Buying Tips

How to Buy
- Appraisals & Market Value
  The Differences between List Price, Sales Price, and Appraised Value
  
  A seller's advertised or list price should be treated as only a rough estimate of what he or she would like to receive. Some deliberately overprice, while others ask for close to what they hope to get and a few actually underprice their houses with hopes that potential buyers will compete and overbid.
  
  The appraisal price is another estimate of value. The appraised price is how much money a professional appraiser estimates the home to be worth and usually is based on sales of comparable homes in the same area.
  
  Purchase price and sales price are the same thing. Both terms mean the amount of money the successful buyer actually pays out to purchase the home.
  
  Returns on New vs. Previously Owned
  
  Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood but future appreciation in value depends upon many of the same factors.
  
  Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy, according to industry experts. Existing homes have been appreciating a little more than new homes but every once in awhile they're at the same level and sometimes the new home prices go up a little quicker.
  
  The difference in appreciation of the two bears out in NAR's current research. For existing homes, NAR figures show the median price of existing homes went up 3 percent between 1994 and 1995; projections are that prices will increase 3.2 percent in 1996 and 2 percent in 1997.
  
  For new homes, the association found that median prices went up 0. 8 percent in 1995 and are likely to increase another 0. 5 percent in 1996. For 1997, the group predicts 1.1 gain in median new-home prices.
  
  Creative Ways for Parents to Help with Home Buying
  
  Understandably, many parents can't afford to give away their personal savings for a child's down payment without some interest income or guarantee of a pay back. There are several ways for them to lend you funds for the down payment either through a personal note, a second trust deed or through special programs that require them to pledge securities or other assets to the lender.
  
  The terms of a personal note or second trust deed could require monthly or annual payments amortized over a period of time or require interest only with a payoff at the time the home is sold. Another way to tap parents is through special third party lender programs.
  
  Another program is the Merril Lynch's Parent Power home loan. If the person's mother of father opens an account with Merrill Lynch, they can use it as collateral (in place of the down payment) without actually taking the money out of the account. Meanwhile, funds in the account still gain interest and dividends. The program is available with 15 and 30 year fixed rate mortgages. For more information on the program, contact a local Merrill Lynch consultant or call 1-800-854-7154 ext. 8667.
  
  Determining the Worth of a House
  
  Traditionally, people turn to two methods for determining home value — appraisals and something called a comparative market analysis.
  
  Appraisals vary in cost depending on the price of the home, though they average about $300 for a $250,000 house. Appraisers review numerous factors including recent sales of similar properties, location, square footage and construction quality.
  
  An appraisal is an estimate of a property's monetary value on the open market; an estimate of a property's type and condition, its utility for a given purpose or its highest and best use.
  
  Comparative market analysis is an informal estimate of market value performed by a real estate agent or broker. It is based on like sales and generally offers a range of values including probable market value. Many agents offer a free analysis or property profile in hopes of acquiring a new client.
  
  Brokers opinions, free or not, should be in writing, using professionally accepted appraisal techniques.
  
  Individuals can also do their own cost comparison, though doing so may take several hours of research at the county recorders office.
  
  Most county recorder's offices have indexes to match street addresses and parcel numbers.
  
  Finding the Foreclosure Value
  
  People considering a foreclosure property would want to contact the lender directly first and obtain as much information as possible regarding what range of bids are being sought. In cases where you are unable to obtain permission to enter a property in foreclosure, consider knocking on a few doors in the immediate neighborhood.
  
  Explain that you will be bidding on the property and ask the neighbors if they had been in the house and when, as well as the general condition at the time of their visit.
  
  Individuals also can do their own cost comparison through researching public records kept at local county recorder's and assessor's offices. Generally, most county recorder's offices have indexes to match street addresses and parcel numbers, so the interested researcher will want to have these numbers before going to the recorder's office. In addition, private companies, using records from county recorders and assessors, now offer property profile information.
  
  The difference between Market Value and Appraised Value
  
  An appraisal is an estimate of a property's monetary value on the open market; an estimate of a property's type and condition, its utility for a given purpose or its highest and best use.
  
  Comparative market analysis is an informal estimate of market value performed by a real estate agent or broker. It is based on like sales and generally offers a range of values including probable market value.
  
  What can a Buyer Afford?
  
  Even before starting to look at houses, find out what price house or condominium you can afford. Roughly speaking, you can afford to buy a home equal in price to three times your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:
  
  Your income
  
  The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
  
  Your outstanding debts
  
  Your credit history
  
  The type of mortgage you select
  
  Current interest rates
  
  Lenders also analyze your income in relation to your projected cost of home ownership and outstanding debts to determine the size loan you can have. Your housing expense-to-income ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance. The sum of these costs is referred to as "PITI".
  
  Monthly homeowner association dues, if you're purchasing a condominium or townhouse, and private mortgage insurance are added to the PITI. Your housing expense-to-income ratio should fall in the 28 to 33 percent range, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.
- Closing Costs
  How to Save on Closing Costs
  
  Studies show that coming up with the down payment and closing costs, which can average 2 to 3 percent of the total purchase price, are the largest obstacles to home ownership. Closing costs vary from one transaction to another and will certainly be less if one is buying a property without a mortgage and its paying with cash out of their own pocket. But most people don't have that option. Here are some other ways to save:
  
  Some home sellers who are anxious to sell will pay all or part of the closing costs, but these special circumstances must be disclosed and acceptable to the lender who makes the first mortgage on the property. Concessions will typically be agreed upon during the offer-counteroffer-acceptance cycle, though sometimes a seller will agree to make payment of closing costs during the escrow process.
  
  In addition, no-point loans can reduce closing costs. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
  
  Some lenders also advertise loans without any fees, such as appraisal and escrow charges. But these fees are also wrapped into a higher rate> *Generally, seller financing comes without the traditional loan fees and charges.
  
  A lease with an option to purchase is another tool sellers can use to induce a sale, where the buyer lacks sufficient funds for down payment and closing costs.
  
  The best option for reducing closing costs is to shop around. Each lender and each mortgage brokerage has their own fee structure. So call around before submitting your final loan application.
  
  Non-recurring Closing Costs
  
  Sellers sometimes pay for all or a portion of the closing costs involved in the sale of a property, depending on local real estate market conditions, other terms of the purchase contract, the seller's cash and timing considerations.
  
  Seller concessions, as they are known in real estate jargon, for at least part of the closing costs are more common in a buyer's market than in a seller's market. These concessions will typically be agreed upon during the offer, counteroffer acceptance cycle, though sometimes a seller will make further concessions during the escrow process. Such concessions would generally be acknowledged in the form of an addendum to the purchase contract.
  
  In addition, most lenders will allow a credit from the seller to the buyer for the buyer's nonrecurring closing costs. But they usually won't allow a credit that reduces the amount of the buyer's down payment, or that includes any of the buyer's recurring closing costs, which include such expenses as fire insurance premiums, interest on the buyer's new loan, property mortgage insurance and property taxes. Lenders' policies vary on how large a credit for nonrecurring costs they'll allow.
- Finding the Right Home
  Personal Considerations affecting When to Buy
  
  Experts would say buy a home if you meet the following criteria:
  
  Need a lucrative tax break. The mortgage interest deduction can make home ownership very appealing.
  
  Are not counting on price appreciation in the short term.
  
  Can afford the monthly payments.
  
  Plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home inchtde real estate commissions, lenderfees and closing costs that can amount to more than 10 percent of the sales price.
  
  Prefer to be an owner rather than a renter.
  
  Can handle the maintenance expenses and headaches.
  
  Are not greatly concerned by dips in home values.
  
  Should a Buyer Include an Inspection Contingency?
  
  Home buyers can protect themselves by including an inspection contingency in their purchase offer, which will allow them to cancel closing on the deal if an inspector finds problems with the property. As soon as the seller accepts a written offer, the document becomes a legally binding contract. It supersedes any previous oral agreements, so be sure it contains clear references to any promises made by either party during negotiations.
  
  The purchase contract could be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not attended to, the buyer could hold the right to delay or possibly cancel the closing. Otherwise, buyers face losing their deposit. There also may be costly legal implications stemming from backing out of a contract.
  
  The buyer usually has the right to choose the inspector and also is responsible for paying for the inspections. In addition to an overall inspection for structural soundness, buyers can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas.
  
  Contingency clauses should satisfy the concerns of both the buyer and seller. quot;The sellers will be nervous about contingent offers,quot; Lank states. quot;they will be taking their house off the market on your behalf, without any guarantee that the sale will go through. So it's customary to set a time limit on contingencies.
  
  Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order.
  
  Understanding Disclosure Laws
  
  Disclosure laws vary by state, but in some state law requires the seller to complete a rea1 estate transfer disclosure statement. Here is a summary of the things a buyer can expect to see in a disclosure form:
  
  In the kitchen a range, oven, microwave, dishwasher, garbage disposal, trash compactor. Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens, intercom.
  
  The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.
  
  All amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
  
  Practical concerns like central heating, solar panels, condition of electrical wiring, and gas supply.
  
  The type of water heater, water supply, sewer system or septic lank also should be disclosed.
  
  Home sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.
  
  The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.
  
  Also look for settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides.
  
  People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. In addition, buyers should note that the simple idea of disclosing defects has broadened significantly in recent years to include locally mandated disclosure forms, burgeoning home inspection and warranty industries and a more alert group of brokers and agents who have their own detailed disclosure obligations. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
  
  Evaluating a Homeowner Association
  
  Learn everything you can about the homeowners association before you purchase a condo. The financial, political and legal condition of the association is very important to your investment and quality of life.
  
  When run properly, homeowners associations maintain the common grounds and keep civility in the condo complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues.
  
  Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association's covenants, codes and restrictions of the association, or CCamp;RS, and find out if you can live by them. For ex ample, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later because you may find yourself in turmoil with determined neighbors who are firmly in control of the association board.
  
  Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on.
  
  Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you.
  
  Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing.
  
  Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are.
  
  Choosing between Digging Deep & Buying a Dream Home or Settling for a Starter Home
  
  Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy. Buyers in this situation may want to start by examining their own priorities and asking the following questions:
  
  Is the surrounding neighborhood or the home itself the most important consideration?
  
  Is each of the neighborhoods safe?
  
  Are the quality of the schools an issue?
  
  Do any of the areas seem to attract more families with children or adult residents? And where do you fit in?
  
  As for the return on the investment, home price appreciation is hard to predict. In the late 1980s, the more expensive move-up housing appreciated wildly. But during the recession of the last five years, smaller homes have held their value better than more expensive ones. The most important consideration should be your own personal priorities.
  
  Explanation of Acronyms used in Real Estate Advertisements
  
  The old adage that a picture is worth a thousand words certainly holds true when home buyers are trying to decipher the cryptic code used r home listings. "Finding the home of your dreams should be fun. But first-time buyers who already are struggling to understand financing, purchase contracts and contingency clauses should not be daunted when looking at listings in their local publications. While the writer of a recent newspaper classified advertisement was generous enough to describe their home as "impeccably maintained, others in the same paper save space (and advertising charges) by relying on the word "Clean, Rmdl" or Updates. Note that such terms do not convey the same meaning, so be sure to ask exactly what is meant by the seller.
  
  Here are some abbreviations and the meaning of each, taken from a recent newspaper classified section:
  
  assum. fin. --- assumable financing
  
  dk --- deck
  
  gar --- garage garden is usually abbreviated gard.
  
  expansion pot'l --- may be extra space on the lot, or possibly vertical potential exists for a top floor or room addition. Verify actual potential by checking local zoning restrictions prior to purchase.
  
  fabPentrm --- fabulous pentroom, a room on top, underneath the roof that sometimes has views
  
  FDR --- formal dining room
  
  frplc, fplc, FP --- fireplace
  
  grmet kit --- gourmet kitchen
  
  HDW, HWF, Hdwd --- hardwood floors
  
  hi ceils --- high ceilings
  
  In-law potential --- potential for a separate apartment. Sometimes, local zoning codes restrict rentals of such units so be sure the conversion is legal first.
  
  large E-2 plan --- this is floor plans available in a specific building
  
  lsd pkg. --- Leased parking area, may come with an additional cost
  
  lo dues --- find out just how low these one of several homeowner's dues are, and in comparison to what?
  
  nr bst schls --- near the best schools
  
  pvt --- private
  
  pwdr rm --- powder room, or hao,-bath
  
  upr--- upperfloor
  
  vw, vu, vws, vus --- view(s)
  
  Wow! --- better check this one out.
  
  Should a Buyer Require a Title Report?
  
  As much as a buyer wants to believe that the home they found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict the new owner's use of the property.
  
  A preliminary title report provides buyers an opportunity to review matters affecting the property which will not be covered by their title insurance policy unless they are removed before the purchase is final
  
  When reading a preliminary report, a buyer's priority is checking the extent of their ownership rights. The report will note in a statement of vesting the degree, quantity, nature and extent of the owner's interest in the real property. The association states the most common form of interest is fee simple or fee, which is the highest type of interest an owner can have in land.
  
  Liens, restrictions and interests of others that are being excluded from coverage will be listed numerically as exceptions in the report.
  
  Interests of third parties, such as easements granted by prior owners that limit use Of the property, need to be considered Some buyers attempt to clear these unwanted items prior to purchase.
  
  In addition, a list of standard exceptions and exclusions not covered by the title insurance policy may be attached This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.
  
  Pros & Cons of Building an Addition or Buying New
  
  Homeowners should consider several questions before making a choice between adding on to an existing home or moving up in the market to a bigger house.
  
  How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
  
  How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
  
  What do local zoning and building ordinances permit?
  
  How much equity already exists in the property?
  
  Are there affordable properties for sale that would satisfy housing needs?
  
  Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value. According to the "Cost vs.Value Report, published annually by Remodeling Magazine, remodeling a home not only improves its livability but its curb appeal with potential buyers.
  
  Among the hottest improvement projects in 1995 were updated kitchens and baths, home-office additions and more amenities in older homes in order to compete with new homes on the market.
  
  The highest paybacks come from the latter projects, according to the magazine's 1995-96 survey of more than 300 real estate professionals. "The resale market is tough right now and you need to give your home every competitive advantage you can, one agent said. While home offices are a relatively new remodeling trend, adding one to a house recoups 58 percent of the costs, according to the survey.
- Home Inspections and Warranties
  
  How Long do Home Warranties Last?
  
  Many developers provide buyers with a one-year home warranty. This may be something you want to negotiate for if it is not offered. The standard warranty offers a buyer of a new home a 10-year warranty against certain physical defects, such as faulty roofing, heating, electrical services and plumbing. A one-time insurance premium averages about $2 per $1,000 of the home's selling price. The cost may be paid by the broker, seller or buyer, or it may be shared.
  
  The First Step when Looking for a Home Loan
  
  Most experts recommend that home buyers get prequalified for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford and, therefore, they can make more informed decisions in the market place.
  
  Almost all mortgage lenders now prequalify people, and many of them can even do it on the internet.
  
  Should a Buyer Hire a Home Inspector for a Newly Constructed Home?
  
  Most experts recommend it For example, Dian Hymer, author of "Buying and Selling a Home" A Complete Guide, Chronicle Books, San Francisco, wrote, "Just because a house is new doesn't mean it was built correctly, she writes. "City inspectors sometimes overlook code violations. Ask the builder for copies of any reports on the property, including the soils report. "Have your inspector review these, as well as architectural plans, surveys, engineering calculations, city building inspections and an y other construction documents. Your inspector should help you prepare a quot;punch list" of items the builder needs to complete by closing, according to Hymer.
  
  When choosing an inspector, the person should be either an engineer, an architect or a contractor. Try to hire an inspector who belongs to one of the home inspection trade organizations. The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge about structures and their various systems and appliances are a prerequisite.
  
  How Building Codes Protect the Buyer
  
  Building codes are designed to provide minimum standards to safeguard the health, safety and welfare of the public by regulating and controlling the design, construction, quality, use and occupancy, location and maintenance of all buildings and structures. Some codes (plumbing codes, electrical codes and fire codes) are divided into specialized areas. Codes are enforced by the issuing of building permits and certificates of occupancy and by inspections, with fines being imposed on violators.
  
  Any owner contemplating an addition and/or change to his or her property should first check with the appropriate county or municipal building department to avoid any building code violations, which will generally render a seller's title unmarketable. In addition, a seller's failure to disclose such violations (they have knowledge of) may constitute a material misrepresentation, entitling the buyer to rescind the transaction and obtain the return of his or her money.
  
  Understanding Bad Credit
  
  There are numerous types of credit report problems (which may or may not be your fault) that would cause a lender to reject your application for a loan.
  
  Among the problems are missing a credit card payment, defaulting on a prior loan, filing for bankruptcy in the past seven years or not paying your taxes.
  
  Other black marks on a credit report include a judgment filed against you or any collection activity. If you feel that your credit report is wrong, experts say it's best to take it up with the organization or company claiming you owe them money. But if you've been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration.
  
  Availability of Low Down Payment Home Loans
  
  Numerous programs exist to help first-time buyers purchase a home. A host of private lenders offer low-down-payment loans. The U.S. Department of Housing and Urban Development offers a variety of programs through the Federal Housing Administration that require approximately 4 to 5 percent cash down.
  
  Loan limits vary depending on the county where the property is located. Secondary mortgage firm, Fannie Mae through participating lenders allows people to buy with just 3 percent down payments. For details, borrowers should contact lenders who offer government-insured loans. Fannie Mae's Community Home Buyers Program has an income cap of 120 percent of the area's median income. The borrower also must attend a seminar on home ownership and the home buying process. It is not geared only for first-time home buyers, unlike many of the other low down payment programs on the market.
- Insurance
  
  Choosing Home Owners Insurance
  
  According to the Insurance Information Institute, A Washington, D.C.-based nonprofit group for the property-casualty insurance industry, a standard homeowners policy protects against fire, lightning, windstorms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage, and water damage from plumbing, heating or air conditioning systems. The institute's Sean Mooney says that the basic insurance policy in an "all-risk policy", which covers practically everything with the exception of earthquakes, floods, war and nuclear accidents.
  
  This standard homeowners policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers compensation for servants or contractors. There is a growing interest in home business-coverage, but Mooney warns that the basic homeowner policy doesnít cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. For example, on a 2,000-square-foot home, if the cost to replace the home is $80 per square foot, then the house should be insured for at least $160,000. For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property. For example, if a 10-year old rug suffers water damage a homeowner can go out and get a new rug instead of only receiving the depreciated value of the old rug. Bob Vila in his book, quot;Guide to buying Your Dream Housequot;, Little, Brown amp; Co. Boston, Recommends that homeowners have and inflation rider to boost coverage as the home increases in value. Moreover, "it's up to you to see that your insurance coverage remains adequate," he writes.
- Making an Offer
  Should a Home Buyer use an Attorney?
  
  In some states, you do need an attorney to complete a real estate transaction, but in others you do not.
  
  The vast majority of people buying a home do not use the services of a real estate attorney but all do in states such as Florida, for example. Even real estate lawyers admit that attorneys usually are unnecessary. Most home buyers are capable of handling routine real estate purchase contracts as long as precautions are taken. They should definitely make sure they understand every single term of the contract. Every contract is different, even though they're on preprinted forms. Buyers should closely study the contingency clauses allowing them to back out if they cannot obtain financing or an inspection turns up problems.
  
  Hiring an attorney after a conflict erupts may be too late. Lawsuits are costly and time-consuming. People who anticipate a problem should stay out of the transaction altogether. Not all real estate attorneys are competent, let alone good. And it's important to find one who will help, rather than hinder, the deal.
  
  Buyers who need an attorney should call several and inquire about fees, but be willing to pay for someone with experience. Do not hire Uncle Harry, the tax attorney to handle a transaction that may be the biggest investment of your life. On a $100,000 home, the attorney's fee is minuscule, and on a bad deal, that fee could save you a tremendous amount of heartache as well as money to fix whatever problems crop up.
  
  Some Tips on Negotiation
  
  Most real estate experts encourage buyers to learn about the sellerís motivation so they can obtain the best deal possible. For example, a lower price with a speedy escrow may be more acceptable to someone who must move quickly due to a job transfer. People going through a divorce or are eager to move into another home are frequently more receptive to lower offers.
  
  A seller's advertised price should be treated only as a rough estimate of what they would like to receive. Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. In considering the list price of a house you're serious about, take the time to learn about the seller's personality.
  
  Some experts discourage making deliberate low-ball offers. While any offer can be presented to the seller, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. And unless the house is extremely overpriced, the offer probably will be rejected anyway.
  
  Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right.
  
  Buying a Property Below Market Value
  
  The typical home buyer looks at three to five houses before buying. The investors who consistently make bargain purchases consider far more properties for every one they buy from about 50 to about 1,000.
  
  Several approaches to buying property below market value:
  
  Buy a house thatís due to be torn down, move it to a new lot, and resell. Carefully done, this technique often produces a property which is worth twice what it costs to buy a resale home.
  
  Interests in real estate which are less than 100 percent fee-simple often sell at enormous discounts. Tenants in common are an example. Sometimes, the owners of tenant-in-common interests want to sell or are forced to sell.
  
  Life and remainder estates are another way.
  
  Home-builder leftovers. When home builders put up a housing development, they almost invariably end up with a handful of hard-to-sell houses. Finding these unusual deals is a challenge. It takes a great deal of research and determination.
  
  The Difference between List Price and Sales Price
  
  The list price is the amount an owner would like to receive for a property. The sales price is the amount a property actually sells for. It may be higher or lower, depending on how accurately the property was originally priced and on fluid market conditions. The listing price may need to be adjusted if offers are not made within the first few months of the propertyís listing period.
  
  A Seller's Obligations to Disclose
  
  Obligations to disclose information about a property varies from state to state. Under some strict state laws, the seller and the seller's broker, if there is one, are required to disclose attracts materially affecting the value or desirability of the property which are known or accessible only to them. Items sellers often disclose include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property" any restrictions on the use of the property, such as zoning ordinances or association rules.
  
  Considerations for Making a Low Offer
  
  There are always some sellers who for some reason must sell quickly.
  
  While a very low offer in a normal market might be rejected immediately, in a buyer's market the below-market offer will usually either be accepted or generate a counteroffer.
  
  When few offers are being made, and outright rejection of offers becomes unlikely. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved.
  
  Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition. Is the offer made on the house as is, or does the buyer want the seller to make some repairs before close of escrow or make a price concession instead?
  
  Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.
  
  Contingencies to Include with an Offer
  
  There are two standard contingencies:
  
  a financing contingency, which makes the purchase conditional on the buyers' ability to obtain a loan commitment from a lender, and
  
  an inspection contingency, which allows the buyers to have professionals inspect the property to their satisfaction.
  
  A deposit could be forfeited by the buyers under certain circumstances, such as the buyers backing out for a reason not provided for in the contract.
  
  The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
- Property Taxes
  
  Appealing Property Taxes
  
  Taxpayers first should try to win property tax reductions through informal protests to assessors.
  
  Most formal tax appeal processes begin with an appeal, which ordinarily must be filed with the appropriate assessment appeals board.
  
  Property Taxes are Tax-Deductible
  
  Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes.
  
  Understanding Property Taxes
  
  Property taxes are generally ad valorem taxes. This means that they are charged in relation to the value of the property taxed.
  
  Property provides an easily measured, difficult-to-hide source of wealth for purposes of taxation. Government eagerness to tax real estate wealth is generally matched by citizen reluctance to have it do so.
- Tax Considerations
  Tax Benefits to Homeowners
  
  Homeowners benefit from several generous tax advantages. The most important benefit is the mortgage interest deduction. People may deduct interest paid on mortgage loans totaling up to $1 million used to buy, build or improve a principal residence plus a second home. The IRS calls such loans acquisition debt. Points paid by the buyer or seller on a new mortgage loan for the purchase or improvement of a principal residence are deductible for the year in which the home was purchased.
  
  Any points paid on a refinance mortgage, a loan to purchase a second home or a mortgage on income property must be spread over the life of the loan.
  
  Note that when obtaining a new mortgage, the borrower usually is asked to pay interest from the closing date until the first of the next month. Check whether that charge is included in the year-end report. Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income. A homeowner cannot deduct maintenance expenses, nor can he take depreciation deductions on his personal residence.
  
  Some moving expenses are deductible for people who changed jobs and relocated as a result. The IRS requires that the new employment be located at least 50 miles away, among other considerations.
  
  No Tax Deduction for Losses incurred from Selling a Home
  
  The IRS allows no deductions for losses on the sale of your own home. There's no way to use a loss to your advantage on your income tax return. It won't matter what type of misfortune you may have run into.
  
  Capital Gains Taxes incurred from Inheriting a House
  
  When children inherit a home, the Internal Revenue Service determines their basis in the property on the date of the person's death. The cost basis is not the amount the owner originally paid for the house. It is the property's fair market value on the date of the mother's death.
  
  Cost basis is a tax term for the dollar amount assigned to a property at the time it is acquired, for the purpose of determining gain or loss when it is sold. Assume the property was divided up equally. If one of the three siblings sold her share, she must pay capital gains tax for whatever profit she made over one-third of the new basis.
  
  Other tax consequences include estate taxes. However, the estate must total $600,000 or more before tax issues become a concern. The IRS allow residents to pass on property, cash and other assets worth up to a total of $600,000 before charging the heirs any taxes.
  
  Regarding the transfer of ownership, quit claim deeds often are used between family members in situations such as this when an heir is buying out the other. All parties must be agreeable to dropping a name from the title.
  
  Both Buyer & the Seller Paid Points are Deductible
  
  Homeowners affected by the IRS's 1995 announcement allowing buyers to deduct points paid by the seller are instructed to file an amended tax return for the year in which the home was purchased. If they're entitled to a refund, they will get a refund based on the filing of an amended return. The amendment form, called 1040X, can be ordered by calling the IRS directly at 1-800-TAX-FORM. At the top of the form, write "seller paid points,". Form instructions tell people to attach a copy of their settlement statement, commonly called the HUD-1 form.
  
  People who purchased homes after Dec. 31, 1990, can deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer. However, many deals between buyers and sellers were taking place outside of escrow. Some buyers were paying the points but could not take credit for it because the seller wanted to use the deduction to reduce capital gains.
  
  In the year of the (original) return, the buyer would have paid tax on what could be a couple thousand dollars... The IRS made the change so it would be the same no matter how people were doing it - it would be the same for everybody.
  
  First Time Home Buyer Tax Credits
  
  Many city and county governments offer Mortgage Credit Certificate programs.
  
  These certificates allow first-time home-buyers to take advantage of a special federal income tax write-off, which makes qualifying for a mortgage loan easier.
  
  Requirements vary from program to program. People wanting to apply should contact their local housing or community development office. Here is a list of four general requirements to keep in mind:
  
  Some credit may be claimed only on your owner-occupied principal residence.
  
  There are maximum income limits, which vary by locality and family size.
  
  You must be a first time home-buyer, defined as not having held an ownership interest in a principal residence during the past three years. This restriction may be waived, however, if you are buying property within certain target areas.
  
  Allocation must be available. A local MCC program may have to decline new applications when it runs out of funds.
  
  Home Mortgage Interest Deduction
  
  Mortgage interest is completely deductible for the year in which you pay it, with the following limitations:
  
  You may deduct interest paid on mortgage loans totaling up to $1 million used to buy, build or improve your principal residence plus a second home. The IRS calls such loans acquisition debt.
  
  Your home must be used as security for the loan, which might be called a first mortgage (or deed of trust), a second mortgage, home-equity loan or line of credit. Loans used to purchase shares in a cooperative also qualify.
  
  You may deduct as acquisition debt any interest on a refinanced acquisition mortgage, up to the amount you currently owed on the old loan when you refinanced.
  
  Avoiding Capital Gains Taxes
  
  In considering capital gains tax from the sale of a primary residence, the critical time frame is two years. Taxes on the gain, generally the difference between the price someone paid for their home and the price for which they eventually sold it, are not immediately collected if the sellers use the gain to purchase another house within 24 months. The IRS does allow homeowners to add the price of improvements to the cost basis for their property (to arrive at the adjusted cost basis). Gains tax is not forgiven forever; it simply is postponed until the next home is sold, at that point, it often is postponed again in the same manner, piling up untaxed profit on a string of homes.
  
  Mortgage Credit Certificate Program
  
  The Mortgage Credit Certificate program allows first-time home- buyers to take advantage of a special federal income tax credit.
  
  This program allows buyers credit in qualifying for the tax advantage they'll receive after they purchase the home.
  
  The amount of the credit is tied to a local formula that every city with an MCC program must follow. An MCC credit, which can total $2,000 or more, reduces the borrowerís federal tax liability by an amount tied to how much one pays in annual mortgage interest.
  
  Both the borrower's income and the purchase price of the home must fall within established guidelines.
  
  To see if your community has an MCC program, call your local housing or redevelopment agency. You also may inquire with your real estate broker or the local association of realtors.
  
  Deducting Losses incurred from Natural Disasters
  
  Casualty losses from fires, floods, earthquakes and other disasters are deductible from both state and federal income taxes. A casualty is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. Causes range from earthquakes, tornadoes, floods and storms to vandalism and fires. In contrast to fire insurance, which often covers extensive replacement cost, Lank goes on to write, IRS deductions for casualty losses never can exceed fair market value before the casualty. Your loss of personal property is figured separately.
  
  Tax Incentives for Qualified Historic Rehabilitation
  
  A landmark property could potentially be certified as a historic property and that would include certain tax advantages. A "historic structure" is "a property listed in the National Register of Historic Places, located in a registered historic district and certified by the Secretary Of the Interior as being of historic significance to the district, or located in a historic district designated under an appropriate state or local government statute that has been certified by the U.S. Department of the Interior.
  
  The Internal Revenue Code provides certain tax incentives and deterrents to encourage the preservation of historic buildings and structures. There is a 20 percent investment tax credit for qualified rehabilitation expenses in qualified rehabilitated buildings and certified historic structures. In addition, the tax code penalizes an individual who demolishes or substantially alters a historic structure. Demolition costs will not be permitted as a deduction, and substantial alterations or completely new improvements will not be eligible for any form of accelerated depreciation.
  
  Tax-Deductible Home Improvements Expenses
  
  Mortgage interest payments on acquiring and improving principal residences and second or vacation homes are fully deductible from income for tax purposes so long as the debt does not exceed $1 million. In addition, expenditures for permanent improvements can be added into your home's cost basis, or amount of money invested in a home, which reduces capital gains when it comes time to sell. Home-owners should save all receipts so they can include money spent over the years for permanent improvements, repairs after afire, flood or storm and special property tax assessments for neighborhood improvements. Capital gains are determined by the difference in price from the time a home is purchased and the time it is sold, minus the cost of any permanent improvements.
  
  Tax-Deductible Home Buying Costs
  
  Points paid by the buyer are deductible for that year.
  
  The IRS also has ruled that even points paid by the seller are deductible. Not a lot of other fees are immediately tax -deductible, but some may be figured into the adjusted cost basis of your home, an Important figure when people ultimately calculate capital gains.
  
  When you buy your home, you have closing expenses, many listed on your settlement statement, that are not deductible on your income tax return, but, instead, simply are added to your cost basis for the property. If you haven't yet purchased your home, a look at the following list could frighten you away from the project forever! Any of these expenses you may encounter cannot be used as income tax deductions; add them to your basis:
  
  title insurance
  
  loan-application fee
  
  credit report
  
  appraisalfee
  
  service fee
  
  settlement or closing fees
  
  bank attorney's fee
  
  attorneyís fee
  
  document preparation fee
  
  recording fees
What & Where To Buy
- Fixer-Uppers
  Guidelines for Finding a Contractor
  
  Never hire a contractor without first taking the following steps, according to the League of homeowners:
  
  If your state has a licensing board for contractors, call them. And ask the board if there are any outstanding complaints against that license holder.
  
  Contact your local Better Business Bureau to see if there are any complaints on file.
  
  When interviewing, ask prospects about their worker's compensation insurance.
  
  Get the policy number and phone number of the insurance carrier. Call to be sure the contractor is covered. if he or she is not, any work-related injury on your property could become a liability to you.
  
  Check to see that the contractor has an umbrella general liability policy.
  
  Always ask for references.
  
  Always take the time to call and verify them.
  
  Do not give in to pressure to make a decision. Believe it or not, there are more contractors than there is work to be done. If a contractor insists that you make a quick decision, move on to someone else.
  
  Never pay a deposit to a contractor. If you are asked to pay a deposit fee at the first meeting, simply end the meeting.
  
  Returns on Home Remodeling
  
  According to Remodeling Magazine's annual "Cost vs. Value Report, remodeling a home not only improves its livability but its curb appeal with potential buyers. Among the hottest improvement projects in 1995 were updated kitchens and baths, home-office additions and more amenities in older homes in order to compete with new homes on the market.
  
  The highest paybacks come from the latter projects, according to the magazine's 1995-96 survey of more than 300 real estate professionals. "The resale market is tough right now and you need to give your home every competitive advantage you can, one agent said.
  
  While home offices are a relatively new remodeling trend, adding one to a house recoups 58 percent of the costs, according to the survey.
  
  How to Increase Property Value
  
  The biggest factor outside of a homeowner's control is market conditions. But other issues including the condition of the property, specific home improvements and neighborhood stability and safety can influence property values.
  
  The greatest rise in home prices occurs when the economy is strong and the number of home sales is increasing.
  
  Though markets vary, that has occurred twice in recent history in the early 1970s and the late 1980s. However, single-family homes appreciated much more than condominiums. While overall market conditions are out of the homeowner's control, other factors are not.
  
  For example, specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine's 1995-96 Cost vs.Value remodeling report, a bathroom remodeled returns 81 percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent.
  
  Remember, quality pays. Well-planned and executed remodeling jobs are a good investment while bad work seldom enhances value or livability.
  
  Homeowners living in high-crime areas have organized community watch programs, which not only lower the crime rate and rid a neighborhood of graffiti but also have been known to enhance property values.
  
  How to Find Fixer-Uppers
  
  So-called "diamonds in the rough" distressed properties or fixer-uppers can be found in most communities, even the wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area.
  
  Ascertaining whether a property is indeed a "diamond in the rough" is a process that takes some work. A buyer must figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost.
  
  Some experts suggest that buyers who take this route try to find a "cosmetic fixer that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. Buyers should avoid run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it.
  
  The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.
- Newly Constructed Homes
  
  New Home Cautions
  
  Buying a resale home allows a complete examination of the interior spaces and the surrounding yard in great detail. You know exactly where this house fits into the overall neighborhood and what to expect in years to come. In addition, existing neighborhoods are located on existing streets, which lead to existing shops and schools.
  
  Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit ,entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example.
  
  Local zoning ordinances also should be reviewed A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control.