It’s all the talk among the real estate blogs. Have you heard?
I had not written an article on real estate short sales because there is so much out there already. I decided to get up early this morning and see if anybody had written anything that would explain this process to a lay-person (a lay-person in short sales is somebody who owns a home with lots of equity — humor).
So what exactly is a short sale?
A real estate short sale is when a home gets sold and the proceeds from the sale “fall short” of what the property owners owes on the mortgage(s) on the home. The bank(s) agrees prior to closing to accept a lesser amount than what it is owned. The bank will do this if it feels it will get more money through a short sale than through the timely and expensive cost of a foreclosure action. The property owner will often consider a real estate short sale when the owner receives assurance from the bank the loan will be deemed “paid in full.” Sometimes though, the property owner’s only option is the short sale, even if a deficiency judgement results in the process.
Some Short Sale Advice
If you own a home that is highly leveraged (read that to mean that you borrowed as much money on it as you could sometime in the past three years) and you need to move for one reason or another, you need to know that you basically have four options right now:
1. Don’t move, stay in the property
2. Lease the home out to a tenant
3. Sell the home on the market
4. Give the property back to the bank (surrender the property with a quit-claim or deed in lieu of foreclosure)
Because this is an article about real estate short sales, we will assume that number 1. and number 2. are not options for you. In order to determine if a short sale is the right solution, the next step is to meet with a real estate professional that is an expert in real estate short sales.
Interviewing the Real Estate Short Sale Expert
Once you have determined that you must sell your home and you are concerned about maintaining your credit rating, you must interview the best real estate company to successfully work through the real estate short sale. That’s right, the correct company. The short sale process is easy to talk about, but the reality is that few companies give good short sale advice. Good companies successfully help the property owner through to the very end, with complete forgiveness on the loan. Here are some critical issues you should address in the interview:
* Do-Conduct the interview at the office of the real estate company. Tour the facilities and make sure you are introduced to the team that manages short sales.
* Do-Find out what banks with which they have successfully negotiated (they should mention contacts in the bank’s Loss Mitigation Department).
* Do-Ask for specific sales (properties and names) that they have successfully concluded a real estate
short sale.
* Do-Ask for the basis of their short sales training.
* Do Not - be concerned with how many homes they sold in your neighborhood (unless they were short sales).
* Do Not - be concerned with the car that they drive.
* Do Not - be concerned with how many homes they sold in the past (during the boom market with few or no short sales).
The Real Estate Short Sale Process
First and foremost, one must realize that real estate short sales take much longer than “normal” sales. This is because the bank requires a due-diligence period to ensure that it is not being taken advantage of and to ensure that it is getting the best return on its investment. I believe that this is fair. But there are things that your real estate company can do to make the short sale process go quicker, and that is where experience is the key.
A real estate company with real estate short sale experience will have a kit, a package, or at least a process to expedite the lenders decision-making ability. This package should include everything the lender will need to form its opinion on the real recovery value of the property. Additionally, the real estate company giving you short sale advice should be prepared to provide the following information to the lender at first contact (Be proactive, do not wait for the lender to ask):
* Property Taxes - current status and annual amount
* Homeowners Association - Annual fees and contact information
* Lawn maintenance - current handler contact information and fee structure
* Code violations - current status and amount
* Pool maintenance - current status and monthly amount
* Utilities - current status and monthly amount
* Property Condition - current status and deferred maintenance needs
* True sale-able value - Provide comprehensive market analysis including homes on the market and homes that failed to sell
Once the lender(s) has made a decision, just remember that there are often layers of decision makers at every bank. All agreements must be approved through the lenders legal department, and this too adds to the time it takes to close on a real estate short sale.
Conclusion
If you plan on selling through a real estate short sale, just understand that it will take some work. In the long run, it will be worth the hassle as you will better protect your credit rating and you most likely won’t have to repay as much of the money. The choice of real estate expert could be the difference between success and failure, so choose wisely on who should give you this short sale advice.
If you plan on buying through a real estate short sale, remember that patience is a virtue. No matter what the home owner agrees upon in the sales contract, the bank will be the final decision maker in the process. The bank and the real estate professionals will determine how long the entire process takes, so choose your short sale advice (real estate company) carefully.
Thursday, October 30, 2008
Housing Crisis
These are trying times for those who need to buy, sell or invest in real estate. Is now the right time to get into or out of real estate ownership? Does the market still have farther to fall? Can I make money if I invest now?
The real estate investor's very first rule of success is do not invest in a market where prices are falling. You can do that in the stock market because you can profit by short selling. I know of no equivalent tactic in real estate.
The second rule is to understand how to identify the bottom of the market. Surprise! The only way you will be able to identify the bottom of the real estate market is after it happens!
Yes, I know, there is just so much "bargain" property being offered for sale that you feel like a fool for not grabbing some. When a bubble bursts it scatters confusion over the landscape. Confusion is what's infesting property values today.
At the top of the real estate bubble some poor soul paid $450,000 for a very ordinary home. Now, during a major market adjustment with few buyers, that desperate owner has dropped the selling price to $300,000. Wow, what a steal, right?
The truth is we won't really know the true value of that home until a few months after the market hits bottom. Buy it now for $300,000 and run the risk of it losing another $50,000 in value over the next eight months.
A recovery of real estate values will be delayed by the financial mess that has been created by the U.S. government. For the last 15 years our political leaders have been promoting an environment where almost anyone could buy a home. Whether they could afford
that home was a question never asked.
Wall Street's investment bankers jumped on that opportunity and packaged collections of shaky mortgages into packages they called "securities" and sold them for fat profits to financial institutions around the world. Your pension fund may own some of that junk.
Congress continues to spend more than it collects in taxes, so the country runs on money borrowed from China and Japan. How long can that last? As this is written one presidential candidate is promising to raise taxes. If the government would cut spending at the same time there might be reason for hope. No one inside the beltway seems to be advocating less spending.
More taxes will mean consumers will have fewer dollars available to qualify for mortgage loans. At some point soon the Federal Reserve must raise interest rates to hold off the inflation that is beginning to eat into the earnings and savings of every U.S. citizen. Higher rates will prevent tens of thousands of potential home buyers from being able to afford mortgage loans.
We won't ever mention the problems being created by The Federal Reserve's panic to try and save the economy by pumping billions of tax dollars into failing investment banks and mortgage lenders. In addition they are insisting that mortgage lending requirements be tightened. A good idea, but there go a few more tens of thousands who won't be able to get a real estate loan.
Another negative signal for real estate is the number of real estate agents canceling their memberships in multiple listing services and failing to renew their state licenses.
Yes, Virginia, the real estate market will find a bottom, and that bottom will be easily recognizable.... about six months after it occurs!
The real estate investor's very first rule of success is do not invest in a market where prices are falling. You can do that in the stock market because you can profit by short selling. I know of no equivalent tactic in real estate.
The second rule is to understand how to identify the bottom of the market. Surprise! The only way you will be able to identify the bottom of the real estate market is after it happens!
Yes, I know, there is just so much "bargain" property being offered for sale that you feel like a fool for not grabbing some. When a bubble bursts it scatters confusion over the landscape. Confusion is what's infesting property values today.
At the top of the real estate bubble some poor soul paid $450,000 for a very ordinary home. Now, during a major market adjustment with few buyers, that desperate owner has dropped the selling price to $300,000. Wow, what a steal, right?
The truth is we won't really know the true value of that home until a few months after the market hits bottom. Buy it now for $300,000 and run the risk of it losing another $50,000 in value over the next eight months.
A recovery of real estate values will be delayed by the financial mess that has been created by the U.S. government. For the last 15 years our political leaders have been promoting an environment where almost anyone could buy a home. Whether they could afford
that home was a question never asked.
Wall Street's investment bankers jumped on that opportunity and packaged collections of shaky mortgages into packages they called "securities" and sold them for fat profits to financial institutions around the world. Your pension fund may own some of that junk.
Congress continues to spend more than it collects in taxes, so the country runs on money borrowed from China and Japan. How long can that last? As this is written one presidential candidate is promising to raise taxes. If the government would cut spending at the same time there might be reason for hope. No one inside the beltway seems to be advocating less spending.
More taxes will mean consumers will have fewer dollars available to qualify for mortgage loans. At some point soon the Federal Reserve must raise interest rates to hold off the inflation that is beginning to eat into the earnings and savings of every U.S. citizen. Higher rates will prevent tens of thousands of potential home buyers from being able to afford mortgage loans.
We won't ever mention the problems being created by The Federal Reserve's panic to try and save the economy by pumping billions of tax dollars into failing investment banks and mortgage lenders. In addition they are insisting that mortgage lending requirements be tightened. A good idea, but there go a few more tens of thousands who won't be able to get a real estate loan.
Another negative signal for real estate is the number of real estate agents canceling their memberships in multiple listing services and failing to renew their state licenses.
Yes, Virginia, the real estate market will find a bottom, and that bottom will be easily recognizable.... about six months after it occurs!
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