Recently, more short sale properties have come on the market. A short sale is a situation where a property seller needs to sell and the sale proceeds are not sufficient to pay off the existing mortgage. It is an alternative to foreclosure. The term short sale or short pay refers to a process whereby the mortgage company must agree to a reduced payoff in order for the sale to take place. All sale costs must be included and the seller receives nothing, except debt relief and not having a foreclosure on their credit record.
If you're a prospective buyer on such a property, beware! The seller may accept your offer; you may invest $1000 in an appraisal and a property inspection, but you may not get the property because the mortgage company may not agree to reduce their payoff. The mortgage company is a third entity that is not a party to your contract, yet their decision will affect the outcome of the transaction. The mortgage company will review the short sale proposal and closing the sale will depend on their response.
Many short sales fail because the mortgage company representative is unfamiliar with the local market and responds with an unrealistic proposal. When buying a short sale property, don't expect a quick answer and don't expect the mortgage company to respond logically. They will seek any additional assets the homeowner may have and they will demand the brokers reduce their commissions. They may demand the seller to sign a personal note to pay back the shortfall. Remember, the mortgage company wants to recover as much of the loan as possible and if the property goes to foreclosure, well that's another department's problem.
Additionally, many loans have PMI (Private Mortgage Insurance) that will cover a portion of their loss so the mortgager's motivation to reach an agreement may be less because they're covered regardless. You may have to start negotiating with the PMI company, adding additional time to the sale process. Unless you have considerable experience with short sales, foreclosures and working with lenders' loss mitigation departments, be very cautious in submitting an offer on a property in a short sale situation.
Buyers, ensure that you have an escape provision if the process takes longer than you want or if a more suitable property becomes available.
Sellers, be realistic. Consult with your accountant and your attorney on the tax and legal ramifications of a short sale. You may have to be willing to undergo an asset evaluation and even be willing to walk away and let the lender have the property.
Brokers, you will have to work two to three times as hard and may never help your client achieve their goals and/or receive appropriate compensation.
Lenders, wake up! Work with the buyers and brokers who can ultimately save you money. History shows that a property that goes through the foreclosure process nets less money to the lender than most short sale offers.
# posted by
Tara O'Brien @ 12:34 PM
The truth is that only about ten percent of owners successfully sell their home on their own. That varies by region and the number goes up a tad for professional real estate investors because they are more familiar with real estate than your average homeowner.
Those that do sell their home successfully usually accept not only a lower price, but they net less than if they had sold it with a professional qualified real estate agent helping them - especially in an uncertain market with high inventory.
Like today.
It would currently take almost nine months to sell all the homes currently on the market at the current sales pace, even if no new homes came on the market. That is with all the advantages of a real estate agent and the Multiple Listing System (MLS) at your side. On your own, it's even harder.
So why is the MLS such a big help?
Well, if you run an ad to sell your home, you not only have to pay for the ad but you can only sell your home to those that see your ad. That limits demand. As everyone who has taken Econ 101 knows, the more demand for a product, the higher the price: The less demand, the lower the price.
By sharing information about your home via the MLS with all other Realtors and brokerages in the area, you increase demand for your home. Not only does your agent's company advertise, but so do many others. Since less than ten percent of prospects actually buy the home they see advertised, real estate agents have to find them another home to purchase.
Realtors find those homes in a database called the MLS. Unless you are an agent, you do not have access to the program. As a result, not only is your agent working to sell your home, but so are all the other MLS members, too. Your agent's efforts are multiplied by those of all the other agents in the area.
More demand. Higher price.
What are other problems with selling by owner?
A FSBO (For Sale by Owner) sign attracts lowball offers, for one thing. Think of buyers that want not just a deal, but a steal. Have you ever stayed up late and seen an infomercial about how to get rich in real estate? The number one method is to find a steal, often by taking advantage of someone who does not know what they are doing.
Then there are phone calls. Who answers them? What do you say? How do you convince them to come look at your home when you're available to show it? How do you convince them to write an offer? Where do you get the right forms? What forms do you need?
That's just the beginning.
Is the buyer qualified? Do they have money in the bank, good credit, can they get a mortgage loan? Is your buyer's loan officer competent and flexible?
There are also lots of details. Do you need an escrow company or a lawyer? Termite inspection? Home inspection? Warranties? Title inspection?
And when there is a challenge (a polite word for problem), as their always is, who handles it?
It isn't easy and we've just barely scratched the surface.
We're biased, of course, but we recommend a professional agent.
# posted by
Tara O'Brien @ 3:07 PM
