When you sign a real estate contract, you might as well consider that pen in your hand to be a stick of dynamite. Over the next several months, you will have to live by what is and- equally important- what is not in the contract.

If you ever talk to a home buyer who’s been ripped off by a builder (that is, had a “negative home buying experience”), you’ll notice one common thread: a bad contract. After you strip away all the incompetent subcontractors, the builder-grade materials, and the outright deception by the builder or salespeople, you’ll usually discover that it all starts with a lousy contract that didn’t protect the consumer.

How do bad contracts zap good home buyers?

1) Generic real estate forms. Surprisingly, many new homes are bought with just the generic real estate “Contract to Buy and Sell”. While this may be fine for existing homes, new home construction is another ball game. Although this generic contract does not identify the buyer and seller and the amount to be paid, no mention is made of exactly what you’re buying or when it will be completed. Some builders get around this problem with a “new construction addendum,’ which is nice but it runs into the next problem.

2) Omission of details. Even the contracts written for new construction are devoid of critical details. For example, it’s rare to find a completion date and any penalty clause. No specs or materials are promised-just a vague wording that says the home will be built in accordance with the “drawings and design plans.’ If the builder drew those plans, the plans may still omit many details. For example, a door opening is drawn on the plans but no mention is made whether it’s an expensive, six panel, solid oak door or a cheap, pine hollow-core door. And it’s like that all down the line: heating/cooling systems, windows, faucets-the plans give you no clue as to whether you’re getting quality or trash.

3) Verbal Promises. The final straw of these bad contracts is verbal agreements. The builder may promise a brick fireplace at the beginning, but having no written agreement makes it easier for the builder to say later he never promised you that. If you order a change but fail to put it in writing, the builder may fail to make the change. Or the change will be made and you’ll be charged twice the “verbal” price. Near closing, you may be shocked by huge bills for items you thought were more affordable in earlier conversions.

This Homebuyers Tip was excerpted from:

Your New House, by Alan & Denise Fields, Windsor Press, 1996

ISBN# 0962655686

New Home Sales Increased In August

New-home sales unexpectedly climbed during August, breaking a string of three declines as the median price for a house compared to a year earlier was lower.

Meanwhile, demand for durable goods unexpectedly fell during August in a fairly broad-based decline, and an indicator of business equipment investment dipped.

According to the Commerce Department, sales of single-family homes increased by 4.1% to a seasonally adjusted annual rate of 1.050 million. July sales fell 7.5% to 1.009 million, revised from a previously estimated 4.3% decline to 1.072 million. Sales dropped 0.9% in June and 1.8% in May. Demand was flat in April.

Get the complete story here…

Tax Advantages of Home Ownership

While you build equity in your home by paying off your mortgage, many of the expenses of maintaining the home provide you with several tax deductions. The higher your income, the greater the limits placed on the deductions, and some requirements must be met before they take effect. Here are some examples of deductible expenses:

• Interest paid on your mortgage, as long as the acquisition mortgage amount does not exceed $1 million.
• Interest paid on home equity loans – not more than $100,000 is deductible.
• Casualty losses from fire, storm, flood, earthquake or other such incident. The loss after your insurance reimbursement must exceed $100 and 10% of your adjusted gross income.
• Home-office costs that qualify.
• Local real estate property taxes paid on a principal residence or second home.

For details about the many tax breaks for homeowners and assistance with your tax return, be sure to consult your tax advisor.

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. Finding a good real estate attorney is like finding a good broker. First, you should ask your broker and friends for recommendations. You want someone experienced, someone who has handled a minimum of fifty closings within the past three years. After you get several names, call them up and ask them how much they charge and what they will do for that fee. Don’t be embarrassed to ask about fees. It’s crucial that you know how much you’re getting for your money.

Some attorneys (especially those in medium or large law firms) charge by the hour. Others (especially solo practitioners) charge a flat fee. Try to find someone who will charge you a flat fee for his or her time. That way if there is a problem with the closing, you won’t be charged for all those extra hours.

Looking solely at how much attorneys charge for their services is not necessarily the best way to choose your attorney. For this, the biggest investment of your life, ask yourself if you feel comfortable telling this person all the intimate details of your financial life. It’s vital that you feel comfortable with, and perhaps even a bit close to, your attorney.

If a deal is really complicated, you will almost certainly need an attorney. Sam once worked on a house closing that seemed pretty ordinary until he found out there were ten lenders. He had to negotiate a separate deal with each lender until they were all satisfied. The extremely complicated closing took ten hours. Some at the closing called it the "hour per lender" deal.

Once you hire the attorney, the general idea is to let him or her do the job. If the attorney advises you on certain points, believe him or her. If he or she tells you to do something, do it. The attorney knows the ins and outs of real law much better than you do.

Note: Hiring a real estate lawyer is not the same thing as having your Uncle Harry, the tax attorney, do your real estate closing. Real estate law is specialized and while Uncle Harry may be a whiz at writing wills, or leasing airplanes, or finding creative places to put your money, he may help you get nailed to the wall in two minutes if he doesn't truly understand the finer points of real estate law.

Home Sales Fall For 5th Month

Sales of existing homes fell for the fifth consecutive month in August as the once-booming housing market slowed further.

The National Association of Realtors reported Monday that existing home sales slipped by 0.5 percent to a seasonally adjusted annual rate of 6.30 million units.

The slowdown in sales was weighing on home prices, with the median price of an existing home sold in August dropping to $225,000, 1.7 percent below August 2005. It marked the first year-over-year price decline in more than 11 years.

Get the complete story here…