DEAR BENNY:I am looking at some property that has gone into foreclosure and will be auctioned at the courthouse in a few weeks. Is it better to try and bid on the property at the auction, something I have never done, or try to contact the attorneys handling the case and make an offer before the auction? Is there a percentage a person should bid at auction or offer the bank? There is about $580,000 owed on the mortgage, but the house has been empty now for a couple of years and is not in very good shape now. The humidity here in Florida has caused mold to grow everywhere. –Cheryl
DEAR CHERYL: Why do you want to buy a house that is not in good shape and has lots of mold? Do you really think you will be able to get a great bargain at the foreclosure sale?
I always ask myself one question: If this is such a good deal, why am I going to get it? At these foreclosure sales, there are experts (some people call them “sharks”) and there are laypersons. If you really want to pursue this, you must retain counsel and get an immediate title search to determine whether there are any other liens or encumbrances other than the $580,000 mortgage.
You should also talk with the homeowners who are facing foreclosure. Perhaps they would be willing to sell the house to you if you will pay off their mortgage? Even if they are unwilling to do this, at least you will have had an opportunity to inspect the entire property. That’s a must; many people buy houses sight unseen only to discover major — and expensive — problems after they take title.
You should also talk with the lender or its attorneys. Some lenders will be willing to cooperate and assist you in buying. Other lenders take the position that they do not have the right to do anything until after the foreclosure sale takes place.
How much should you bid? That depends on two factors: the value of the house and your pocketbook. There is no real standard bidding practice. The lender will probably set the initial bid. They may require bids at certain dollar increments — say $1,000. Start at the opening bid and go up to your limit.
You must set a limit on how much you are prepared to spend. There is what I call the “auction mentality” whereby people think they are getting a bargain even though they overpay the value of the auctioned property.
You should also determine — in advance of the sale — approximately how much it will cost you to repair and correct all of the problems (including the mold).
The bottom line: Buying at a foreclosure is risky, despite what those so-called “experts” write about in their sales-promotional books.
DEAR BENNY: Are there any good ways to sell a great house on a beautiful golf course? –Alayne
DEAR ALAYNE: I chuckled when I read your question. There is no one “good way” to sell any house. Real estate agents will say, “Give me a listing and I will sell it for you.” But the market will dictate success.
How is the real estate market in your area? Are homes — including those on golf courses — selling, and if so, how long are they on the market?
Have you explored talking with the golfers? Can you post a notice on the clubhouse bulletin board?
I always advise clients to explore the market first. Talk with at least three real estate agents to make sure that they know the area. Will they sit on open houses for you? If so, how many times a month? What kind of promotional material will they distribute, and who will pay for this?
If you decide to list your house, do it for 90 days only. You can always extend the listing if you are satisfied with the performance of your agent.
DEAR BENNY:My wife and I, in our mid-60s, are retired and have no mortgage. Our property is valued at about $500,000. We have been thinking about being able to live in a warmer climate during the winter months and living in our current residence the remainder of the year. My thought is to obtain a $200,000 reverse mortgage and purchase another house, out of state, free and clear of a mortgage. That would give us the flexibility of living at either house at any time we choose. Additionally, we could possibly rent it, occasionally, as a vacation home on a weekly or monthly basis, and use the proceeds to cover maintenance costs, taxes and insurance. –Bob
DEAR BOB: Sounds like a very sensible plan. The reverse mortgage would enable you to borrow money without having to make monthly mortgage payments. You will have to confirm with the mortgage lender that your conditions are acceptable. Some reverse-mortgage lenders require that you live in the house full time.
If your lender will approve, I do have two suggestions. Regarding insurance, if your houses may be vacant for four to six months at a time, check with your insurance carrier to make sure that you are not going to violate one of their requirements. Often, insurance companies balk at having to insure vacant homes.
Regarding taxes, do you ever plan to sell your current home? In order to take advantage of the up-to-$500,000 exclusion of gain ($250,000 if you are not married), you want to make sure that you will have legally lived in the house for two our of the previous five years before it is sold. Typically, if you live in a house for at least 181 days out of the year, it is considered your principal residence.
One note of caution: When this answer was written, Congress was seriously considering placing restrictions on the capital gains treatment of second (or vacation) homes. Discuss your plans with your tax advisors before you sign any contracts.
DEAR BENNY:My wife and I are planning to sell our home and move to a neighboring county.Your predecessor for this column, Bob Bruss, always recommended interviewing the top three real estate agents in the area/community; having each of them prepare a market analysis; and contacting references before choosing a listing agent.That is what we plan to do, but I do not know how to find the top agents.Where can I get that information?Also, how broadly or narrowly should we define “area/community”?For what it is worth, we currently live in the Washington, D.C., metro area, and there are a ton of real estate agents that could theoretically serve as our agent.
We are also planning to use our listing agent as our buying agent in our new house.Is it better to get an agent more familiar with our current community, get an agent more familiar with where we want to move, or just get two agents?In an ideal world, we will find an agent with a history in both areas, but that may not be possible.We know exactly where we want to move based on school district, commute to work, etc., so finding our new house is just a matter of discovering the best fit within our parameters.Once we pick the agent, we intend to sign a 90-day contract with our listing agent, with the option of 30-day extensions if we are happy with the agent’s efforts. –C.P.
DEAR C.P.: Yes, there are tons of agents in the Washington, D.C., metro area. Some are with large firms and others are sole practitioners. My personal belief is the “bigness does not always equate with quality.” Perhaps the best way to find a good agent is by word of mouth. Talk with neighbors and friends. If there are “for sale” signs in your neighborhood, try to talk with those owners to determine how satisfied they are with their agent.
You asked for a definition of “area.” You want an agent who knows the area, and perhaps even lives in the neighborhood. While agents are restricted on how much they can say about safety, schools and transportation, these are the kinds of questions that potential buyers always ask, and obviously a “local” real estate agent would be best for you.
Should that same agent represent you in the buying of your new home? While I know that this is common practice, I personally believe there is a real — or potential — conflict of interest in that situation. There is too much temptation for the agent to push you into selling just so you can go to closing faster on the buying end, and the agent will get two quick commissions.
And in your case, the agent who will assist you in selling your house will know very little — if anything — about the new area you are interested in. So I definitely recommend that you get two different agents.
As for signing a listing agreement, that should work. You can always extend it if you are satisfied with the progress of the agent. But if not, why be stuck for a longer period?
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@sandbox.inman.com.
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