Question: What portion of legal expenses are permitted in a 1031 exchange if the lawyer handles everything: Selling the property, reviewing loan fees, escrowing fees, legal issues, and acquisition of other properties not included in the listing of three replacement properties.

Most information is vague on this issue

Answer: Like-kind 1031 exchanges can be fairly complex. According to Ed Horan with www.1031.us, expenses associated with like-kind trades fall into three categories. These are exchange expenses, loan costs and operating expenses. Horan, author of How to Do a Like Kind Exchange of Real Estate -- Using a Qualified Intermediary, says "I have followed the principal that 'exchange expenses' are those costs incurred in order to complete the exchange, except for operating expenses and loan costs." Operating expenses include prepaid items such as interest and insurance premiums.

Loan expenses, which are deducted over the life of the loan, are some times hard to identify. Horan says the question to answer is "if you did not have a loan would you have this expense?" Horan advises that you need to look carefully at the attorney's bill. "If the attorney provided one charge/billing for handling the processing of the exchange I would treat it as an exchange expense. If he listed each activity and charged for loan processing separately than that part of his fee probably should be treated as a loan cost."

There are several steps you can take to resolve 1031 exchange riddles. First, ask the lawyer doing your exchange work what's an exchange expense and what isn't. Second, take a look at IRS Form 8824 and its instructions. Third, Horan has a free online booklet which goes through the IRS form line-by-line and includes a chart showing how costs can be allocated.

Question: I've just inherited some money and was reading up on ways to invest my funds. I started looking into buying foreclosed property and selling it for more than what I bought it for to insure a good return on the investment. As I started reading more into the different types of ways to acquire homes for a low price, it began not to look so appealing. For example, the money and work that has to be put into the foreclosed homes after they are purchased lowers the return. I read up on REO's/bank-owned property (program and non-program), HUD homes, auctioned homes, and a little into tax-lien homes.

My basic question is: When investing in real estate (buying and then selling) what types of sales should I be looking for in regards to foreclosures or are there more profitable types of home purchases (or ways to purchase homes) that I have overlooked.

Answer: You've inherited money and that suggests someone wanted you to enjoy your new-found dollars. But unless you have a long list of people waiting to name you in their wills, what you have is unique and unusual. For this reason you need a different approach to the matter of investing.

Your first job is to stick the money in a safe place where the principal is secure. Next, start taking real estate and business classes at local schools, things such as business law, taxes and real estate. Also, take the pre-licensure class you need to get a real estate license -- this will qualify you to take the real estate exam if you like.

When you have more information start speaking to local brokers, investors, real estate attorneys, appraisers and others about your local marketplace. Learn all you can. Contact the local economic development office to learn about planned projects and development.

At some point in the future you will be better able to consider the real estate investments that make sense in your community. Such knowledge does not guarantee profits or wealth, but it sure gives you a better shot at success.

Question: We're looking to purchase a house in Queens County in New York City. We prefer new construction, however all the newly-constructed houses we have found keep a part of the old concrete base, extend the base and then build the new building over it. They do this because it's easier to obtain permission to have a new construction under the name of "conversion" rather than getting permission to build a brand new house. Is it advisable to buy such homes that are basically new but still have part of the old concrete base? They are priced $899,000+.

Answer: Societies have been building on the ruins of past generations almost since cities were first created. The real question is not whether over-building is or is not a generally good idea, but whether a particular home is properly constructed and structurally sound. To answer this question you should hire a licensed engineer before you go house hunting -- and then make an offer which is contingent on an inspection by your engineer which is "satisfactory" to you.

Question: I'm trying to find out who has archival and historical information regarding market conditions in 2004 in a specific location -- Westport, CT. I need general information/description, but numbers are always helpful. How might I get such info?

Answer: There are several sources to consider. First, local brokers can check MLS records for past sales and specific locations. Second, local newspapers should have past issues available, perhaps online. Third, the city or county will have an economic development office with such information.

Question: What are the benefits of selling at a certain time of the year, such as selling during the summer rather than the winter or vice versa?

Answer: This is a localized phenomenon. There are times of year in most areas where markets are more active, however that does not mean that one season is "better" than another. The reason is that in a "slow" season you might have both fewer buyers and fewer sellers -- but just enough so that homes sell quickly and at good prices.

The best source of sale and marketing information would be the local brokers who live in the community and track what's happening.

Question: My daughter and son-in-law are getting a mortgage through the FHA and the mortgage broker told them that they must have a year in escrow of homeowner insurance, that it was an FHA requirement. They went with a 6 percent concession with their loan. Is this a good loan?

Answer: I'm not sure what you mean by concession. Do you mean there will be a "seller contribution" equal to 6 percent of the sale price which will be a credit to the buyers at closing? If so, that's a great help for purchasers.

How many lenders have you contacted? How many have had a chance to look the finances and credit of your daughter and son-in-law? Go no further with this until they have spoken with several additional lenders. See which programs are best and let lenders provide good faith estimates that you can compare. That's the best way to find a "good" loan -- a mortgage which has the best combination of rates and terms for a borrower's particular financial situation.

Question We're working with a broker. She took us to see a house and we placed an offer which the seller declined. The counter-offer was a bit high so we backed away and didn't place another offer.

My husband really likes the house and we just learned that the listing has expired. If the owner decides to put the home on the market as a "for sale by owner" can we make a bid?

Answer: There are two questions here. First, you can surely make a bid. Second, what role will the broker have in the transaction?

Is the broker you have been working with a buyer broker? If yes, then while the listing agreement for the property has expired it may well be that the buyer brokerage agreement is still in force. Your buyer broker can help you craft a proper offer which, in many markets, would have the owner paying the buyer brokerage fee.

You saw the property while it was listed. A listing agreement typically has a "protection period" built in, a clause which says that if someone was introduced to the property during the list term but bought within a given period after the listing expires, the original listing broker may still be entitled to a commission.

Your next step is to sit down with your broker to determine how best to bid for the property.

Have a real estate question? Send your inquiry to Ask Realty Times. Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here. For past columns, please press Ask Realty Times.

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Published: December 15, 2006

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Have a real estate question for Realty Times? Wondering about buying, selling, financing, refinancing or renting? Here's where you can send your question to Peter G. Miller, OurBroker®, a nationally-known columnist, author and reporter. Peter G. Miller has written six books -- including The Common-Sense Mortgage -- a guide with hundreds of thousands of copies in print. Miller was the original creator and host of America Online's Real Estate Center and joined Realty Times in 1998. Send your questions to . Because of the volume of mail received, individual questions cannot be answered privately and not all questions can be used. Published letters may be edited for space and style and all letters become the property of Realty Times upon receipt.