How can home prices rise as sales sink?

DEAR BOB: I have been selling homes successfully for aboutthree years. In 2005, I earned over $100,000 in sales commissions. But myearnings in 2006 will be much less due to the slowdown in the home-salesmarket. However, I’m not making as many sales as last year. As I read thenewspapers and real estate trade journals, I’m wondering why the national homesales prices keep going up but the number of home sales is dropping. What isyour view on today’s home sales market? –Susan R.

DEAR SUSAN: You raise very challenging questions. The numberof closed sales of houses and condominiums determines home sales volume. Inmost cities, that number has dropped in 2006 compared to 2005.

Purchase Bob Bruss reports online.

Nobody knows with certainty the reason. The modest rise inmortgage interest rates from the 5 percent to 6 percent range reduced buyerdemand. Also, 2005 was a record year for home sales volume so those buyersaren’t in today’s market.

The increase in resale and new-home inventory has decreasedhome-buyer urgency to purchase. The result is a “buyer’s market” inmost cities, with more homes for sale than qualified buyers in the market.Also, listings stay on the market longer than they did a year ago.

But don’t be misled by the month-to-month changes in homesales prices, which, in many cities, are still rising while home-sales volumedeclines.

Home-sale prices are reported as median prices, not averageprices. That means an equal number of homes are sold above and below the medianprice. This number is easily skewed from month-to-month by an increased numberof expensive or inexpensive home sales. It doesn’t mean the market value of aspecific house or condo rose or fell.

The median price for homes is slower moving than averagesales prices, which tend to be more volatile and are rarely reported in themedia.

Having been involved as a real estate investor and brokerfor about 40 years, I’ve seen many home-sale-price peaks and valleys. In a fewyears, home-sale prices were flat.

Over the long term, the price trend has always been up(about 5 percent annually nationwide, according to the National Association ofRealtors). But median home-sale prices don’t reflect the total volume of homesales, which is expected to be down in 2006 compared to 2005.

CAN HEIRS SELL PROPERTY “AS IS” WITHOUT TERMITEINSPECTION?

DEAR BOB: I have an elderly relative who has owned severalrental houses for many years. These properties are not well kept. When shepasses on and the heirs sell the properties, will the heirs have to havetermite inspections or can the heirs sell them “as is”? –Larry W.

DEAR LARRY: Most states do not require a pest control(termite) inspection. But a few do. A local realty agent where the propertiesare located can tell you if a termite inspection is required.

But virtually every home buyer insists on such an inspectionso you should expect the buyers to include inspection contingency clauses intheir purchase offers.

Heirs frequently sell inherited properties “asis.” The very good reason is the heirs usually don’t know the condition ofthe properties so they don’t want to incur liability for incorrect statements.

An “as is” sale means the seller must disclose tothe buyer all known property defects but the seller doesn’t have to pay for anyrepairs.

However, offering a property for sale “as is” islike waving a red flag in the buyer’s fact warning “watch out there mightbe something seriously wrong with this house.”

A better approach is to put a property on the market forsale, disclose all known defects, and see what happens. If the buyer’sprofessional termite inspection reveals serious damage, then the seller candecide to either give the buyer a repair credit or not.

CAN LANDLORD COLLECT DOUBLE RENT?

DEAR BOB: My tenant moved out on July 23 without giving me a30-day notice. I re-rented the place on Aug. 1. Can I legally charge myex-tenant rent for 30 days from July 23 to Aug. 22 even though I re-rented theplace on Aug. 1? Can I take the unpaid rent from his security deposit? – RoryP.

DEAR RORY: A landlord is not entitled to double rent fromtwo tenants for the same rental period.

However, you can deduct from the ex-tenant’s securitydeposit the unpaid rent for the days the property was vacant. For full details,please consult a local real estate attorney.

CONSULT ATTORNEY ABOUT HOW TO HOLD JOINT TITLE

DEAR BOB: What is the easiest way for me to add my husbandto the title to my house? –Mary Ann W.

DEAR MARY ANN: The easiest way to convey a full or partialreal estate interest is with a recorded quitclaim deed.

However, please don’t rush out to do so. First think abouthow you and your spouse want to hold title. Then discuss the alternatives witha local real estate attorney.

Depending on the state where the house is located, youshould consider joint tenancy with right of survivorship, tenancy by theentireties, community property, and especially in second marriages, tenants incommon. The legal consequences of each title method are vastly different.

IS REVERSE MORTGAGE GOOD FOR A STRUGGLING RETIREE?

DEAR BOB: I retired in March 2006 and have been strugglingeach month to pay my bills. Someone recently told me about a reverse mortgage.I am a 66-year-old single woman with no children. When I die, all my worldlypossessions will go to my four nephews. I have about $35,000 left on mymortgage plus $5,800 on a home equity line of credit. Would such a mortgage begood for me? –Marie C.

DEAR MARIE: If the total debt now secured by your principalresidence is 50 percent or less of its market value, then you are an excellentcandidate for a reverse mortgage.

The reverse mortgage will pay off your existing firstmortgage and that home equity loan so you will have no monthly mortgagepayments.

The balance of the reverse mortgage funds can then be usedfor lifetime monthly income, a credit line, a lump sum (such as for homerepairs or a new car), or any combination.

A reverse mortgage will give you the added income you needto enjoy retirement by solving your cash flow problem. To find a reputablelocal reverse mortgage originator, on the Internet go to www.ReverseMortgage.org. Moredetails are in my special report, “The Whole Truth About Reverse Mortgagesfor Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instantInternet delivery at www.BobBruss.com.

IS AN INTEREST-ONLY HOME LOAN GOOD OR BAD?

DEAR BOB: I received information to refinance our firstmortgage with cash out to pay off credit card debt. But my wife does not likethe interest-only terms. Your advice please? –James H.

DEAR JAMES: There is nothing wrong with interest-only homemortgages, which do not allow negative amortization (which means your monthlypayment is fixed but the interest rate adjusts monthly and unpaid interest isadded to your mortgage principal balance).

The result of negative amortization is you can owe more thanyou borrowed.

Of course, with an interest-only mortgage, you won’t bebuilding any equity from mortgage amortization paydown. That’s all right unlessyou plan to stay in your home “forever” and want to eventually own itfree and clear with no mortgage balance.

WHAT RECOURSE AGAINST HOME INSPECTOR?

DEAR BOB: When my daughter bought her house, she hired ahome inspector. He reported all was well. Three years later, she sold thehouse. The buyer’s inspector found the heater, located in the attic, installedincorrectly, causing a fire hazard. To close the sale, she had to spend $1,600to have the heater reinstalled correctly. She contacted her inspector and hesaid that although he missed this, the contract she signed says he is notliable after one year. Should she take him to Small Claims Court? –Lorraine K.

DEAR LORRAINE: Anything can happen in Small Claims Court. Ofcourse, the inspector will point to his contract as his defense. Her chances ofwinning don’t look great.

SHOULD HOME SELLER HIRE AN APPRAISER BEFORE SELLING?

DEAR BOB: I inherited an out-of-state house, which I want tosell. It is occupied by a tenant who says she wants to buy it. But I don’tthink she can afford to do so. Should I hire a professional appraiser todetermine the market value of this house, which I plan to list for sale if thetenant doesn’t buy? –Margo T.

DEAR MARGO: Your best assurance of determining the house’s fairmarket value is to interview at least three successful local real estate agentsabout listing it for sale.

Each agent should prepare a written CMA (comparative marketanalysis) showing you recent sales prices of similar nearby residences, askingprices of neighborhood houses now listed for sale (your competition), and theasking prices of recently expired comparable listings (usually overpriced).

After checking each agent’s recent seller references, thenlist with the best agent. However, include a “reservation” statingyou will owe no sales commission if your tenant buys the house during thelisting term.

The new Robert Bruss special report, “How to Sell YourHouse or Condo for Top Dollar in a Buyer’s Market,” is now available for$5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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