Giving Full Disclosure of Major Repairs Is a Must

Q: DEAR BOB: We just had a major house fire. Our homeowner's insurance paid about $165,000 for repairs. Before the fire, the house was worth about $250,000. The house was redone with new wiring, plumbing, heat, air conditioning, drywall, carpeting and a new kitchen. It was basically gutted inside and outside. What effect will this insurance claim have on my resale value? If I were a buyer, I wouldn't be interested in this home. However, as the owner, I know the house is now like new. I am discussing this with the insurance company, comparing it to buying a rebuilt car. I feel that I should be somehow compensated for the decrease in my home's market value. When I sell, will my buyers have trouble getting homeowner's insurance because of this major claim?

-- Ernie M.

A: DEAR ERNIE: Yes, you must disclose to the buyer that there was a major fire and that the damage was repaired when the house was virtually rebuilt. Many buyers will consider that an advantage because the house had to be upgraded to current building codes.

After the repairs were completed, the market value probably increased rather than declined. The claim on your homeowner's insurance policy should not prevent future owners from obtaining a new policy when the house is sold. In fact, most homeowner's insurance companies give discounts for improvements such as new wiring, hard-wired smoke detectors, and new heating and cooling systems.

DEAR BOB: My rental property is more than 80 years old and worth about $190,000. I paid $35,000 for it and have been renting to the same tenants for 17 years. I think they have more than paid for it, and I want to sign the title over to them because they have no money and deserve a break. Can this be done without cost? -- Bobby L.

DEAR BOBBY: Yes. You can sign a quitclaim deed transferring the title to your tenants. The reason for using a quitclaim deed is so you have no liability if the title proves to be defective.

Have a lawyer prepare a short agreement stating you are giving the property in "as is" condition and will not pay for any repairs.

The only disadvantage is for your donees, who will take over your low adjusted cost basis, rather than today's market value. But your tenants should be thrilled with your generous gift.

Because the gift exceeds the $12,000 annual federal gift tax exemption per donee, you will have to fill out a federal gift tax return. No gift tax would be due unless you have given away more than $1 million in lifetime nonexempt gifts.

DEAR BOB: Next spring, I plan to sell my home. With jumbo mortgages so hard to get, I am thinking seller financing would make my home sell faster and for top dollar. A decent cash down payment would be mandatory. What pitfalls do you see?

-- Chesley R.

DEAR CHESLEY: Presuming that you own the house free and clear, easy seller financing is a great way to make your listing stand out from the competition. Also, you will be creating a safe investment for yourself, secured by a mortgage or deed of trust recorded against the home's title. However, for your safety, you should insist on a cash down payment of at least 20 percent, but don't make it too high, or you will discourage buyers.