a condo, worth about $600,000. We are both in good health in our 80s. We want to give our condo to our three children upon our deaths so they can sell it and divide the money. But they will owe a big tax because we only paid about $300,000. Would a quit claim deed avoid tax? – Edward C.

DEAR EDWARD: Presumably, when one spouse dies, the survivor will want to continue living in the condo. Such a transfer to a surviving spouse is not taxable, whether the transfer is by will or as a surviving joint tenant, thanks to the marital deduction.

However, when the surviving spouse dies, if that person leaves a net estate over $1.5 million in 2004, then Uncle Sam’s federal estate tax will apply. The condo’s $300,000 purchase price is irrelevant. What matters is its net value at the time of the second spouse’s death. Please consult your tax adviser now to minimize or eliminate estate tax.

REVERSE MORTGAGES NOT AVAILABLE BEFORE AGE 62

DEAR BOB: I understand reverse mortgages, which pay income to senior citizen homeowners, are available after age 62. My daughter, 46, has chronic fatigue syndrome and has lost her job. Her home is free and clear, but she may need funds to keep it in good condition. Are reverse mortgages available to disabled persons who are not yet 62? – Tom K.

DEAR TOM: No. There’s a good reason why reverse mortgages are not available to homeowners who are not yet 62. That reason is younger homeowner would receive very low payments because they have a long life expectancy.

In fact, homeowners in their sixties who obtain reverse mortgages receive much lower benefits than those in their seventies and eighties. The older the homeowner, the greater the reverse mortgage advantages.

GOOD BOOKS ABOUT FORECLOSURES

DEAR BOB: You recently answered some questions about foreclosure investments. Can you recommend any books on this topic? – James W.

DEAR JAMES: Two excellent books about investing in foreclosures are “Goldmining in Foreclosure Properties, Fifth Edition” by George Achenbach and “Making Big Money Investing in Foreclosures Without Cash or Credit” by Peter Conti and David Finkel. Both are available in stock or by special order at local bookstores, public libraries and www.amazon.com.

READER SAYS VALUE OF TIMESHARES IS IN THE USEAGE

DEAR BOB: I respectfully disagree with your reply to the lady who sold her timeshare at www.Ebay.com. Her complaint about getting just a fraction of her purchase price is invalid. Most things we buy, such as a car or computer, depreciate in value. But timeshares often increase in useful value, such as when the resort adds features or new time exchange opportunities become available. Unlike residential real estate, the value of timeshares is in their usage – Mark S.

DEAR MARK: I know many owners who love their vacation timeshares. As you emphasize, timeshares have value to owners who use them. But the resale market value of timeshares is usually only a small fraction of their original purchase price.

The new Robert Bruss special report, “Insider Secrets of the Best Ways to Hold Title to Your Home and Investment Property,” is available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com. Questions for this column are welcome at either address.