| Buying and Selling Real Estate
Hosted by Bob Bruss
Syndicated Columnist
Friday, Sept. 28, 2001; 1 p.m. EST Buying a house -- or even thinking about buying one -- is a complicated process, particularly if you haven't done your homework. What should you look for in a piece of real estate? How do you get the best financing? And how is the process different when selling property? Bob Bruss has been taking the mystery out of buying, selling and financing real estate for 26 years with his weekly syndicated "Real Estate Mailbag" column. Bruss also writes "Real Estate Notebook," "Real Estate Law and You" and the "Real Estate Book Review" features. In addition, he writes two monthly real estate newsletters and is the author of the books "The Smart Investor's Guide to Real Estate" (Crown, 1985) and "The California Foreclosure Book" (1992). He was online to answer your questions Friday, Sept. 28. The transcript follows. A native of Minneapolis, Minn., Bruss is a real estate lawyer and broker in California. He holds a business degree from Northwestern University in Evanston, Ill., and a law degree from the University of California's Hastings College of the Law in San Francisco. Bruss has taught real estate law at the College of San Mateo and for the the University of Southern California's College of Continuing Education. He has owned investment properties in California for more than 33 years, gaining experience in renovating old fixer-up houses, which became his hobby. Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Alexandria, Va.: My husband and I are interested in buying our first home. We have good income and credit, and in about six months we'll have enough for a 5 percent downpayment. We need to decide now whether to sign a one year or six-month lease on our current apartment, with higher rent on the six month lease. My question is, once you know you want to buy a house, what is a good amount of time to do the research, get pre-approved, and find a house? And if we plan to move a year from now, what should we be doing right now, besides saving for the downpayment? I've started looking at homes online but it seems like it might be a waste of time this early. Bob Bruss: The first home buying step is to get pre-approved in writing by an actual lender, such as a bank, S&L or mortgage banker. Mortgage brokers can arrange pre-approvals too. However, don't accept a "pre-qualification." That is worthless. After you know what mortgage amount you can obtain, then decide if you want to buy a home now or wait. Frankly, the market has slowed down now in most areas so it might be a good time to buy. Will your landlord let you go on a month to month basis? If so, presuming you are serious about buying a home, I wouldn't sign any lease. The very best time to buy a home is between Thanksgiving and Super Bowl Sunday. That's when the fewest home buyers are in the market and the homes on the market are usually being sold by highly motivated sellers at that time of the year. For now, get pre-approved in writing by an actual lender. Usually that approval is good for 30 to 90 days and can be renewed by the lender. Happy home hunting!
Gaithersburg, Md.: how does one going about getting a mortgage after bankruptcy? Bob Bruss: If you have been discharged from bankruptcy, some (but not all) mortgage lenders will make you a mortgage loan (but at a higher than normal interest rate). Shop around. Some mortgage brokers advertise they specialize in bad credit and bankruptcies. Other lenders won't want to talk with you.
Arlington, Va.: I have absolutely no skills when it comes to renovating homes (ie. carpentery, installing plumbing, etc.). And to be honest, I don't have the time to learn it and be a mini-Bob Villa. Are there contractors that specialize in fixing up old homes, and if so, how do I find them? Yellow pages category? Registry? Bob Bruss: Congratulations! You're very fortunate to be unskilled when it comes to home renovations. When I started out, I once renovated a nine-apartment building. I even tiled around the bathtubs and the kitchen counters. I also painted all nine apartments, the hallways, and everything except the exterior. Too dangerous! But as I earned more money from real estate investing I began hiring contractors. The work then went much faster and was better quality. If you have a house that needs fix-up, look around your vicinity for contractors who are doing remodeling work. Stop by. They often have a small sign on the property or on the side of their truck. Ask the property owner if they are satisfied with the work and if they would hire the same contractor again. Ask your friends for recommendations of contractors. If you belong to a real estate investor's club, the members will gladly share the name of contractors they recommend. You might even meet contractors at the monthly investor's club meetings.
Arlington, Va.: What online guides can I browse to find out more about buying/selling as well as fixing up homes? Also, what is a good way to determine if a neighborhood where I'm buying an old home has great appreciation potential (i.e. if I buy a home in a gritty neighbourhood that has potential, how can I be sure it really has potential?). Bob Bruss: You can start with www.bobbruss.com where I try to post a new real estate article every week. We also offer about 40 real estate reports there on many different real estate topics. A directory-type real estate website is www.ired.com. It will lead you to all sorts of real estate websites. For real estate news, go to www.inman.com. For checking home prices, try domania.com/homepricecheck.jsp. I haven't checked domania.com for a long time so I hope it's still there! To check out a neighborhood, look at how people maintain their homes. Do you see lots of remodeling and fix-up work. Or are the properties run-down? Would you feel safe there after dark? I've bought slum property where I wouldn't go after dark which turned around after about 10 years. Today, it's a nice middle-class neighborhood. But it sure took a long time. However, the house was such as "real steal deal" (a bank foreclosure) I figured it would be hard to lose. But a month after I bought and my tenant had just moved in, there was a murder right across the street. However, after that the neighbors put pressure on the police for better protection and the neighborhood started gradually improving. It's very difficult to predict when, and if, a neighborhood will improve. The best indicator I've seen is homeowners remodeling their homes. That usually means they plan to stay and market values will probably appreciate.
Washington, D.C.: Hello Bob, I'm thinking of becoming a realtor. Can you suggest any good places in D.C. (preferably near DuPont Circle) where I can take classes to prepare me for my licensing exam? I've only been able to find the one that is up in Tenleytown in the 4200 block of Wisconsin Avenue. I was hoping for something closer to home. Bob Bruss: The best place to get a quality real estate education (not just to pass the license exam) is to take classes at a community college. Start with the Real Estate Principles course. Then you can take Real Estate Finance, Appraisal, Law, Property Management and whatever realty courses interest you. If you want a quickie real estate school, check the yellow pages. But you won't learn much more than how to pass the exam.
Washington, D.C.: My wife and I are considering buying our second home. How soon should we put our current home on the market? Also, what percentage is normal for the down payment on second homes? Bob Bruss: Your question is a bit confusing. If you plan to buy a second or vacation home, why sell your current principal residence? But if you mean you want to current your current home and buy another principal residence, it's best to sell your old home first before buying a new home. The reason is then you won't be under pressure to take a low-ball offer to get the cash to buy the next principal residence. If you are buying a second or vacation home, and if you have good income and good credit, you can probably buy with 10% down payment and a 90% mortgage. Get pre-approved for the mortgage first before you go shopping so you'll know exactly how much down payment you'll need.
Herndon, Va.: Mr. Bruss -- My wife and I are in a home with a mortgage balance of about $155,000. Its value is roughly $375,000. We're here for at least three more years, but not sure how much longer. Our mortgage is 8.5 percent. Is a refinance to an ARM worth it? Depending on the cost of the refinancing, of course. Bob Bruss: Yes, it's time for you to refinance if you're sure you'll stay in the home at least 3 more years. An adjustable rate mortgage (ARM) which is locked-in for 3, 5 or even 7 years should be around 6 percent interest with no points. Be sure to get a "no cost" mortgage. The reason is on a refinance, any loan fee can only be deducted over the life of the mortgage. In your situation, that's not a good idea. When I refinanced with a no cost mortgage, the interest rate was about one-eighth percent higher than if I paid a one point loan fee.
Sterling, Va.: Hi Bob. We put our townhouse in Sterling, Va., on the market over a month ago and have only had one family look at it. It is all brick, backs up on woods and a field is full of upgrades and the decor is very neutral. It is clean and in move in condition. Of course, the country just experienced one of its worst tragedies in history, but we were not getting traffic before Sept. 11. Any advice on marketing it or other thoughts would be greatly appreciated. Bob Bruss: You didn't mention a Realtor. This is NOT the time to try to sell without a professional Realtor listing and marketing your home. Yes, the market is unstable now. But that will resolve itself. It usually takes 3 to 6 months for us for get back to normal. Be patient. However, if you don't have any purchase offer within 60 days, perhaps your home needs a price reduction. Hopefully, your Realtor prepared a CMA (comparative market analysis) showing recent sales prices of comparable nearby townhouses and the asking prices of neighborhood townhouses (your competition) so your asking price is reasonable. This is not the time to stretch to attempt getting top dollar. Home buyers in the market today are looking for "good deals" not overpriced homes.
Suffolk, Va.: I was always told to buy a house in an area with good school systems. Does that still hold true? Also, in a not to hot area such as ours where homes do not move as fast as Northern Virginia, what's the best starting offer on a house? I was told to make an offer $10,000 less than asking price, is that too much too little? Does that hold true with new developers? Thanks! Bob Bruss: Yes, top quality schools help home values tremendously. Poor quality schools mean families don't want to move there, thus hurting resale values. Before making a purchase offer, ask your buyer's agent to prepare a written CMA (comparative market analysis) for the house you want to buy. The CMA will show recent sales (not asking) prices of comparable nearby homes. Then you'll have a good idea what price to offer. The house might be a bargain at its full asking price. Or it might be grossly overpriced. There is no rule as to how much below the asking price to offer. By getting a CMA before making your purchase offer, you'll feel more confident. Unless a developer is desperate to sell his homes, he usually won't cut the asking price. However, you can often negotiate extras such as appliance and carpet upgrades, landscaping, etc.
Fairfax, Va.: I think the question on a lot of potential homebuyers' minds is: How has or will the pending war and weakened economy affect the housing market -- particularly in D.C. area? The unknown is if a massive terrorist attack hit D.C. (e.g., chemical/biological warfare affecting thousands [millions?] of people). I assume there would be an exodus. What are you're feelings about residents' fears and moving? Bob Bruss: Sorry, nobody can answer your question with any accuracy.
Sterling, Va.: Bob, I am interested in buying a big house in D.C., preferably with an English basement to rent out to other people. I'm debt-free, have good credit, am 27 years old, and making about $55K. I'm assuming I can get a loan for $250K easily. But some row homes in the areas I'm looking at are in the $300-400K range. How do I qualify for a bigger loan while noting that I intend to rent out a part of a home? Is there a different loan approval process for people who want to be owner-landlords in their own home? Bob Bruss: Before you begin house shopping, please get pre-approved in writing by an actual mortgage lender. Discuss your ideas with the lender. Most lenders have the same loan criteria for 1-4 residential units. If the house has a rental unit, that rent can be considered when qualifying for the loan. Your situation might be a good candidate for some creative financing. I just finished reading a very good new book which will give you some ideas: "Formulas for Wealth:How to Create a Fortune in Real Estate" by Richard C. Powelson. The easiest place to get it is www.amazon.com. Or your local bookstore can order it for you.
Alexandria, Va.: At what point does owning become better than renting? Is it a percentage of your income or when your rental payment equals a mortgage payment? Bob Bruss: There is no right or wrong answer to your question. If you plan to stay in the area at least five years, then buying a sound, well-located single family house is usually far more profitable than wasting money on rent. Don't consider just the monthly rent verses mortgage payment, property taxes, and insurance. Remember the tax deduction advantages, plus probable appreciation in market value of a home.
Washington, D.C.: I attended the Fannie Mae seminar in August. There were several companies there that advertised free assistance with down payment (free money). I haven't followed up on them yet, but are they legitimate? Do they really give you money for the downpayment that isn't a loan? Bob Bruss: Sorry, I don't know what companies you saw. Fannie Mae offers 97% home mortgages. Countrywide even offers 100% home mortgages if you have good credit and good income.
Washington, D.C.: How do I know if a lender is actually redlining a neighborhood I want to move into? I know they aren't suppose to do it, but I have my suspicions about one lender. Bob Bruss: Get pre-approved in writing for a home loan with a lender. THEN tell the lender where the house you want to buy is located. If the lender "low balls" the appraisal below what comparable nearby homes have been selling for, the lender might be redlining that neighborhood. If so, report the incident to the lender's federal or state regulator for investigation.
Hyattsville, Md.: I am a first-time home buyer. And I wanted to start investing in some property. Is it a good time to invest? How does the economy affect the market and the interest rate? Is investing a condominium a good choice, if I was planning on renting it out? Bob Bruss: Condominiums can be great personal residences. But they usually are not good long term investments. You'll do much better with single family rental houses. It's always a good time to invest in real estate. The best times to buy are when the real estate market is slow. If you wait until the market is "hot" again, then you'll probably overpay, as home buyers did about a year ago when there were multiple offers on houses.
Rahway, N.J.: My wife and I are going to purchase the house we currently live in from our landlord, who first approached us on the idea. (Mainly because of the headaches from the other tenants.) The house is a duplex with us on one side and another tenant on the other. The situation is the current landlord is not going to renew their lease. Can legal notice be given to the other tenants to move before we close? and whose responsibility is it to inform them? We would like to move on that side and rent out the side we currently live in. What are the laws concerning this? Bob Bruss: Sorry, I don't know about local housing ordinances in Rahway, NJ! Check at city hall to learn if there are any local laws regarding notices to tenants to move. Most jurisdictions require 30 or 60 day notice to the tenant to move. Of course, if the tenant has a lease, it can't be broken just because building ownership changes. It might be best if the current owner gives the notice to the tenant to move. Then you don't look like "the bad guy." However, be sure to hold off the title transfer and the closing until after the tenant has moved out. If the current landlord gives the notice to move and then transfers title to you, then you have to start all over with a new notice to move.
Silver Spring, Md.: My fiance and I are considering the possibility of buying. We don't have much saved for a downpayment, and have heard that there are many programs with less than a 5 percent downpayment or 0 percent downpayment. What are the disadvantages to something like this? We are fairly new to all of this, and are trying to decide if we would do better pursuing this now, or waiting until after the wedding, when hopefully, we will have received some gift money. Bob Bruss: Definitely, wait until after the wedding to buy a home together. If you both have good income and good credit, you can easily buy for zero to 3% down payment. Get pre-approved in writing by an actual mortgage lender (pre-qualification is worthless). Then you'll know what price range house you can afford to buy for little or nothing down. The only disadvantage is you'll have PMI (private mortgage insurance) payments for a few years until the loan-to-value ratio declines to 80 percent or less. Be sure the lender gives you a written statement as to when you can cancel the PMI (the best lenders allow PMI cancellation whether the loan-to-value declines below 80% from market value appreciation and/or mortgage balance paydown).
Alexandria, Va.: Does it hurt me to obtain a copy of my credit report before applying for a mortgage? I have heard that too many inquiries reflect poorly on your credit report. Bob Bruss: No. Obtaining a personal copy of your credit report doesn't count as a credit inquiry. You are correct that too many credit inquiries just before getting a mortgage is not a good idea. The best place I've found to get your credit report and your FICO (Fair, Isaac & Co.) score is www.myfico.com. The cost is $12.95. You'll instantly receive your credit report and your FICO score. If your FICO score is 700 or above, you'll have no trouble getting a mortgage. Between 620 and 700, that's also very good. But below 620, you need to clean up your credit.
Germantown, Md.: Do you think it is a good time to buy? Bob Bruss: It's ALWAYS a good time to buy from a motivated home seller. But at the buyer's price and terms. The home sale market has slowed so that means you won't have much competition now from other buyers. However, please get pre-approved in writing from an actual mortgage lender so you can make a home buying decision without worrying about mortgage approval.
Nashville, Tenn.: We are looking to move out of Nashville next summer -- probably late July. When is the best time to begin consulting with a real estate agent? There are some repair things that will need to be done, but nothing too largescale. Do we need to meet with an agent soon? Thanks! Bob Bruss: It's never too early to consult a Realtor about getting your home ready to sell. Yes, now is the time to start fixing up your home for sale. If you plan to sell by next July, I would put the house on the market during the peak April-May-June home selling season when the largest numbers of buyers are in the market for homes.
Washington, D.C.: I'm curious about something -- can you explain the "active adult" communities? How are they able to dictate who can move in? I guess laws against discrimination aren't being broken, but if some builder tried to develop a community based on color or religion, there'd be a huge problem. How is age different? Thanks. Bob Bruss: The Fair Housing Act allows communities to cater to adults 55 and older if special facilities for them are included. Yes, that's perfectly legal. Of course, discriminating on the basis of color or religion is illegal.
Arlington, Va.: I am planning to sell my condo within the next six months. It has a recurrent leak in one of the water pipes to the tub/shower upstairs. Water drips into the kitchen through the dropped ceiling. Is it advisable to have this problem fixed prior to selling, or should I disclose and give a credit for repair? I'm afraid it's going to involve ripping up the floor tile in the bathroom, and I figure the new owners may want to remodel/redecorate anyway. I suppose my bottom-line question is whether I will be able to recoup my repair costs when I sell, or will the additional expense not be reflected in a corresponding increase in value? Bob Bruss: Yes, get that leak repaired now before putting the condo on the market for sale. If the leak is in the walls, that is usually the responsibility of the condo homeowner's association to repair at their expense. However, if the leak is inside your condo, then it's your responsibility.
washingtonpost.com: washingtonpost.com: That was our last question today. Thanks for joining the discussion
In case you missed it the Online Homebuyers Conference has been on all week:
Monday, Sept. 24: Benny Kass talked about real estate law
Tuesday, Sept. 25: Barry Stone talked about home inspections
Wednesday, Sept. 26: Katherine Salant talked about new home constuction and customizing
Thursday, Sept. 27: Ken Harney talked about selecting a mortgage lender
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