In the real estate industry, there is a give and take between lenders and homeowners, banks and property owners, a beautiful dance where each counterpart both leads and follows the visceral movements of the other—a true symbiotic relationship. So what happens when the borrower can no longer pay their mortgage? The first option is foreclosure, but neither home owner or bank are going to benefit from it. Banks take huge losses on the loan and homeowners’ debt shoots out of control destroying their credit.
Like any good binary duo, they work together—bank and borrower—to reach a deal that is acceptable to both, so that both save face. This deal is called a SHORT SALE.
In its most stripped down form, a short sale is the least expensive way to get an underwater borrower out of the house and the lease while staving off a boat-load of debt. The banks take a hit by selling the house for less than the loan’s outstanding balance, but in these circumstances, it’s better to suffer a moderate loss than press a seller who cannot pay the mortgage.
The short sale process, which must be agreed upon by both parties, came under a lot of scrutiny recently for its difficulty and its inefficacy. Apparently, lenders were making it very difficult for short sales to go through, but recently, in studies conducted on regional communities in Florida and other states, short sales seem to be on the rise as foreclosures slowly fall. Typically, the offer on the property is well below the minimum requirement by banks to short sell the house. For instance, a case study in Phoenix, Arizona shows a real estate agent attempting to short sell a house that has an outstanding balance of $150,000. The best offer on the table is $48,000, but the bank wants at least $90,000, so the agent is forced to contemplate foreclosure instead of owing $42,000.
In recent news, the Obama administration has passed legislation for a program providing financial incentives to streamline the short sale process. There are cash payouts to both the lender and the borrower in order to ensure that foreclosures are being avoided. This was necessary because banks were making it difficult for distressed homeowners to sell their houses in a short sale. According to banks, the short sale process can be easily manipulated to get out of paying an underwater mortgage. Why not short sell the house and free yourself from credit ruin and the chance of being sued by the bank for the balance of your mortgage. This was the sentiment at the beginning of the housing meltdown. Banks felt wary. But now, the short sale is becoming increasingly popular among both lenders and borrowers, as banks have hired more manpower to help work through the increased number of short sales. Bank of America has more than doubled the number of its short sales in recent months.
For the FSBO, short sales are something to be aware of, especially when putting your house out on the market. You can find regional statistics that say anywhere from 5% to nearly 100% of short sales are closing. It used to be that the national average of closing short sales was somewhere near 25%, but that number has increased to the 50% range with the increasing popularity of the short sale.
Archive for June, 2010
The Science of Short Sales
Wednesday, June 30th, 2010Greek Islands are on the Market
Tuesday, June 29th, 2010Well, now you can finally own one of your own Greek Islands in the Mediterranean Sea.
In an effort to bring in some money to aid the country in their time of financial need, the Greek government has decided to put a number of their islands up for sale. You can now own property on Mykonos, Rhodes, and several tiny islands in the Ionian Sea.
Recently, Greece received a huge bailout from the International Monetary Fund in lieu of their accrued debt and economic collapse, and now to bolster their recovery and reinvigorate their crumbling tourism infrastructure, government and privately owned islands are going up on the market for millions of Euros. The government is hoping that investors will help to develop the badly needed infrastructure and bring tourism, the country’s bread and butter, back to its former self.
You’re going to have to act fast though, it’s not everyday that the Greek isles are on the market. I wonder where they are listing?
I Know, It’s A Mouthful: The Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFAIFHHHM) Helps Homeowners Facing Foreclosure
Monday, June 28th, 2010Recently written about in an online Wall Street Journal Article, the Housing Finance Agency Innovation Fund for the Hardest hit Housing Markets—we’ll just call if the Hardest Hit Fund—has awarded five states $1.5 billion in federal aid from the treasury to accommodate the 90,000 homeowners struggling in the midst of foreclosure and unemployment.
California, Nevada, Florida, Arizona, and Michigan have received funding to support state programs that will help out homeowners.
In a statement released to the press regarding the Hardest Hit Fund, Assistant Secretary Herbert M. Allison Jr said, “These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure.” The Obama administration started this fund in February 2010 to directly combat the effects of foreclosure and unemployment on families in badly hit regions.
“While we’ve made important progress stabilizing the housing market and keeping responsible families in their homes,” Allison continued, “the Obama Administration will continue to do everything it can to help those who are struggling the most during this difficult time. Today marks an important milestone for delivering relief to homeowners through the Hardest Hit Fund program.”
The Hardest Hit Fund is part of a slew of actions taken by the Obama administration to put the cap on the onslaught of foreclosures in 2010, which are expected to be nearly double the number in 2009. This funding will directly aid homeowners currently trapped in an underwater mortgage living in high areas of unemployment.
Currently, only five state have been approved, and five others state programs are being overlooked to determine if they should receive funding.
How Does an Appraisal Zero in on an Asking Price
Monday, June 21st, 2010Basically, I wanted to make yesterday’s blog one huge post about house pricing, but then I thought, “Oh Wait! This is a blog. People don’t viewers don’t want huge articles.” So, in order to retain some sort of semblance among the rest of my cyber, real estate brevity, I thought I’d divide it up a bit.
Today I’m going to run you through the process by which a home appraiser arrives at an unbiased, “certified” asking price, so that you as an FSBO have an idea of how to attain your own asking price. Appraisers not only serve as accurate experts for the buyer and seller to make sure all is as it seems, but they also prevent the bank from investing into property that has a lesser value than it’s asking price.
There are, as I have come to understand, two methods by which appraisers obtain a fair asking price. The first and most obvious is called pricing by comparison. It’s simple: they look into other comparable houses in the same location, compare square footage, layouts and go from there. This is the best way to price older already existing property. The savvy FSBO can do this by looking into other homes selling in your neighborhood and see what they’re asking. Based on how the houses compare, you can usually zero in on some kind of accurate asking price. Also, don’t hesitate to go in a look at county courthouse records and MLS histories if you have access.
The second method of appraisal pertains to newer property that really has no market history. Its called the cost approach and essentially the appraiser determines how much it would cost to replace the structure if it were to be completely destroyed—a little morose, I know. But, it does tend to give a pretty good idea of where the house stands. FSBOs can calculate land value and the cost of renovations into their asking price, but do so properly.
All appraisals start with a healthy home inspection. The appraiser comes in examines the space, the appliances, the style and takes all into account. Sometimes they will examine structural integrity and other things like A/C and heating ducts, roofing, piping—sometimes—that’s usually the job of a home inspector. Big difference.
What the FSBO should take away from this is that there is a right way to go about obtaining an accurate, market-competitive asking price. Really it’s a combination of the above methods and maybe a little trial and error on your part. Inflated asking prices are the number one reason that FSBO homes do not sell, and it’s not an act of greed—some people just price inaccurately. Now that you know what lengths appraisers go to to get an determine their asking prices, there’s no longer an excuse for high FSBO asking prices.
Faces of Real Estate: Lawrence Yun aka The Big Chief
Monday, June 14th, 2010(This is my 100th post, cheers!)
From what I can gather from cyberspace, Lawrence Yun, aka The Big Chief, has a really, really hard job. His official title is Chief Economist and Senior Vice President of Research with the National Association of Realtors. This means that the man is one of the most influential economics experts in America.
Not only does he deciefer where the housing economy is, he understands where it is going. In addition to being the face one of the nation’s economic powerhouses, he also regularly appears at conferences, in the media, and consultations, curating on the current state of our housing market.
He is most known in the media as being one of the more positive, yet supposedly unrealistic thinkers in today’s politico-economic climate, and quite often catches criticism from agitators. During the collapse, he urged government support of the housing economy, and more recently, he can be seen extrapolating on the wondrous effect the Homebuyer Tax Credit had on our ailing economy. Although there are those out there who seem to think he’s, well, for lack of a better word, a “hack” (here’s a link to discontinued anti-Lawrence Yun blog), there are plenty more who think he is a credible source, and reliable economist in 2010. Someone’s got to think positively, right?
Tweak Home-Buyer Tax Credit, says Realtors
Friday, June 11th, 2010Do you remember the Homebuyer Tax Credit instituted by the federal government to give people incentives to purchase homes? The deadline to qualify for the Homebuyer Tax Credit and the First Time Homebuyer Tax Credit was on April 30th, and buyers who qualified can still capitalize on the deal until June 30th.
According to the NAR, many of those contracts intended to receive the homebuyer tax credit, will not quite make the cut come the June deadline. Given that home sales surged in the month of April this could present a problem to a considerable amount of homeowners. “There could be a sizable number of home buyers who responded to tax credit incentives, but may encounter problems,” says Lawrence Yun, chief economist of the NAR.
While the NAR says it is not looking for actual legislation to adjust the deadline, they are looking for flexibility so that homebuyers who qualified are guaranteed the incentive.
The problem occurs when contracts are delayed on either side. It can take an average of one and half to two months to close on a house if all goes according to plan. Should the proceedings get held up, home buyers could miss out on thousands of dollars of government incentives.
Without lenience, all buyers can do is make sure that the deal is closed by the June 30th deadline, and hope for the best.
Reason of the Week #14 APPS!!!!!
Wednesday, June 9th, 2010As a For Sale by Owner, you need to use every advantage you can get your hands on. Being a mere 11% of the market share means that you’re out there competing with realtors who have professional resources and a considerable amount of time invested in the business of buying and selling property for commission. But just because you’re not in it for the long haul doesn’t mean that you can’t use some of the technological advantages that many realtors use.
Simple programs and apps that you can get on your iPhone will help you network and get your house out there on the market. Most of these resources are geared to make it easier for realtors to track leads and convert them into clients. You, as the FSBO, can apply the same principle to your property.
There is an online forum/application called Highrise. Highrise takes information on several leads and compiles it into one simple format. This application works better for agencies to streamline their whole operation, so it’s not necessarily meant to work for the individual—but at least you know.
Docusign is a digital format for real estate documents. This means no more faxing between buyers and sellers. You can sign and send from any computer or smart phone at any location—something your buyer might really appreciate especially if they’re from the technology savvy, coming-of-age-in-the-housing-market, Gen Y.
If you’re attempting to do a lot of advertising for your house online, then you might want to consider streamlining your operation with an application called Flowtown. This takes various bits of information from potential buyers and puts into an easy to use profile format. Now you won’t have bits and pieces of buyer info and offers scattered about your computer.
Of course, your best resource is technology and these days, no one is complete without a smartphone. With a smart phone you access any of these programs from anywhere and do work on selling your house while on the go. You’re not just restricted to a computer screen. Now, the whole world is your office. Although, this may be a bit much for some sellers, it’s what many savvy agents are using in order to make their life easier, and it could help you.
