Don't Be Afraid to Use 'Bargaining Power'

By Robert J. Bruss
Saturday, March 3, 2007

Q: DEAR BOB: I recently found a first-floor condo that I was ready to make an offer on. However, after my buyer's agent took me for a second viewing, we found water dripping from the ceiling in one of the bedrooms and a small pool of water in the second bedroom. The condo, in a renovated building, comes with a two-year builder's warranty. The unit has not been lived in since the recent renovation. I would expect the builder to repair the leaks and replace the hardwood floors where the water damage occurred. With the slow buyer's market, I planned to make a lowball offer, but I worry the builder won't want to lose any money and will refuse to replace the floors. I want to make a strong offer, but am afraid I will lose bargaining power if I make repair requests. -- Alexa S.

A: DEAR ALEXA: You can always raise your purchase offer, but you can't lower it. Make a low offer with the repair conditions you want. If the renovator says no, you can then either raise your offer or choose not to buy.

If your first offer is high and the developer accepts, that means you probably overpaid. Especially if the condo unit has been on the market for quite some time, the seller might be thrilled to receive any offer. Always remember his profit is in the sale of the last few units.

Be sure your purchase offer includes all the contingencies you want, including repair of the floors before you close the purchase. That two-year warranty is nice if you are dealing with a reputable seller, but your best protection is to get all known defects repaired before purchase.

DEAR BOB: My mother has been hospitalized for three months. As the only remaining direct family member, there are some financial challenges I will face after she dies because of her lack of planning. She has no written will, and she owns real estate, investments and bank accounts, as well as owning her house free and clear. What is the most efficient means of title transfer without interference by the state? -- Brad S.

DEAR BRAD: If your mother is mentally competent and able to understand, you should arrange for her to transfer her major assets such as her home and investments into a revocable living trust to avoid probate costs and delays after her passing. Presumably she will leave you those assets and name you as her successor trustee.

After she dies, as successor trustee you can then pay any debts and transfer those assets to yourself, as provided by the living-trust terms. If you are the sole heir, this should not be a problem. You will need a lawyer who specializes in living trusts to prepare one according to your mother's wishes. The lawyer should also prepare a "pour-over will" for any assets she overlooked.

DEAR BOB: We are in the process of buying a larger home and aren't sure what to do with the home we own because we can't afford both. If we sell our current home, we will lose about $50,000 based on similar nearby home sales, compared with what we owe. If we rent it for about $2,000 per month, that isn't enough for the $3,300 monthly mortgage payment. We have about $15,000 in savings, but that won't last long with a loss each month. I've been told about a "short sale," which is a step above foreclosure. But I'm not sure what that would do to our credit. Would a rent-to-own work so we could increase the monthly rent? What should we do? -- Hillary A.

DEAR HILLARY: Why would you contract to buy another house before selling your old home if you can't afford both houses? Unless you are in default on your mortgage payments, which would greatly harm your credit and probably disqualify you from getting a mortgage on the new home, your current mortgage lender won't even consider a "short sale" for less than the mortgage balance.

A lease with option to buy, also called "rent to own," could help if you can get a tenant to pay enough rent to come close to paying that $3,300 monthly mortgage payment. However, the tenant will expect part of that high rent to go toward the down payment when the purchase option is exercised.

If the home is worth $50,000 less than your mortgage balance, a lease option probably isn't your best solution.

I suggest you cancel the purchase of that larger home. Stay in your current residence. Your situation shows why it's always best to sell your old home before buying another one. I would like to be more sympathetic, but you got yourself into this mess and there is no easy way out.

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