When is it advisable to sell your home 'as is'?

Transaction has pros, cons for consumers
By: Robert J. Bruss: Inman News
DEAR BOB: When is it advisable to sell your home "as is?" – Alta F.

DEAR ALTA: That's the shortest real estate question - and one of the best - I have ever received. I wish the answer could be so brief.

An "as is" real estate sale means the seller will not pay for any property repairs but must disclose all known defects.

Many sellers of older homes sell "as is" because they (a) don't want to be inconvenienced with repairs or renovations, (b) realize the buyer may want to tear down the house or remodel to their own preferences, and/or (c) can't afford to make repairs.

Personally, I learned about "as is" home sales when I purchased a foreclosure house from a bank. The realty agent marketing the residence emphasized the sale was "as is" and the bank wouldn't pay for any repairs. But the price was such a bargain I was "blindsided" and failed to notice all the items that needed repair or replacement. Fortunately, I had plans to renovate the property so it really didn't matter and I eventually resold that property at a substantial profit.

Sellers of "as is" houses should realize that it is a "red flag" warning to buyers who usually expect a sales price discount from full market value to compensate for the needed repairs. Buyers of "as is" houses can often obtain bargain purchase prices but they should always make their purchase offer contingent on approval of a professional inspection report.

SHOULD ELDERLY COUPLE PAY OFF $42,000 HOME LOAN?

DEAR BOB: Love your column and interesting answers. Now we have a question. My wife and I are both 88, happily married for 68 years with 11 grandchildren, 13 great-grandchildren and two great-great-grandchildren. We owe about $42,000 on our home mortgage at 7.75 percent interest. We can easily pay it off in full. Should we? There are pre-payment penalties, we know, but we are thinking that no mortgage would make no hassle for our children when we die. Should we pay off our mortgage? – Victor LoG.

DEAR VICTOR: Before you pay off your mortgage, please ask yourselves if you will have enough remaining liquid cash reserves. I wouldn't want you to be "house rich, but cash poor."

Fortunately, if you pay off the mortgage but then find yourselves "cash-challenged," you can easily obtain a senior citizen reverse mortgage. However, the paperwork can often take several months.

The laws of most states regulate the amount of home loan prepayment penalties. Before you pay off your mortgage, ask your lender for the exact amount of your prepayment penalty. If you have had your mortgage for many years, you might be surprised to learn there is no prepayment penalty (which usually only applies for two to five years after a mortgage is originated).

By paying off your mortgage, you will be making a very wise investment at 7.75 percent in the form of interest savings. Where else can you make such a profitable investment?

P.S. If you want to save your children probate costs and delays after you both pass on, please consider putting your home and other major assets into a living trust.

NO TAX DUE IF UNCLE LEFT NET ESTATE BELOW $1.5 MILLION

DEAR BOB: I am the only heir of my uncle's living trust. He had listed his home of 30 years for sale in May 2005. The house sold almost immediately for $410,000. Unfortunately, he passed away before the sale closed in mid-June. After the closing costs and my uncle's reverse mortgage balance were paid off, the proceeds were paid to me. In a few months I will have to file my 2005 income tax returns. Can I claim that $250,000 principal residence sale tax exemption? My late uncle's cost basis was only $32,000 for his house. How much capital gains tax will I owe? – Sue B.

DEAR SUE: Your letter is especially interesting and educational. The first point is a real estate sale is binding on the owner's heirs and estate if a sale was pending when the owner died, as in your situation. As the sole heir, if you wished to cancel the home sale, the buyer would have been able to enforce the sales contract in court.

The second point is, as the heir, you won't owe any tax because you live in a state with no inheritance tax. Only a few states still have inheritance taxes on heirs, but close relative heirs are usually exempt.

If your late uncle left a total net estate below $1.5 million, his estate didn't owe any federal estate tax. That means the net proceeds from the home sale are completely tax-free to you as the sole heir. There is no capital gain tax for heirs. For further details, please consult your tax adviser.

HOW TO FIND AN UNBIASED HOME INSPECTOR?

DEAR BOB: Shortly after I "sold" my home, but before the sale closed, a strong storm caused minor damage. The buyer's home inspector reported the damage on his report. The buyer then decided to back out and I didn't resist. Then I put my house back on the market for sale "as is" and soon received a better purchase offer. The second buyer hired the same inspector who then reported nothing wrong with my house. The second sale closed. I have a copy of both reports. How can a home buyer or seller find an honest unbiased professional home inspector? – Don S.

DEAR DON: That is an amazing story. Apparently, your second buyer really wanted to buy your house, warts and all. Perhaps the home inspector had been told by the first buyer to find some defects to let that buyer get out of the purchase contract.

What are the professional home inspection qualifications of that inspector? I suspect he or she is not a member of the American Society of Home Inspectors (ASHI), which has the toughest membership qualifications for their members. To find local ASHI members, on the Internet go to www.ashi.org, or phone 1-800-743-2744.

CAN HUSBAND SELL ONE HOME AND WIFE SELL THE OTHER?

DEAR BOB: My husband and I are going to separate. He is going to move to another state where we own a vacation cabin. We are in agreement and, at this stage in our lives, there is no point making the lawyers richer. If he establishes legal residency and obtains a job there, after two years can he sell the cabin and claim the $250,000 exemption? Would I still be able to sell, as an individual, our main home and claim the $250,000 exemption? We have lived in our current home over 30 years. Both homes are titled in both names. Can we do this? – Liz B.

DEAR LIZ: Yes. However, please consult your tax adviser now. Also, I suggest you consult a family law attorney to discuss a separation agreement.

I presume the resale capital gain on each residence is less than $250,000 so all your sales profits will be tax-free.

After 24 months of occupancy, your husband can qualify for the Internal Revenue Code $250,000 principal residence sale tax exemption on the cabin sale and you will still be entitled to the $250,000 exemption if you sell your current principal residence. I presume you won't be filing joint tax returns.

WHICH REVERSE MORTGAGE HAS THE LOWEST COST?

DEAR BOB: Several months ago in your column you referred to an elderly couple that required a reverse mortgage whose cost was only about $5,000. Please provide me with the name of that reverse mortgage lender, as I am finding reverse mortgages cost much more around here – George K.

DEAR GEORGE: The up-front costs of senior citizen homeowner reverse mortgages depend on the lender, the homeowner's age, and the maximum amount. FHA and Fannie Mae set maximum origination fees for their reverse mortgages.

However, if you own a home worth more than $500,000, you will probably discover the Financial Freedom Plan is best for your situation because of its unlimited maximum amount. More details are in my special report, "The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.