What’s “short” About A Short Sale?
June 24th, 2008 categories: Market Trends, Real Estate News, Repairs
During the past couple of years the real estate community has been up to its proverbial eyeballs with short sale properties. But, for many, at first “blush”, the term short sale didn’t mean much other than another transaction opportunity with real estate. However, as many Realtors & their clients alike have learned, dealing with a “short sale” can be anything but short.
According to REALTOR.ORG, a short sale is, ”when the net proceeds from the sale of a home are not enough to cover the seller’s mortgage obligations and closing costs, such as property taxes, transfer taxes, and the real estate practitioner’s commission.” In other words, the proposed sales price is short of what is required to pay off the home loan or mortgage. You might ask, “why would the bank/lender allow a home to be sold for less than what is owed. To put it simply, short sales are normally done prior to a home going into foreclosure in order to save money. Yep, to save money. According to the Virginia Association of Realtor’s special counsel, Lem Marshall, outside of the loss incurred to pay off the mortgage, lenders spend approximately $65,000 dollars on foreclosed properties. So, as you can see, to begin with, it makes sense for the bank to consider a short sale in order to head off further expenses resulting from the expenses of a foreclosed property. But, the benefits of a short sale aren’t simply financial. There are other benefits as well.
In the communities plagued with foreclosed properties, neighborhoods often begin to go downhill in a hurry due to the lack of attention to the foreclosed properties. Since these properties are no longer occupied, they are often neglected and rarely properly maintained. Often, they are vandalized.
Remember, banks aren’t in the property management business, nor do they want to be. But, unlike foreclosures, in the case of a short sale property, the occupants inhabit the house, and are there to look after the property. While they may have ceased making their mortgage payments, in most cases, the owners or tenants remain in the house until it is sold, or when repossessed by the bank in the case of a foreclosure. A short sale is also in the best interest of the home owner.
Homeowners facing a possible foreclosure can avoid the stigma, embarassment and credit problems a foreclosure entails. By opting for a short sale, homeowners not only can remain in their home, but the damage to their credit score is small compared to the penalty they face if their home is foreclosed on. Most lenders report “settled” upon successful closing of a short sale instead of the term “foreclosed.” Recent reports indicate the owners who complete short sale proceedings (who have missed 2-5 mortgage payments) have their credit score affected by only 30 to 60 points. Conversely, for those suffering through a foreclosure, their credit score will be penalized 140 to 200 points, or more. That’s a huge difference. So, as you can see, a short sale in lieu of a foreclosure makes sense for all parties involved. But, if that’s the case, why are so few short sales successful? Why is it so difficult to get to a Win-Win scenario? Who is to blame? More importantly, what remedy is their for a process designed to prevent property foreclosure, yet rarely does? We’ll leave those questions for Part II of our short sale discussion.
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It’s Still a Numbers Game
April 14th, 2008 categories: Real Estate News, Relocating
Now that the Masters golf tournament is over for another year, the Spring house hunting season has officially begun.
Each year, about mid-April, the Northern Virginia housing market begins to heat up. For those planning a reassignment or relocation to the area, late April to mid-June is when the buyers come to town in droves. These days, it appears to be the ideal time for that Spring house hunting trip. With temperatures in the 60s & 70s, blue skies & a comforting breeze, the conditions make it less of a chore and more an invition to enjoy the natural experience of the journey. And, today’s local paper, the Free Lance Star made the thought of buying more inticing for many. While the front page headline “HOUSING PRICES IN TWO-YEAR DIVE”, wasn’t telling us anything we didn’t already know, the account made a number of valid points.
John McClain, the deputy director of George Mason University’s Center for Regional Analysis, whose has closely studied housing trends in the Washinton Metro area since the mid 1970s, says the market’s advance until 2004 was a reaction to years of price stagnation and increases in job and wage growth. Additionally, McClain contends, as do many other market experts, that “irrational exuberance”, coupled with:
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Low interest rates
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Lax lending standards
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The expectation of many homebuyers for a substantial return on their investment
resulted in an economic or housing bubble, that was doomed to burst sooner or later.
According to GMU, 10-12 percent of the total listings in Stafford and Spotsylvania counties are short sales or foreclosures. The building boom, coupled with the high rate of foreclosures and short sales have resulted in a home inventory that is extremely high, the perfect storm for home buyers. Will these conditions last long? It may be difficult to predict the future of the home market, or the overall economy. But, one thing is certain, it took years of bad credit, bad loans, and bad decisions to get us into this mess. There’s no reason to think that the journey to clearer skies for the housing market won’t take just as long. For any home buyer, that’s a deal too good to be true!
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