A deal can die when homes don’t appraise

Q: We got an offer on our home for $365,000, got the appraisal back from the buyer's lender for $365,000. Five days later, the lender reviewed the appraisal and changed it to $350,000 (exactly the price the buyers wanted before negotiations.) So I guess what I'm asking is what good is an appraisal if the lender is going to tell you what your house is worth? — askedith.com

A: That lender isn't telling you how much your house is worth. The appraisal was not for your use. It was not for the buyers' either (though they paid for it). The appraiser's client was the lender, and the appraisal was intended to help the mortgage underwriter decide how much it would be safe to lend on the property.

When— as brokers put it — "the house doesn't appraise", it does pose a problem for you, of course, but the main problem is the buyers'. Can they come up with the shortfall so they can pay you the agreed-upon price?

You can always dig in your heels and say that's the only solution. Of course, you may well lose the deal at that point, because the sales contract probably says if they can't get the amount they want to borrow, the contract is void and their deposit will be returned. Or, if they still want to buy, you could agree to sell at $350,000, or negotiate a compromise.

Or, you can just call the whole thing off and put the place back on the market. To help you decide — how long was the property for sale, and at what price? The reaction of the buying public was, in the end, the most reliable guide to how much the house is really worth.

No Broker Involved

Q: My mom lives in New York and wants to sell her North Carolina property to her sister who has been living in the property for the last 30 years rent free. Will a quit-claim deed work in this situation or do they need a real estate agent or a real estate lawyer? Both of them are on a fixed income and want to do this with the least expenses. — L.

A: A real estate broker's main service is to produce a willing and able buyer, and to help the two parties reach a binding agreement. Your mother already has a buyer and — I assume — she and her sister have already agreed on price and terms. No broker is needed. Unless your aunt intends to secure a mortgage loan, the settlement process should be fairly simple.

It's legally possible for them to transfer title on their own. To protect both from possible complications in the future, though, they should follow the usual local procedures rather than doing it themselves.

In North Carolina, closings are usually handled by lawyers. As it's a family transaction, your mother might ask whether an attorney would feel comfortable handling the paperwork for both of them. Assure her that it's always acceptable to ask ahead of time what the service is likely to cost.

Overpriced Summer Home

Q: Just before my father passed away, my parents listed their second home. They would stay there occasionally for the weekend but it was primarily as a rental property in the summer months. There is no mortgage on it.

Despite the advice of the listing agent, my mother wanted it listed way above any comparable property. She fears the depreciation that was taken on it as a rental property, capital gains tax and commissions will leave her "with nothing to live on." Meanwhile, she has had to hire help to maintain the property and the property and school taxes are due soon.

Who would be the best professional to put things in perceptive for her? — S.

A: First of all, has your mother consulted a certified public accountant recently about the income tax consequences of selling? That may be more favorable now than it would have been when your father was alive. I don't know just how your folks owned that property or precisely how your mother became sole owner. She needs to find out whether a stepped-up cost basis might wipe out some or all of that recaptured depreciation, which was previously involved in the calculation of taxable gain.

After that she has two options:

a) She can continue using the property as a rental. Who manages it for her? Will it yield reliable income?

b) She sells it and invests the proceeds. If she chooses b) and puts the place on the market, it's always a waste of time to base an asking price on what one wants — or needs — to get. If her price is out of line, no one will buy and she'll be back to choice a) anyhow.

Edith Lank will respond personally to any question sent to www.askedith.com, to edithlank@aol.com, or to 240 Hemingway Drive, Rochester NY 14620.