Q. We are buying our first home and our parents will be giving us most of the money. What is the best way to protect them without tying us down too much? L. and V. Zimmer, Media, PA
A. From your question I could assume you are siblings, but since that is fairly unusual (although I had brother and sister clients who bought a house together), I will assume you are married and the money is coming from one of your parents. If that is the case, everyone should understand the ramifications of this method of finance. You first must decide how to take title. The child who does not have the contributing parents gets a huge benefit if title is taken in joint names. If the two of you divorce, absent clear evidence that the money was a loan (or a pre-nuptial agreement), the court will most likely consider it a gift and consider the house owned 50/50 regardless of how it was funded. This is a tough result to accept if the non-contributing spouse turns out to be a bad choice of marital partner.
The parents should ask you both to sign a note for the loan and place a mortgage against the property to protect their investment from other creditors. The note should probably be due and payable on sale (as are most mortgages) and perhaps be due "on demand", allowing the parents to call the loan in the event of marital disharmony or other financial problems, so that the loan must be repaid--either by refinancing or selling the house. It would be safer for the parents to require that only their child have title to the house, but that prevents the other spouse from participating in the appreciation.
If you are not married but planning to live together, then title should be taken as tenants-in-common, with the percentage of interest in line with each of your contributions. So if your folks are giving you 90% of the money, you would hold a 90% interest. You should also have an agreement between you about who pays for expenses, and what happens if one of you wants out of the arrangement. You might want to see a real estate lawyer for that.
Good luck to all of you!!
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Q. I have a friend who is moving to this area from California and she wants to know what areas are "hot" here. We are not sure what she means, do you know? B. Quinn, Wayne, PA
A. You wouldn't want to move to an "uncool" part of Philadelphia, I guess. Actually, there is a move afoot to revitalize some of the nearer suburbs to take advantage of their better commute times and historically strong neighborhoods. The Delaware Valley Regional Planning Commission is renewing its commitment to the growth, revitalization, and support of the region's older communities, touting them as "great places to live, work, and play." They have introduced a new marketing effort, titled "Classic Towns of Greater Philadelphia," featuring: Landsdowne (Delaware County), Media (Delaware County), Manayunk (Philadelphia), Overbrook Farms (Philadelphia), West Chester (Chester County), Doylestown (Bucks County), and Ambler (Montgomery County). I would add Roxboro, a community with a lot of affordable housing that is close to the more-expensive Manayunk. Maybe you can tell her to take a look at these towns.
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Q. I did a lot of research and ended up choosing a buyer's agent to help me find a home. Now it seems she has another client interested in the same house that I like. Is that permitted under Pennsylvania law? R. Lindsey, Devon, PA
A. I am impressed that you know about buyer agency-many people do not. The use of buyers' agents is fairly recent in Pennsylvania, although popular for much longer elsewhere. The idea of buyers agency was introduced in the 1980's in our state, in part as a response to a study by the Federal Trade Commission which found that 71% of buyers thought the agent showing them properties was "their" agent and 73% of them had told that agent confidential information such as the highest price they were willing to pay. This was at a time when all agents represented the seller. It was not until 1998 that agents in Pennsylvania had to disclose to the buyers and sellers whose interests they were representing in a transaction.
So your agent is acting within the law as long as he or she has disclosed the role they have. "Dual Agency", as this situation is known, is permitted in our state, although it is more common when the listing agent also represents the buyer. Your case is rare. You might ask the agent to set forth the "rules" such as what happens if you both want to make an offer at the same time and how confidences will be kept. The agent may decide to refer one of you to another agent (for purposes of this offer only), to eliminate any concerns.
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Q. We are looking for a home in a good school district, so we have done a lot of research. The taxes are higher in many of the areas we are considering and seem particularly high on new construction. Why is that? M. and W. Solomon, West Chester, PA
A. As a general rule, areas with good schools have higher real estate taxes but often have higher home values as well. Because it is not permitted to reassess a home based on the price it sells for (they have to reassess the entire county at a time), municipalities may assess new construction at what appears to be a higher amount. If you believe the tax on a home you are considering has been assessed too high, there are ways to appeal that. Often, the assessment is not even made until after the house is purchased, so you run a bit of a risk as far as taxes in that case.
Lawyers who specialize in tax appeals often take them on a contingency fee basis-that is they only get paid a portion of what they are able to save. The procedures and deadlines to file appeals are a bit tricky so it is best to get help with this but it can be quite beneficial.
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Q. An agent with a large company has suggested we list our home for sale with her because "they have the largest market share in the area". Do you think that is a good reason?
A. No. I can think of other reasons but that one has never made any sense to me. Market share is a reason to buy a product or service when the seller
dominates its competitors in customer loyalty, distribution coverage, image, value or price. The assumption is that the product must be better overall if purchased from that company. But homes are not the product of the listing company. That company is just the conduit for many homeowners. And the homes are made available through the multiple listing service to any interested buyer, so there is no benefit to buying a home listed with one company over another as far as I can tell. I think that most agents working with buyers want to show all the homes that might work for their clients, not just the ones listed with their company.
Having said that, let me tell you that there are very good listing agents at each company. The trick is to figure out which ones are good. The skills I like to look for are the ability to listen, marketing savvy, good sense of style, careful keeper of confidences and strong negotiation skills.
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Q. My mortgage broker thinks ARMS are a good deal right now? Why would anyone recommend those after what we have seen recently? S. Barnett, Devon, PA
A. You don't throw the baby out with the bath water, right? ARMS are still good for what they were originally intended for-short term loans or where the borrower is in a temporary cash flow crunch. A divorce might be a good example. Another group that might want to consider them is the folks in our region needing to borrow over $417,000 (jumbo loans), where rates are higher than they should be now (mid 7%). In our area, the jumbo limits are not scheduled to increase based on the new median home value numbers as they are in other areas. (In NYC, for example, non-Jumbo rates are available up to $729,750) So a borrower with a $480,000 loan might have a $3,356 monthly payment under Jumbo rates, but a $3,034 payment with an ARM. Over 5 years, that savings can add up.
It has proven best lately to have ARMS with rate increases tied to the Treasury index rather than the Libor rate (London interbank rates), so if you decide this type of loan could be appropriate, you might look for one with that feature.
Have questions about the home buying and selling process? Email them to Sage Realty to LindaWalters@FindAHomeinPA.com and see them in future articles of "Sage Advice" here in the Suburban.
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