DEAR BOB: We are in the process of trying to buy a larger home. Fortunately, our old home sold quickly for all cash to a wealthy GI buyer. Although we had to pay a VA loan fee of 5 percednt of the sale price, it was worth it to get all cash in today's market.
Our problem concerns the house we want to buy. When I ask agents how much the seller will take for the house I get replies like, "It would be unethical for me to say" or "Make an offer." Is there any secret to finding out the lowest price at which a home can be bought? -- Daniel T., Springfield.
DEAR DANIEL: Yes. First, ask the realty agent showing you the house, "If you were buying this house, how much would you offer?" This question allows the agent to tell you what he thinks the house is worth and how much the seller will accept without violating the agent's fiduciary duty to his principal.
Second, after you have the agent's answer and before you make a written purchase offer to buy the house, insist that the agent prepare a written competitive market analysis form for you. This form shows (1) recent sales (not asking) prices of similar nearby homes, (2) asking prices of similar homes currently for sale in the neighborhood and (3) listing prices of homes that did not sell before the listings expired.
Only after you have all this information are you ready to make your purchase offer. By the way, conserve your cash. A little cash goes a long way toward reducing the sale price of a home. A buyer who offers a 20 to 30 percent down payment is a king in today's "buyer's market." Your cash should enable you to buy your next home at a bargain price.
DEAR BOB: Our home is listed for sale and the realty agent is asking us to agree to take back a second mortgage for the buyer to make the sale easier. But I though second mortgages were very risky. Are they? -- Carla T., Vienna.
DEAR CARLA: Second mortgages are not risky to the lender if the property owner has sufficient "protective equity." But if the owner has little equity and might walk away if he encounters financial problems, then a second mortgage can be risky.
To illustrate, suppose your home is worth $100,000 and you sell it to a buyer who makes a $20,000 down payment, takes over the old $50,000 first mortgage and gives you a $30,000 second mortgage. That's a safe second mortgage because the buyer has 20 percent protective equity in the house. If the buyer paid only $5,000 or $10,000 down payment, however, your 5 or 10 percent protective equity might be risky unless the buyer has a good income and credit history.
But never fear foreclosure. If the buyer defaults on your second mortgage, at the foreclosure sale a bidder will either pay off your mortgage or you'll get the house back if there are no bidders. Then you can resell the house for a second profit. Either way, you come out a winner.