Short Sale or Foreclosure - What’s your best choice?

If you are a seller whose home cannot sell due to the market declining, you may be forced to make some tough choices. Those choices will arise when it becomes a necessity for you to relocate, or when you can no longer afford the payments on the home. Several choices include a short sale, a deed in lieu of foreclosure, or a foreclosure. In the extreme case it could even mean having to file bankruptcy.

• Short Sale 
  
  A short sale means that the mortgage amount is larger than the market value of the home, and you do not have sufficient equity to sell the home, pay the mortgage and the selling costs. If there is insufficient equity, and you do not have the assets to add to the equity to pay off the mortgage and the selling costs, then you are considered to be “upside down”.

• Foreclosure

  Foreclosure means the lender is going to begin proceedings to have your home sold and have you evicted from the property. The lender begins the proceedings according to strict time guidelines, and when the time period ends, which varies by the laws in different states, they will sell your home in foreclosure proceedings, usually on the court house steps, and the eviction process will begin.

  Due to the growing number of foreclosures, lenders have begun to bundle a large number of foreclosed homes and are contracting with outside companies to sell them at auction. A foreclosure is more expensive for the lender and in most cases they prefer the short sale because they may recoup more of their money.

• Deed in Lieu of Foreclosure

  A quick and easy method of solving the “upside down” situation can be to walk away and give the property to the lender. You’ll accomplish that by signing a deed over to them. That’s called a deed in lieu of foreclosure. However, they do not have to accept the deed. If they think there is a chance that you will continue to make payments then it is not to their advantage to accept the deed.

Will Your Lender Negotiate a Short Sale

Many lenders will not negotiate a short sale, therefore, a real estate agent or an attorney can be of assistance to you by contacting the lender’s loss mitigation department to find out if they will. You can’t just decide you’re going to sell your home at a loss by asking for a short sale and expect the lender to agree. If your payments are current, there is very little reason for the lender to consider a short sale. If your payments are behind, then a lender may be more agreeable to negotiate with you. If you have cash assets, the lender may not agree to a short sale unless you agree to take a note promising to agree to pay back the amount the lender is being asked to forgive.

Is Your Credit Affected

Yes, and that is because a foreclosure is a public record and the credit reporting bureaus will utilize all of the public records in computing your score. Additionally a deed is a public record so the credit bureaus will pick that up. A bankruptcy is also a public record and that will be reported

• Foreclosure or Deed-in-Lieu of Foreclosure
  
  Each of these solutions is going to affect your credit, and it could be as much as 280 points.  However, there is the possibility that the hit you take could be shaved by up to 150 points in a Deed in Lieu of Foreclosure if you can get the lender to report the deed as Paid Settlement or Unrated.
   
• Short Sale
  
  A short sale will affect your credit rating much less than a foreclosure. The amount it is affected will vary depending on other items on your credit report. Some have seen as little as a 10 point drop while others have seen amounts in excess of 100 points.

How Long Must You Wait Before Buying Another Home

• Foreclosure

  You may have to wait from 3 to 6 years in the event of a foreclosure. Much will depend on how well you manage your credit during the waiting period. Mortgage companies are able to guide and counsel you on how to improve your credit rating, so it may be a good idea to find a company that will work with you to improve your rating in order to reduce the waiting period.
   

• Deed-in-Lieu of Foreclosure
  
  If you can get the lender to mark the deed as Paid Settlement or as Unrated the wait will be much less.
   
• Short Sale
  
  In the event of a short sale the wait could be from 3 months up to a year, and in some cases longer, depending on the other items on your credit record.  

Hardship Letter

To begin negotiating with a lender, a seller must have the home listed, and have a buyer present an offer. The lender will request a short sale package, which will include a hardship letter. That letter must describe the unfortunate conditions that caused you to not be able to keep the payments up. Those reasons could include the loss of a job, a serious medical condition, or other legitimate reason for not being able to keep up with the payments.

Being a loose spender and having overextended one’s credit may not be considered a hardship by the lender.

Expect Hardball Tactics

The lenders do not want to lose money. They would, of course, rather make a deal with you instead of having the home foreclose because it is more expensive for them to foreclose, and they will receive less money. But that does not make them a pushover. If you do not declare bankruptcy, they can try very hard to get you to sign a note to pay off the deficiency amount over a period of time. If you give into this tactic, then it will cost you a lot of money. Your risk is that they may not back down, and you may be forced to declare bankruptcy in order to not have to pay that deficiency. Their risk is that you may go ahead and file bankruptcy, and they will then be stuck with a home that they do not want to own.

Seek Help Early

As soon as you recognize your problems, seek help immediately. The lender may negotiate a new loan with better terms if approached early enough. Obtain the advice of a tax accountant, and attorney or a real estate agent who is knowledgeable about short sales.

For Sale By Owner 

Many home owners like to try to sell their home themselves in order to save the realtor fees. Many have sufficient knowledge to do a sufficient job, and many do not. The concept of saving a commission is good, but the reality is that it is a very challenging job.

Realtors are paid for their expertise and knowledge of the real estate transaction business, the contracts, the market place, and the other services they offer. In most cases, that knowledge and service will net a seller more than they would otherwise save in commission. In fact, buyers are aware that there is no commission being paid, and the first thing they expect is to have the commission passed along to them, in addition to the lowering of the asking price.

As an example on a $300,000 home, a hypothetical 6% commission would be $18,000. Assume the buyer is willing to pay 95% of the asking price. That would be $285,000. However, that is not the price they expect to pay. Since it is customary for the seller to pay the commission, the buyer will expect to have the commission of 6% of $285,000, or 17,100, dropped off the price also. The bottom line is the buyer will expect to pay $300,000 less $15,000, less $17,100, or $267,900. In the above example, if a real estate agent sold the home for the same price, the homeowner will have netted more. You see, out of the $267,000 the homeowner also had the expense of whatever fees were paid to a company for listing on the MLS, the sign, lockbox, flyers, etc. And the cost of all of the marketing efforts, which may have been around $2,000. Plus having to do all of the work himself without the guidance of an agent to help keep the transaction on track.

This information is here for the benefit of anyone who desires to sell their home on their own. There are several avenues a For Sale By Owner (FSBO) can utilize. One can locate a company who, for a flat fee will place your home on the local MLS. This puts your home where it can be found by all realtors in the area. A home on the MLS is required to state the dollar amount or percentage amount of commission that is to be paid to the sales agent who brings a buyer for your home. A look through the local MLS system shows that the majority of commissions offered to buyers agents are around 3% Agents typically have buyers sign an agreement to pay them a commission in the event that a seller does not offer a commission. So if a listed home offers a 1% commission instead of a 3% commission, then the buyer will have to pay the difference of 2% to the buyer agent. The buyer may elect to not view that home for that reason. So if a home is on the MLS it may only be of value if the commission rate is within the ball park of what others are offering.  In addition to paying a flat fee to be listed on the MLS, the fee for service companies will have upgraded charges such as additional fees for a yard sign, a lock box or flyers. These extra fees do add up. All commission fees are negotiable, but if we learn that most full service agents are charging 6% then we can use that number to show how the real estate agent fees are divided up.

Contrary to popular belief, the agent does not get the entire 6%. In a typical scenario, with a hypothetical 6% commission, 3% of that will go to the agent who produces a buyer. Ninety-nine percent of the time, that will be an agent other than the listing agent. That leaves 3% for the listing agent. What many people do not realize is that real estate agents are independent contractors, which means that they are responsible for all of their expenses. They are not on a salary, and only get paid when a sale closes escrow.

Out of that 3%, approximately one third goes to the agents broker. Another one-third goes to cover the agents operating expense; automobile, auto maintenance, gas; marketing material to find clients, such as those letters and post cards that people receive; and the magazine ads; plus the cost of marketing your home. That leaves about one-third of that 3% for the agent to split with Uncle Sam. If the home is a $300,000 home, that one-third of 3% will be $3,000 of which around $1,000 will go to pay taxes. The agent will get to keep $2,000 as payment for the services rendered.  

Here are some of the functions that the real estate agents perform, and that you will perform when selling your home yourself.First, you will be responsible for all of the marketing of your home to the public. One avenue that will not be available to you is to send email and flyer notices to the thousands of agents, and their offices, in the area.

You will have to rely on your knowledge to determine the market value of your home. Market value is what buyers are willing to pay, not what owners believe their home is worth. If a home is not priced at the current market value, it will not sell. You will also be responsible for taking all calls from your sign, showing your home, holding open houses, and deciding when to get a home inspection, termite inspection, etc.

Once there is an offer, you will be responsible for knowing and negotiating the contract, and I advise you to work with a real estate attorney with the contract when you’re selling on your own because there are so many items in there that can cause litigation later.

You will be negotiating by yourself with a buyer, or the buyers agent. The buyers agent will have fiduciary duty to the buyer and will not be able to assist your side of the negotiating table.

During escrow, time is of the essence, and any missed deadlines can cause a lost buyer. Many homes fall out of escrow because of missed deadlines.

Something to consider is that many people who look at homes are what we call lookie-loos. They are not interested in buying at all; they just want to look at houses for one reason or another.  As a FSBO, you will not be able to pre-qualify these people before they show up at your door. You will get some serious buyers, or neighbors who may tell a friend about your home, but you will get your share of the lookie-loos.

Agents have to spend time and money to take buyers around, so they will qualify these people first. They are not going to drive people around the city if they are not serious about buying a home. Consequently, the benefit is that any buyer that is brought to your home by an agent is a serious buyer. They may not end up buying your home, but the agent will have viewed it and may find another interested buyer.

If you are selling your home by yourself, I hope you will find information on my website that will help you. Visit my other web site at www.ValVistaLakesHomes.net where there is more information for FSBO home sellers.

If I can be of further assistance, please do not hesitate to contact me.

Financing is a very important part of each Real Estate
Transaction.

We will ask some of our financial experts to make comments
on ways to finance your home purchase, and perhaps to
help a Buyer to finace the purchase of your home.

We expect that they will be able to provide some tips on
financing pitfalls and how to avoid them.

Bill

If you have information to share that does not fit into
any of the other categories, you may place it here. Then
I can set up a new category and more the comments
to the appropriate place.

Commercial property investing is completely different from investing in
residential properties and multi-family dwellings.

It requires an entirely different skill set. Most REALTORS who work with
Commercial Properties, do that exclusively.

More information on Commercial Property Investing will be presented
as we obtain more specialists who will post on the subject.

Bill

Each of the options above hold some risk, and in each case it depends on
your individual situation, your knowledge, your aversion to risk and financial
situation.

There will be more information added as we progress in order to help answer some of these questions.

Bill

• Will prices come down further?
• How low will they go?
• Will interest rates remain low?
• Will interest rates become lower?
• When will real estate prices begin to rise again?
• How do I negotiate the best price for a home today?

These are all questions that Buyers are asking themselves today.

Your REALTOR should be able assist you to find answers to some of them,
however, no one can know when prices will reverse. Only time will answer that
questions. If one is buying for the long run, then it doesn’t matter, because
typically real estate will continue to increase in value, with cyclical swings in
the market as time passes.

In future posts, we will have more information for the Buyer, to help make
decisions as to when to buy and how much to pay.

Bill 

This section is for anyone to post information regarding Commercial Property Investing that will help our readers and contributors.

Thanks,

Bill

Let’s face it, today, we have a Buyers Market, and selling a home is highly competitive in most areas of the country. There are a few highly desirable pocket areas where there are more Buyers than available homes, but they are the exception rather than the rule.

Below are a few steps that Sellers must take in order to get their home sold in market time:

1. Obtain the services of a Professional Realtor.
2. Determine the price range that competitor homes are listed for.
3. Determine the price range that homes in the same area have sold for.
4. In today’s market, you can usually only use the last two months “sold”
   numbers because of the rate at which the prices are reduced.
5. Change your mindset from a “homeowner” to a “product seller”.
   That will allow you to de-personalize your home to make it more
   appealable to buyers who live in their home in different manners.
6. Ask your REALTOR to assist you in obtaining the services of a
   Professional Staging Company.
7. Stage your home for the best showing to Buyers
8. Clear your home of all clutter. If you don’t absolutely need it,
   put it in storage.
9. Clean your home so that it is “cue tip clean”. It should show like a
   builders “Model Home”.
10. Attend to all landscaping areas.
11. Make any necessary repairs to the home, pool, or other areas.
12. Have your REALTOR assist you in obtaining a Home Warranty
    for your Buyer.
13. This list is just a beginning. It is not all inclusive. Your REALTOR 
    can guide you with the rest of the preparation.
14. Your REALTOR should provide you with a detailed 5-week
    Market Plan, and with alternate plans if the home does not sell
    within the first 5 weeks.
15. If your home is Priced at or Just Under the Market; 
    all Maintenance items are Corrected; the home is Updated
    if necessary; the home is cue tip Clean and Staged; if it
    has the necessary Curb Appeal; then it should sell in Market Time.

Good luck with your sale,

“Captain Bill” Travis

www.HomesByCaptainBill.com

If you’re involved in the Real Estate Profession in any manner, we invite you to provide information that will help others.

Title Companies
Mortgate Companies
Stagers
Home Warranty Companies
General Contractors
Pool Companies
Others

Tell us how these types of businesses help home buyers, sellers, and other professionals.

You may add a link to your web site at the bottom of your posts.

Thanks,

Bill Travis

www.HomesByCaptainBill.com