DEAR BOB: You helped us once before and we hope you can help again. In September, we bought an older house, which had recently been remodeled. It has a flat roof. Our professional home inspector said the roof appeared to have been repaired recently. During a moderate rain about a month after we moved in, it leaked in several spots. When we called the realty agent and the seller, they both said the roof didn’t leak when the house was sold to us so they have no liability. We talked with two roofers who agreed the roof is “shot” and needs complete replacement. One roofer bid $12,500 and the other bid $14,850. When we talked to our attorney, she reviewed our sales contract that says we agreed to “mediate” any dispute that arises with the seller, but if that doesn’t work we have to go to binding arbitration. When we signed our purchase offer, the Realtor strongly “pushed” us to agree to arbitrate any disputes. Is that good or bad? – Vickie R.

DEAR VICKIE: Mediation of real estate sales disputes is fine and I highly recommend it as a way to resolve buyer-seller disputes at very low expense.

Purchase Bob Bruss reports online.

When your attorney notifies the seller that you feel the house was misrepresented because the roof leaked badly in the first moderate rain after purchase, she will remind the seller of the contract obligation to mediate disputes.

The parties, with the help of their attorneys, will then choose a neutral mediator who has real estate experience. In a simple matter like this, mediation shouldn’t take more than one day. Each party presents its evidence, such as your roofer estimates. The parties usually split the fee of the mediator. If he or she is really good, the result will usually be a compromise of some type.

However, if mediation fails, because both buyer and seller agreed to binding arbitration for any sales disputes, then you and the seller will choose an arbitrator who will hear the evidence and render a binding decision. That decision is then presented to the local court for confirmation so it becomes the equivalent of a judgment.

The big drawback of binding arbitration is there is no appeal, even if the arbitrator made a mistake. Of course, there is no court trial or jury. The rules of evidence are often loosely applied.

Personally, when I buy or sell real estate, I never agree in the sales contract to binding arbitration of future disputes. My philosophy is that’s not the time to give up my legal rights to a jury trial if a dispute later arises. However, should a lawsuit later develop, the parties can then agree to binding arbitration if they desire.

SHOULD HOME SELLER USE SAME REALTOR TO BUY NEW HOME?

DEAR BOB: I plan to sell my current home and buy a smaller home within 25 miles. Should I use the same Realtor as my listing and buyer’s agent? Would there be any conflict of interest for the Realtor? – George M.

DEAR GEORGE: If you are satisfied with the Realtor’s service on the sale of your home, and if he or she is familiar with the area where you plan to buy a smaller home, why not use the same agent?

To gain your repeat business, it would not be unusual for the Realtor to offer you a discount on the sales commission for the house you are selling. Should the agent refuse to do so, however, I wouldn’t feel obligated to buy your new home with the help of that agent if you find a better buyer’s agent near your new home location.

USING SALES PROCEEDS TO BUILD RENTAL HOUSE WON’T SAVE TAX

DEAR BOB: I look forward to your articles every weekend. My question deals with Internal Revenue Code 1031 “Starker” exchanges. I have two investment properties and I want to sell one. Can I make an IRC 1031 tax-deferred exchange by using the sales proceeds to build a rental house on my second property? – Joe U.

DEAR JOE: No. The reason is you already own the second property. A tax-deferred IRC 1031 exchange requires the sale of an investment or business property and purchase of a replacement “like-kind” property of equal or greater cost and equity. For full details, please consult your tax adviser.

HOW SHOULD CONDO FEES BE DETERMINED?

DEAR BOB: I am the president of a 16-unit condo association. Monthly fees were set up by the developer based solely on square footage of each unit. The big problem is the sizes of the units range from 500 to 1,500 square feet. The result is monthly condo fees from $40 to $220 per month. The four big units bear most of the financial burden. What are some other ways to divide up the condo costs? – Jeremy H.

DEAR JEREMY: Please let me extend my sincere sympathy. There is no greater thankless job than being on the board of directors of a condo homeowners association. Being the president is even worse.

I hope you enjoy the pressure from your 15 fellow members. But some people enjoy being in charge. That must be you.

Your homeowner association CC&Rs (covenants, conditions and restrictions) determine how the monthly homeowner fees must be assessed. If the CC&Rs state it is based on square footage, that method can only be changed by a vote of the members.

It looks like you’re stuck with the current method unless the members vote to change it. For more details, please consult a local real estate attorney.

HOW TO CHANGE A LIFE ESTATE TO FULL OWNERSHIP

DEAR BOB: If you can’t answer my question, I’ll understand. How does one change a lifetime right to a home, granted in a will, into one that can be sold? What type of attorney can help me with this issue? – Joan N.

DEAR JOAN: I think what you are asking is how to get a life estate in a residence changed to full-fee simple absolute ownership that can be sold.

If you are the life estate tenant, your only solution is to buy the “remainder interest” of the person who owns the home subject to your life estate. That person is called a “remainderman.” To be politically correct, that individual is a “remainderperson.”

You can contact that individual to learn if he or she wants to sell you the remainder interest in the home. If that person needs cash, maybe you can make a deal. Or, perhaps that individual is willing to wait until you die when he or she will fully own the home. For more details, please consult a local real estate attorney.

SHOULD HOME SELLER HIRE AN APPRAISER?

DEAR BOB: I want to have my home appraised before I put it on the market for sale. I have talked with three real estate agents and they differ in their opinions of my home’s market value. What qualifications should I look for in an appraiser? I hate to just pick a name out of the yellow pages? – Jeanie B.

DEAR JEANIE: Each of those three realty agents you interviewed about listing your home for sale should have eagerly provided you with a written CMA (comparative market analysis). This form shows current asking prices of similar nearby homes (your competition), recent sales prices of comparable neighborhood homes, and even asking prices of recently expired competitive listings.

The CMA form provides space for each agent to give you a suggested asking price and probable sales price. Until you have at least three CMAs, you’re not fully ready to sell your home and set a realistic asking price.

If you insist on hiring a licensed appraiser, ask your nearby banker or credit union real estate loan officer for names of local appraisers they recommend. Your cost will be at least $350, perhaps higher.

WHAT IS A GOOD PRICE FOR A LOAN APPLICATION FEE?

DEAR BOB: In a recent article, you said $500 was too high for a loan application fee. What is a good price for a loan application fee? – Sandra S.

DEAR SANDRA: The best mortgage lenders don’t charge any up-front loan application fee. Or, if they do, they credit it toward your loan closing costs.

When I refinanced my home a few months ago with Wells Fargo, I specified I wanted a “no cost” mortgage. As a result, I didn’t pay any mortgage application fee.

The reason some lenders charge a loan application fee is to “tie up” the prospective borrower. Without a loan application fee, the lender can’t be sure if the borrower is serious. At most, I wouldn’t pay more than a $100 mortgage application fee to be credited to closing costs.

The brand new Robert Bruss special report, “How to Avoid Buying a Bad ‘Lemon’ House,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.

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

***

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