DEAR BOB: Our home has been on the market for over five months. It is now vacant as we have moved into our new home. We can't afford to make mortgage payments on two homes much longer. The home has been listed with two real estate agents. They both say the market is slow now. How can we get our home sold without giving it away? Brenda W. Falls Church.
DEAR BRENDA: Today's home sale market is slow because of high mortgage interest rates and the lack of home mortgage money. Homes which are selling today usually involve the seller helping finance the buyer's purchase. Here are two ways to get your home sold within a week.
1. Tell your agent to advertise reasonable finance terms you will accept. There are plenty of buyers who have 10 to 15 percent cash down payments. Such a buyer can then usually take over your old mortgage and give you a second mortgage for the balance of the purchase price.
Many unrealistic home sellers expect big cash down payments up to 40 or 50 percent of the sales price. Buyers rarely can pay that much. For example, last weekend I saw a $104.00 home advertised with "assumable financing." The seller was dreaming of a buyer paying $60,000 cash down payment so the buyer could assume the old $54,000 mortgage.
2. If you want to get your home "sold" in one day, ask your agent to advertise it as a "lease-option." That means you lease your home for a year or two (make the rent high enough to pay your mortgage and other expenses), giving the tenant an option to buy your home. I headline my lease-option newspaper want ads "$1,650 moves you in." I'm then swamped with home buyers who want to lease now and buy later.
Set the home's option price at what you think its market value will be when the option expires. For example, in my area I expect home prices to be about 15 percent higher next year. So I set my lease-option purchase price 15 percent above today's market value.
Be sure to provide in the lease-option terms for (a) full or partial rent credit toward the purchase price and (b) built-in seller finance terms with a reasonable down payment, assumption of the old mortgage and seller financing for the balance of the purchase price.
DEAR BOB: As a real estate agent, I would appreciate it if you could explain how wrap-around mortgages work. They seem to be popular here again as potential home buyers learn they can't qualify for new mortgages. Raymond M. Rockville.
DEAR RAYMOND: Wrap-around mortgages, also called all-inclusive mortgages, are really second mortgages. They offer top earnings to property sellers and bargain interest rates to buyers. With interest rates rising on new mortgages, wrap-around mortgages are an excellent alternative to benefit buyers and sellers. An example best illustrates the concept:
Suppose a home is for sale at $100,000 and it has an existing first mortgage of $60,000 at 9 percent interest. You find a prospective buyer who has $15,000 cash for the down payment. But the buyer's income isn't sufficient to qualify him for a new first mortgage at today's high interest rates. So you suggest an $85,000 wrap-around mortgage at 11 percent interest (a bargain in today's mortgage market).
If the seller accepts the buyer's offer for $15,000 down with an $85,000 wrap-around mortgage at 11 percent, the buyer's monthly payments (interest only) will be $779.17. But the seller must use part of this money to keep up the payments on the old 9 percent $60,000 first mortgage that remains undisturbed.
This interest will cost the seller about $450 per month, leaving net monthly interest to the seller of about $329.17. This is an annual return of around $3,950 which is a 15.8 percent return on the seller's $25,000 loan ($85,000 minus $60,000) to the seller.
Wrap-around mortgages like the one in this example are a "good deal" for the buyer because he borrows at a below market interest rate. It's a good deal for the seller, too, because he earns a safe, high yield, thanks to the differential on the underlying old first mortgage.
By the way, sellers are no longer the only source of wrap-around mortgages. Many progressive banks and mortgage brokers now offer wrap-around mortgages, too.
DEAR BOB: When I bought some land with my brother, we agreed to sell it after five years. It has now been six years but my brother wants to wait another year before selling. How can I get him to sell as I need the cash? ViN., Bowie.
DEAR VI: See your attorney. One joint tenant can ask a court to "partition" the joint tenancy property. If it can be physically divided, that will be done. But if that isn't feasible, the court can order the property sold and the proceeds divided among the joint owners. Partition is also available to tenant-in-common owners.
DEAR BOB: If I sell my fourplex (four-family house) and buy a larger apartment house or a commercial store building, can I defer my profit tax payment? Jackie M., Washington.
DEAR JACKIE: No. If you make a sale and reinvest the proceeds in another investment property, Uncle Sam is going to love you because you will owe tax on your profit.
To defer your profit tax, trade your fourplex for the larger income property. Another alternative is to make a "delayed" Starker exchange. Ask your tax advisor for details.
DEAR BOB: My mother, age 55, passed away recently. About six months before she died, she gave away much of her property. She wasn't expecting death and was killed in an auto accident. The tax attorney handling the estate says all her assets which she gave away six months ago must be included in her estate. As her net estate was over $1 million, we're wondering if this information is correct? Todd E.
DEAR TODD: Yes. Gifts made within three years before death are automatically included in the value of a decedent's estate. This tax rule which took effect in 1976 can't be rebutted by evidence that the decedent wasn't expecting immediate death. Before 1976 it was posible to rebut the presumption that such gifts were in contemplation of death. For more details, see your tax advisor.