QDEAR BOB: My home has appreciated in market value far beyond my wildest dreams. But I will soon be moving to Fairbanks, Alaska, and cannot decide whether to sell my home or rent it to tenants. If I rent, I can get about $300 per month above my mortgage payment. If I sell, I can take the tax-free profit and buy a dream home in Fairbanks. However, homes there are not appreciating very quickly. Without a big down payment, I would have to buy a less desirable home. But I want to be prudent. I'd hate to sell now and see my home go up in value even more. Should I sell or rent? -- Brian R.

ADEAR BRIAN: Homeowners all over the country share your situation. Most of our homes have appreciated in market value far above our expectations.

The key question to ask yourself is, "Do I expect to return to this area within the next three years?" If your answer is no, then I suggest you sell your home now while the market is good and you are entitled to the Internal Revenue Code 121 tax exemption on up to $250,000 in profit (up to $500,000 for a married couple filing jointly).

To qualify for this tax break, you must have owned and occupied your principal residence an aggregate two of the five years before its sale. A tax adviser can provide you with full details.

Presuming you owned and occupied the house the prior two years, if you move out now, and rent out the house, you can rent it for up to three years before losing this tax exemption.

Please be aware that managing a long-distance rental might cause big trouble if you don't have a trusted local friend, relative or property management firm to collect the rent and supervise the tenants and maintenance. DEAR BOB: I am very unhappy with my real estate agent. She listed my home for sale but has not done any marketing, not even advertising it. I want to cancel the listing. What is the best way to do that? -- Bipin S.

DEAR BIPIN: Before canceling your home sale listing -- which you could do since the agent isn't performing due diligence as required in the listing contract -- please consult your listing agent's broker or office manage to discuss the situation. I find it shocking your listing agent isn't using any effort to get your home sold.

The best remedy in situations such as yours is to transfer the listing to a better agent in the same brokerage office. Then your listing agent will receive a referral fee when your house sells and you will get a better agent who knows you expect hard work from your agent.

DEAR BOB: Thank you for that item about the woman in Florida who had trouble with her homeowner insurance. At the time, I was insured with one of those mail-order discount insurance companies with an 800-phone number. Its rate was low but, after reading your article, when my policy came up for renewal I decided to switch to an insurer with a local agent. I'm so glad I did. Following your advice, I interviewed three local insurance agents. They all came out, inspected my home and measured it. Two even took outside photos. Their bids were far apart for similar coverages. I chose the agent recommended by a friend. When a neighbor's tree fell over on my detached garage, ruining my car, my insurance agent was fantastic. She resolved the problem with my neighbor's insurance company, hired a superb contractor to rebuild my garage, and arranged for replacement of my car. -- Brett W.

DEAR BRETT: I must admit I've been tempted to insure with those discount insurance companies with 800-phone numbers. However, I haven't had an insurance claim for many years, but if I ever have a claim, I know where to find my agent. I even know where he lives.

DEAR BOB: I would like to provide a mortgage for my daughter's home purchase. What papers need to be prepared to make everything legal? Does the mortgage need to be recorded? -- Richard N.

DEAR RICHARD: You are making a very smart business decision to finance your daughter's home purchase. Not only will you be making a superb investment, but you will be helping her buy the home without any lender hassles and extra costs.

I suggest you retain a local real estate lawyer where your daughter is buying her home. Either a mortgage or deed of trust must be recorded against her title for your protection and so she can deduct the mortgage interest on her income tax returns.

Also, a promissory note must be prepared, signed by her, and held by you (just in case she doesn't pay, runs off to Tahiti with a surfer, and you have to foreclose). The note will not be recorded. Keep it in a safe place so when the loan is paid off, you can return it to her, proudly marked "paid in full."

Depending on the state where your daughter buys her home, there might be recording fees, mortgage tax and other costs that she should pay when the mortgage is recorded.

DEAR BOB: Where can I find one of those new "interest-only" home mortgages you mentioned a few weeks ago? I want to buy my first home, perhaps a condo, and interest-only payments appeal to me because I want to keep my costs as low as possible while maximizing my income tax deductions -- Cindy C.

DEAR CINDY: Almost every home mortgage lender now offers interest-only home mortgages. Lenders love them because it keeps all their money working to earn interest. Start by reading the home loan newspaper ads and checking the yellow pages under real estate loans.

However, you should understand that you won't be building any equity in your home from paying down your mortgage balance, as you would with an amortized mortgage.

But interest-only mortgages are ideal for home buyers who want minimum monthly payments and don't expect to stay in their homes more than 10 years, the point when most interest-only mortgages either have a balloon payment or switch to amortization.

DEAR BOB: As a sales agent for a major real estate developer, I very strongly disagree with your recent advice for home buyers not to pay all cash. Many of our home buyers have sold their large homes for cash and want to downsize to a smaller new home they can purchase for cash without any concern about mortgage payments. Of course, we offer mortgage financing. But I think you're wrong to suggest buyers get a mortgage when they can afford to pay cash. -- Alexandria H.

DEAR ALEXANDRIA: I presume you are responding to the letter from the condo buyer who was so thankful for not paying all cash after discovering his condo association management problems.

Although I'm sure your developer's new homes are perfect and never have any serious defects, you would be amazed how many home builders have built houses with major defects. I can cite you major court decisions against famous nationwide builders, but I won't bore you.

The reason I suggest buyers of new condos and houses obtain a mortgage, with a modest cash down payment, is to avoid risking all their cash nest egg in their residence. After a few years, if all goes well, it's smart to pay off the mortgage to save interest.

Perhaps you recall one of the worst reader letters I ever received. It was from a widow who bought her condo for cash.

After moving in and discovering the condo complex was mostly occupied by renters she didn't like, she wanted to sell. Then she learned her condo was virtually unsaleable because mortgage lenders wouldn't loan in a complex with more than 30 percent renters.

DEAR BOB: Is selling a house or condo "as is" a good or bad idea? -- Tony J.

DEAR TONY: An "as-is" real estate sale means the seller must disclose known defects but will not pay for any repairs.

However, if the residence suffers damage after the buyer's purchase offer is accepted by the seller in writing, the seller is still responsible for making repairs to restore the property to its as-is condition as of the date of the sales contract.

But there is a more important consideration with as-is home sales. When a prospective buyer, or his real estate agent, sees an as-is listing, that raises a big red flag. "What's wrong with this home?", is the obvious question.

There might be nothing wrong with a home listed for sale as is. Or it could be in very bad condition.

Every house and condo buyer should always include in his purchase offer a contingency clause for a professional home inspection report. This is especially important when the home is offered for sale as is.

DEAR BOB: My mom has a living trust that leaves her house to my brother and me. It is worth about $500,000. She and my late father paid around $67,000 for it many years ago. Will we owe capital gains tax on that huge profit? -- Aaron H.

DEAR AARON: No. When a property owner dies, the inherited property receives a new stepped-up basis for the heirs.

Your new stepped-up basis will be the home's market value on the day your mom dies, so you won't owe any capital gains tax at the time of inheritance.

However, if your mom sells her house today, she might owe a capital gains tax. I say "might" because she received a new partial or full stepped-up basis to market value when she presumably inherited your late father's share of the house.

Of course, if she sells now, the $250,000 tax exemption in Internal Revenue Code 121 on the profit from the sale of a principal residence applies. That presumes she owned and occupied her home at least two of the prior five years. For full details, please consult a tax adviser.

DEAR BOB: I am in the process of buying my first home, and I have been religiously reading all your articles to avoid making a costly mistake. But the mortgage maze has me very confused. My wife and I are working with a mortgage broker. The broker speaks Spanish -- as do we -- so we feel very comfortable with her. But I think she might be swindling us as she translates the documents. Many times in recent weeks you have mentioned mortgage "junk" and "garbage" fees. We are being asked to pay charges for a loan fee, document preparation, underwriting, notarization, tax servicing, appraisal, credit report, wire transfer, loan review, underwriting, administration fee, and miscellaneous. Are these junk fees? -- Carlos P.

DEAR CARLOS: Many of those charges are negotiable junk or garbage fees.

If the fee was not disclosed on your "good-faith estimate," which the mortgage lender was required to provide within three days after receiving your loan application, you should dispute it.

The mortgage loan fee, usually called "points," is the lender's fee for originating your mortgage. One to two percent of the amount borrowed is reasonable.

The definition of a junk or garbage fee is a charge to the buyer that the broker does not pay to a third party for a legitimate service. On your list, the appraisal fee, tax service fee (to be sure you pay your property tax on time), credit report and notary fee (unless inflated) appear to be legitimate.

All the other fees appear to be junk or garbage fees. The lender's loan fee should be sufficient to provide the lender's profit. Question those junk fees, especially the administration and miscellaneous fees.

DEAR BOB: Why are real estate sales commissions a percentage of the home's sales price? It seems to me the sales effort by a real estate agent is about the same for a $100,000 house as a $500,000 house. Why should the listing agent receive a sales commission five times higher for the $500,000 house than the $100,000 house?

-- Mohsen S.

DEAR MOHSEN: As long as I can remember (I am a "newbie" who has only had my real estate broker's license for 37 years), real estate sales commissions have always been a percentage of the property sales price.

My first home I purchased for $28,000 gave the listing agent a 6 percent sales commission of $1,680. Of course, that was many years ago. But the sales commission percentage rate has remained almost unchanged as home values have increased.

However, today in many cities you will find discount realty agents who charge flat fees rather than full-service percentage rates.

DEAR BOB: My wife and I bought our home for $405,000 in December 2003. A neighbor's smaller house recently sold for $433,000. Since we have first and second mortgages for $385,000 total, should we refinance now? -- Fred B.

DEAR FRED: You are not yet ready to refinance. You have only $48,000 equity, or less than 10 percent. You need to build up at least 20 percent equity before refinancing.

Home equity is the difference between your home's market value and the amount you owe.

DEAR BOB: A few months ago we spent a wonderful two-week winter ski holiday in Colorado. While we were there, we talked with several local real estate agents about buying a condo. Those agents have kept in touch and are now urging us to buy during the summer off-season. Are vacation homes a good investment? -- Rick R.

DEAR RICK: No. Although the ski area you visited was probably wonderful and you were impressed with its great winter atmosphere, vacation homes are extremely cyclical in market value.

Summer is the obvious best time to buy at the lowest price in a winter resort area.

If you purchase, please use money you will never need to see again. A vacation home is not a sound investment. It is a high-risk purchase, which might turn out well. But if the demand from other buyers at the destination declines, you could lose substantially.

DEAR BOB: We purchased our home last November. When signing the closing papers, I noticed for the first time a payment from the lender to our mortgage broker of 1.25 percent of our home equity credit line, which was part of the transaction. I commented to the closing agent, "This looks like a kickback." He replied, "The only reason it is not illegal is because it was disclosed to you." I let it go, figuring it was no money out of my pocket and we got a good deal. Several months later, I met an associate with the same lender who discussed my credit line. At that point, I first realized our mortgage broker might have been paid off and it cost us money in the form of a higher interest rate. What is your opinion? -- Matt W.

DEAR MATT: If you are paying higher than the so-called prime rate (currently 4.25 percent) on your home equity credit line, you are paying too much. Some home equity credit line lenders even charge 1/4- or 1/2-percent less than the prime rate.

The kickback to your mortgage broker is probably legal because it was disclosed to you before you signed the papers. It's not worth arguing about.

If your home equity credit line interest rate is above today's prime rate, you should shop around to see if you can cut your borrowing cost to replace your current loan with a better one. However, before you switch, be sure the replacement loan has no cost to you and ask your current home equity lender to reduce your interest rate to keep you as a borrower.

DEAR BOB: Thank you for all the great information on reverse mortgages for senior citizens. I rent a city apartment, which is within two blocks of where I work. I love my apartment. My landlady wouldn't dare raise my low rent (I take care of her property, don't charge her for collecting the rent from the four other tenants, and she knows she can't get along without me). However, I own a modest country place where I often go on weekends. It is about an hour away from the city. I own it free and clear. Based on comparable nearby home sales, it is worth around $275,000. As I am 68 and realize I can't keep working forever (although I enjoy my job and have no plans to retire), can I obtain one of those reverse mortgages on my country home? -- Nathan G.

DEAR NATHAN: Not yet. Senior citizen homeowner reverse mortgages are only available for your principal residence.

If you move to your country place to make it your principal residence, then it will become eligible for a reverse mortgage to increase your retirement income.

DEAR BOB: Can a condo homeowners association prohibit an investor from buying more than one condominium in the same complex? I own a condo and we are having trouble with an investor who buys up almost every condo in our complex that comes up for sale. We are very concerned his purchases will result in too many rentals, thus harming our ability to resell. What can we do? -- Kay Y.

DEAR KAY: If your condo homeowners association conditions, covenants and restrictions (CC&Rs) prohibit an owner from acquiring more than one unit, I am not aware how such a prohibition can be enforced.

In many condo complexes, especially when the project is new, the builder or developer retains several condos either as investments or because he can't find buyers.

I have no answer to your question about what you can do to prevent that investor from buying condos in your complex as they become available for sale. Many condo associations restrict the number of allowed rentals in the complex, but enforcement depends on the good faith of the condo owners. Too many rentals is a huge problem that affects the market value and salability in a condo complex.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, www.bobbruss.com.

{copy} 2004, Inman News Service