DEAR BOB:Last year a friend sold her home. Now the buyers are suing her because the roof leaked six months later, the plumbing leaked under the kitchen sink and the wiring is not up to current code. It sounds like a nuisance lawsuit to me. But I am planning to sell my home in 1988. What is the best way to avoid liability to the buyer? -- Helene R.

DEAR HELENE:You raise a troublesome issue. Home buyers have become very litigious. In my opinion the best way for sellers to limit possible liability for home defects is to disclose in writing all known problems, such as leaky gutters, and then sell the house "as is," which means with no warranties or representations. If a defect materializes after the sale, to win monetary damages the buyer would have to prove you knew of the defect and failed to disclose it. Consult a real estate lawyer for details.

DEAR BOB:I am considering buying from my uncle some rural land where I will build a vacation cabin. He showed me a title abstract and chain of title report that which seems to show the title is good. A local attorney wrote an opinion letter stating title is marketable. Do you think I should get a survey? -- Jerome C.

DEAR JEROME:Yes. If there is any question about the boundaries, have a survey made. But, More important, insist on an owner's title insurance policy and be certain it insures the survey's accuracy. Especially when buying real estate from friends and relatives, title insurance is essential.

DEAR BOB:My company is transferring me to Los Angeles to open a branch sales office. It will pay my relocation expenses. But the relocation consultant hired by the company suggests we rent a house for a year instead of buying. I know the company is trying to hold costs down, but don't you think we should buy instead of renting? -- Tom R.

DEAR TOM:No. Renting a home is better than buying in a bad neighborhood. If you have children, your first task is to check out the quality of the school districts where you are considering moving. No matter how nice a home might be, you will regret buying in a bad school district. However, be sure to work out a financial arrangement with your company to compensate you for the high housing cost in Los Angeles as compared with your former residence. Your best bet will be to lease a house with an option to buy. Then you can try out the home for a year to see if you like it and the neighborhood. Moving to a strange community is not easy, especially if the costs are much higher than where you formerly lived.

DEAR BOB:I recall several months ago the dramatic letter from the fellow who inherited $65,000, paid down his mortgage, lost his job a few weeks later and fell behind on his monthly mortgage payment. The lender refused to hold off on foreclosure or reduce the monthly payments. Then a few weeks ago I read your article about the "jump ahead" program for cutting the mortgage term in half by prepaying the next month's principal payment (in addition to the regular monthly mortgage payment). I phoned my mortgage company and a supervisor agreed to send me an amortization schedule of my loan. However, last month I made my regular payment plus the next month's principal payment and I got my check back in the mail with a cryptic statement that the lender didn't know how to apply my payment. Now they want a late charge. What did I do wrong? -- Danielle P.

DEAR DANIELLE:You forgot to tell the mortgage lender how to apply your extra payment. The clerks who open the mail are not the world's brightest people. Whenever you make an extra payment other than your normal monthly mortgage payment, be sure to attach a note stating you want it to be applied to the loan principal balance.

DEAR BOB:Some time ago you said a borrower can obtain a copy of his VA or FHA home loan appraisal under the Freedom of Information Act from the nearest office of VA or FHA. I am trying to buy a home that is in default on a VA mortgage. Since it is rather difficult to determine the true value of this home, I thought the appraisal on the VA loan obtained in early 1986 might be helpful. I wrote the nearest VA office and was given a very curt reply that I am not entitled to this information. Is this correct? -- Rube R.

DEAR RUBE:I am not aware of any law or regulation allowing public access to VA and FHA home appraisals. But I have received letters from VA and FHA officials stating how borrowers can obtain a copy of appraisals on their homes from the VA or FHA. That makes sense. But an appraisal made in 1986 would be of little value today so I suggest you use other methods to evaluate the current market value of a home you are considering buying.

DEAR BOB:You said the 1986 Tax Reform Act requires investors to depreciate residential rental property over 27 1/2 years and all other property over 31 1/2 years. Does this new depreciation schedule also apply to investment property bought before 1987 when the law took effect? -- Derk R.

DEAR DERK:No. The old depreciation schedules apply to property purchased before 1987. For example, if you are depreciating income properties on 15-, 18- or 19-year schedules, you may continue to do so. Only properties purchased in 1987 or later tax years must comply with the new, extended depreciation schedules. Consult your tax adviser for details.

DEAR BOB:I was named as the sole heir of my uncle's multimillion dollar estate. However, the bank that was named as the executor says some of the property must be sold to pay federal estate taxes and state inheritance taxes. After the smoke clears, I may be left with property worth about $1.5 million. My uncle had discussed giving me his properties before he died but he never got around to doing that. Would I have been better off receiving these properties as a gift before he died? -- Cala P.

DEAR CALA:Probably not. Inherited property is received by the heir with a basis of the property's fair market value on the date of death. If you sell inherited property shortly after receiving it, you will probably owe little or no capital gain tax.

However, if your uncle gave you his properties before his death, your cost basis would be the same as his basis. If he bought the properties many years ago at a low cost, when you sell them you would have a large capital gain tax to pay, currently at a high 28 percent rate.

You should be glad your late uncle didn't give you the properties but instead allowed them to pass to you by inheritance. The happy result is the capital gain tax that would have been due on a gift is avoided by inheriting the properties. Consult your tax adviser for details.

DEAR BOB:I have heard most homes can be bought from 10 to 20 percent below their asking prices. But my husband and I have made several purchase offers in this range and the sellers have flatly rejected them. What are we doing wrong? -- Judy T.

DEAR JUDY:It is true most homes can be bought for less than their asking prices. But the best real estate agents get their sellers to set realistic prices very close to the true market value. These sellers hold firm to their asking prices.

However, many sellers vastly overprice their homes. These homes can be bought for much less than the asking price. When you are ready to make a purchase offer, ask the agent to prepare a written competitive market analysis for you. This is the same form agents prepare for sellers when listing a home for sale. Only by checking recent prices of similar neighborhood homes, plus the asking prices of comparable nearby homes for sale, will you know how much to offer.

DEAR BOB:Several weeks ago you said it is hard to make money investing in real estate today except by purchasing run-down distress properties that need fixing up. I agree. But you neglected to explain how to find these properties. I've tried contacting real estate agents and following the newspaper want ads, but without much success because most people who list their houses for sale want top dollar. Any suggestions? -- Ruth Ann R.

DEAR RUTH ANN:Real estate agents are just one good source of run-down houses that can be purchased at below-market prices. Most home buyers do not want these properties so you won't find much competition. Smart home sellers get their homes into tiptop condition before putting them on the market. These are called "red ribbon deals" and you should stay away from them because they offer virtually zero profit opportunities.

Let as many real estate agents as possible know you want to buy run-down houses. Years ago, when I was desperate to find such property, I mailed more than 200 letters to real estate agents describing the type of property I wanted to buy. I only received four replies. But I bought one of the properties offered; it had been listed for sale for more than six months in the multiple listing book but I had somehow overlooked it.

Speaking of the multiple listing book, most friendly real estate agents will let you browse through their books. I know they are not supposed to, and I will get nasty letters from critical agents who have nothing better to do, but don't work with any agent who won't let you check out current multiple listings.

Another good source is to check out the mortgage foreclosure notices recorded in your county. Ask the county officer who records these defaults if there is a local publication listing foreclosures. If not, you should go to the county office at least once a week to check on recent foreclosure recordings.

Still another source of distress properties is to drive around the neighborhoods you like, looking for signs such as tall weeds, peeling paint and empty houses. Jot down addresses. Then phone the county tax collector to get the owners' names and addresses so you can contact them to see if they want to sell.

By constantly using all these sources, and keeping your eyes and ears open, you will soon find more properties than you can handle. li,6 DEAR BOB: When we bought our home three years ago we were very satisfied with the real estate agent's service. After New Year's we plan to sell our home and will probably list with the same agent. But when I phoned her recently to ask about home sale prices in our neighborhood, she was very vague and didn't seem very positive about what our home is worth. I asked her to prepare a competitive market analysis, which you often suggest, but she highly resented my request. I know you suggest interviewing three agents. Even though I know we want to list with this agent, do you think I should talk to several others? -- Esther P. li,6 DEAR ESTHER: Yes. That real estate agent seems to be taking you for granted. Perhaps she thinks your listing will be easy so she won't work very hard to get it. Even though she will probably get your listing, by all means interview two or three other agents.

I hate to say this, but the agent who sold your home to you might be trying to mislead you into listing too low so she can make an easy sale. Her reluctance to prepare a competitive market analysis, which takes just a few minutes thanks to computers, is surprising. You will feel much better after interviewing several agents, knowing you chose the best agent and the right asking price. li,6 DEAR BOB: I am a small-volume custom home builder. In the last few years I've noticed my buyers become fussier and fussier. I've been in business more than 20 years and had never been sued until two years ago. Since then I've been sued four times and have had to pay more than $50,000 in phony damages. I think part of the problem is that buyers are aware of their rights, thanks to scum like you who tell them. But these buyers also expect perfection, which is impossible, even in new homes. What can a small-volume builder do to protect against these militant home buyers? -- Ralph R. li,6 DEAR RALPH: Thanks for the compliment. I hope you offer 10-year home warranties, such as those from the well-known Home Owners Warranty Corp. This assures home buyers that if you don't correct any defects, HOW will. If you can't qualify for HOW warranties, you shouldn't be building homes.

You are correct that home buyers are very, very savvy about their legal rights. No longer will they put up with builders who stall on correcting defects. Yes, every house has its problems. But your reputation depends on how quickly and satisfactorily you correct those imperfections. Instead of resenting buyer call-backs, welcome them as opportunities to build goodwill and future sales to friends of those buyers.

For example, I recall my parents often raved about the quality custom-built home they purchased years ago. They referred many friends to the builder and those friends were equally satisfied. It's much easier to do the job right the first time. But if a call back is necessary, welcome it as a chance to gain a referral by promptly correcting the problem. li,6 DEAR BOB: I am 16 years younger than my husband, who is 58. We are considering selling our home, which has appreciated greatly in market value. When we got married almost four years ago, he bought our house as a wedding present for me. But the title is in both our names. He sold his former home, which he owned with his first wife, and "rolled over" the profit into our home without paying tax. As we now have two small children we need a larger home. Since I am only 42, is there any way we can qualify for that $125,000 tax exemption you often discuss? -- Marty H. li,6 DEAR MARTY: Yes, but I don't think you should use the once-per-lifetime "over 55 rule" home sale tax exemption since you plan to buy a larger home.

IRC 121 allows a once-per-lifetime $125,000 home sale profit tax exemption if the owner is at least 55 and has never used this tax break before. Your husband is obviously eligible since he is over 55 and has owned and lived in the principal residence at least three of the five years before sale.

However, you indicate a larger home will be purchased. I presume that means the purchase price will be greater than the sales price of your current home. When that occurs, you should save the $125,000 home sale tax exemption and instead use the "rollover residence replacement rule" of IRC 1034, which is available to home sellers of any age who sell their home and buy a replacement of equal or greater cost within two years before or after the sale. Consult your tax adviser for details. li,6 DEAR BOB: Three years ago I was unemployed, lost my home by foreclosure and had an awful credit rating. Then I got into a job training program and now have an excellent computer analyst job in which I earn about $48,000 a year. I have paid off all my creditors but my bad credit record still shows up on my credit report. Is there any way I can buy a home with this bad credit report? -- Marilyn H. li,6 DEAR MARILYN: Congratulations on paying your debts. Your next step should be to get those creditors to remove their disparaging remarks from your credit record. If they refuse, ask the credit reporting companies such as TRW, Trans Union and CBI to remove the unfavorable comments. They will contact the creditors and if no reply is received within 30 days the bad credit remarks must be removed.

If you have an adequate down payment to buy a home, your income qualifies you for a substantial home loan. When you apply for the mortgage, be sure to explain to the loan officer that you had credit difficulty three years ago but you paid off your creditors and are now paying your bills on time. If you explain an anticipated bad credit report, lenders will often approve the loan because they can justify the discrepancies. li,6 DEAR BOB: I called the IRS to get a time extension to buy a new home but the lady acted like a dunce. I sold my home in December 1985 and need a time extension to buy a replacement so I can defer my profit tax. I have been ill, hospitalized for 14 months, and have been unable to look for a new home since I sold my old home. As I will owe about $22,000 profit tax, how can I get the time extended to buy a replacement home? -- Howard H. DEAR HOWARD: There is no way I know, unless you join the military or reside overseas, to extend the two-year replacement period for the "rollover residence replacement rule" for home sale tax deferral. Get busy. Buy a replacement principal residence of equal or greater cost within the two years. DEAR BOB: I know you often joke about real estate sales commissions being negotiable. I recall your friend who says "real estate commissions are negotiable from 6 percent upward." But you should know we found a sympathetic real estate agent who negotiated his sales commission from $12,000 down to $6,800 so we could close our home sale and pay all the liens. Yes, there are some real estate agents who will negotiate their sales commissions to make a sale. -- Yolanda H. DEAR YOLANDA: Thank you for sharing that example of a real estate agent who cut the sales commission. I am submitting your letter to the Guinness Book of Records because they have no record of a real estate agent cutting his commission. DEAR BOB: My wife and I are financially well-qualified to buy a home and have been seriously looking for one since August. Knowing the asking prices of homes are usually inflated, we have made two written offers at 10 percent below the asking prices. Both agents acted very intimidating about our making such low offers, which, not surprisingly, were not accepted by the sellers. I consider myself a pretty good negotiator but it seems these real estate agents would rather not make a sale than write up our below-asking price offers. Also, since the two agents we encountered at weekend open houses were less than enthusiastic I asked to be present when our offers were delivered to the sellers. But the agents refused. What are we doing wrong? -- Aaron H. DEAR AARON: You can make any home purchase offer you wish and the listing agent is obligated to present it to the seller unless the seller has authorized the agent to reject offers on the seller's behalf. So feel free to make any purchase offer you think is reasonable. The worst that can happen is the seller might say "no." However, the seller could accept your offer or make a counteroffer.

I share your feeling some real estate agents would rather not make a sale than present the seller with a purchase offer that is substantially below the asking price. The reason is the listing agent usually told the seller the house was worth a specified amount and the agent doesn't look good unless that price is obtained. To get prospective buyers to make offer bids close to the asking price, many agents will bully or intimidate the buyer into making a higher than contemplated purchase offer. Automobile salespeople are professionals at intimidating buyers; some real estate agents are almost as good.

If you feel your purchase offer bid will not be enthusiastically presented to the seller, you can insist it contain a clause such as "This offer to be presented to the seller only in the buyer's presence." Another time to use this clause is when you think the agent doesn't understand the offer or is very inexperienced. Readers with questions should write Bruss directly at P.O. Box 6710, San Francisco, Calif., 94101.

1987, Tribune Media Services Inc.