Short Sales: Fact Vs Fiction – Sell Side
March 16, 2009
Similar to a normal transaction:
- Banks look at offers much in the same way an individual seller would. Meaning a cash offer will be most viable, followed by conventional financing, and lastly creative financing or a home sale contingency.
- The seller is still responsible for making the home presentable and accesible for showings. Remember that despite the circumstances, our goal is still to generate the highest sale price possible. This will aid you in getting out of the home by making the short easier for the bank to approve
Different from a normal transaction:
- Even though you as the seller will negotiate the contract, the bank will make the final decision on acceptance. It is crucial to have a professional aid you in initial pricing of property as well as negotiating the contract. The last thing you want is to accept an offer only to have the bank reject it a month or more later.
- Unlike a general closing, sellers will not receive a check at closing. Moreover, the difference in loan value and purchase price has been considered income and the distressed seller would be on the hook to pay taxes on that amount. There are currently plans to do away with this stipulation making the option of a short sale more viable for many borrowers.
Things to know:
- Banks will take between 75%-90% of fair market value. Due to a declining market and a lack of recent sales, the issue in many situations lies in determining that fair market value.
- There is no iron clad explanation as to exactly what the ramifications of short selling a property are as it may very from lender to lender. What is clear is that in no case is a foreclosure the best option for a seller, the bank, or our economy. In some cases, depending on the banks procedure, a short sale can do very little damage to one’s credit. These are generally cases in which the borrower can prove some sort of hardship ( loss of job, death in the family, etc.)
- In order for the bank to accept a short sale, the borrower must be able to prove that they can not finiancially fulfill the obligations of their loan. In order to do so, be prepared to offer extensive financial documentation of your current situation.
Short sales are here to stay for the next few years at least. My goal is to function as a valuable resource for my clients so please feel free to contact me if you have any questions regarding your personal situation or what you have read here.
Best,
JLC
Short Sales: Fact Vs Fiction – Buy Side
March 10, 2009
Over the past couple weeks I have heard tons of questions about “Short Sales” and how they work. With my next couple posts I will provide some clarity as to how they work and what to expect. This post will cover the buy side of the transaction. If you are unfamiliar with the process of purchasing a home as a whole, scroll to the top of the page and take a look at my “How to Buy a Home” page. It will provide you with a basic understanding of the process and make the rest of this post more cogent.
I chose to separate this post into the following three sections: Qualities that are similar to a general transaction, qualities that are different, and general facts for buyers to know about short sales.
Similar to a Normal Transaction:
- Banks look at offers in much the same way an individual seller would. Meaning a cash offer will be most viable, followed by conventional financing, and lastly creative financing or a home sale contingency.
- After negotiating with the seller, a buyer can still expect to have a home inspection and an attorney review period, but after this point the similarities come to an end.
Different from a Normal Transaction:
- Because the seller is distress it is often difficult to negotiate for repairs. Not to say it can not be done, but not with the flexibility found in a conventional transaction. So while you should have a home inspection, in a short sale situation it functions more as due diligence for the buyer before fully committing to the purchase.
- The Bank is making the final decision on rejection or acceptance, not the seller. Over the past year banks have been inundated with short sales and currently do not have the capacity to process them efficiently, therefore buyers can expect to wait 45- 90 days to receive final confirmation that the offer has been accepted. Rejections generally occur in a more timely manner, approximately a month or less.
- Closing dates are not set in stone and are often not locked in during the initial negotiation with the seller. Due to the soft time lines, it takes a buyer with a certain level of flexibility to purchase a short sale.
Things to Know:
- Banks will take between 75%-90% of fair market value. Due to a declining market and a lack of recent sales, the issue in many situations lies in determining that fair market value. So while a buyer can find a fantastic deal, short sales are not absolute fire sales in which the bank will take pennies on the dollar.
- Because you are buying from a distressed seller, a buyer should expect to do at least some cosmetic work to bring the home to your standards. (changing carpet, painting, etc.)
- As a buyer, of course you want the lowest price possible. From what I have seen and read, the 75%-90% of market value is accurate as to what banks will accept. The best way to move closer to the low end of that spectrum is to make your offer as “clean” as possible. Clean meaning low on contingencies and repair requests. Remember, banks look at this much like a normal seller would. For example take a $100,000 home. Given the option would you sell to someone with a cash offer of $75,000 who will buy it as is, or the $90,000 buyer who has his own home to sell before closing and wants you to do $5,000 in repairs?
Short sales are here to stay for the next few years at least. My goal is to function as a valuable resource for my clients so please feel free to contact me if you have any questions regarding your personal situation or what you have read here.
Best,
JLC
ARRA – American Recovery and Reinvestment Act
March 5, 2009
This was posted at www.financialstability.gov yesterday.
“On Tuesday, February 10th, Treasury Secretary Timothy Geithner outlined a comprehensive plan to restore stability to our financial system. In the address, Secretary Geithner discussed the Obama Administration’s strategy to strengthen our economy by getting credit flowing again to families and businesses, while imposing new measures and conditions to strengthen accountability, oversight and transparency in how taxpayer dollars are spent. And Secretary Geithner explained how the financial stability plan will be critical in supporting an effective and lasting economic recovery.”
Geithner’s outline was short on details and even shorter on positive reception from both markets and pundits alike. There is still much to be sorted out, but here, I’d like to provide you with the basics regarding the First Time Buyer tax credit of $8,000.
* The Tax Credit is available to all “First Time Buyer’s”. The current definition of a “First Time Buyer” is anyone who has not owned a primary residence in the past three years.
* The Tax Credit is for 10% of the purchase price or a maximum of $8000.00.
* The Tax Credit is available for those who purchase between January 1st of 2009 until December 1st of 2009.
* You must be a U.S. Citizen to qualify
* Single taxpayers with an income up to $75,000.00 and married taxpayers with incomes of up to $150,000.00 qualify for the full tax credit. Partial credit is available to taxpayers with incomes up to $95,000.00 or married couples with incomes up to $175,000.00.
* The Tax Credit does not need to be paid back unless the property is sold within the first three years. In that event the credit is taken back out of the proceeds at sale.
I will follow with more details as they are specified.
Best,
JLC
