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Buyers, sellers both have options when inspection finds problems

DEAR MR. MYERS: I have signed a purchase contract for a home, and I made my offer contingent on getting a satisfactory report from a home inspector. The inspection report states that the home has major plumbing problems, which will cost about $6,400 to repair. Is the seller required to pay for the work because my offer was contingent on an inspection?

ANSWER: No, the seller isn’t obligated to make the repairs in order to close the sale.

You were wise to make the purchase of the home contingent on first obtaining a satisfactory report from a professional inspector. A typical inspection contingency allows buyers to cancel a sale and get their deposit back if the report uncovers previously undetected problems, such as a badly leaking roof or a plumbing system that needs a complete overhaul.

An inspection contingency does not, however, require a seller to fix any problems that the inspector might find. When problems are discovered, buyers have four basic options: Renegotiate with the seller to have the needed repairs made before the sale closes; ask for a lower sales price so the buyer will have the money to make the repairs after moving in; purchase the property “as is”; or cancel the sale and have their deposit returned.

A bad plumbing system can cost thousands of dollars to fix, and thousands more to totally replace. If you still want the house, contact two or three professional plumbing companies and ask for written estimates for the cost of the work that needs to be done. You can then show these bids to the seller in an effort to make him pay for some or all of the work, or at least to lower the sales price so you can afford to take care of the problem after you move in.

If the seller won’t renegotiate, you’ll have to decide whether to accept the house in its current condition and pay for the repairs yourself, or to instead exercise your contingency to cancel the sale and demand that your deposit be returned.

DEAR MR. MYERS: I don’t have a lengthy credit history because I pay for most things with cash. However, I have several large bank certificates of deposit, as well as a stock-market portfolio worth more than $200,000 and about $150,000 in equity in my home. How can I get this information listed on my credit record to raise my overall credit score and qualify for the lowest rate possible when I go to refinance my mortgage?

ANSWER: For better or worse, financial assets are almost never listed on a credit report. The primary purpose of a report is to show how much you currently owe to creditors (not how much you have saved), and how well you have handled your debt obligations in the past.

Though you can’t make your assets part of your permanent report, you’ll nonetheless get “credit” for them when you apply for a mortgage. That’s because loan applications always ask for information about the prospective borrower’s earnings, savings, brokerage accounts and other assets. Your chance of getting a loan at the best possible rate should improve dramatically after you show the lender proof of your rather sizable savings.

DEAR MR. MYERS: My wife and I are thinking about creating the type of inexpensive living trust you have discussed so the estate we leave to our kids won’t be subject to long and expensive probate proceedings. But what would happen if I die before my wife does, or she dies before I do? Would the heirs immediately be entitled to our house and everything else that’s in the trust, even though one of us would still be alive?

ANSWER: No. The surviving spouse would continue owning the home and control all of the trust’s other assets, provided that both of you named each other as “co-trustees” when the trust was formed.

Married or not, everyone who creates a trust must name a trustee – usually the person or financial institution that you want to manage and control the trust’s property while you are alive. Assuming that you and your spouse want to live in your home and manage the trust as long as either of you are breathing and mentally capable, the two of you could simply name yourselves as co-trustees and thus help to ensure that the surviving spouse will retain power over the house and other assets until he or she dies too.

David W. Myers’ column is distributed by Cowles Syndicate Inc.

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