Short Sales – What’s The Deal?

A lot has been heard these days about the term "short sale".

Short sales occur when a homeowner is willing to sell their property for less than the amount owed on the mortgage (the Lender must agree to the deal). In many cases, a short sale can be a great bargain for the Buyer and a rescue for the troubled Seller whose mortgage is “underwater” – meaning the home is worth less than the balance on the mortgage(s).

A recent study from the National Association of Realtors® (NAR), found that 1 in 10 Buyers purchased a short sale home. But short sales are different than traditional transactions and can cause frustration and disappointment in Buyers and Sellers who are unaware of the complexities.

5 key points to remember:

1. Short sales are almost never short, so patience is required. The process, from offer to closing, can take several weeks to several months. The reason for the delay is that banks are flooded with these deals, with some negotiators having hundreds of files on their desk.

2. Work with a Real Estate Sales Associate who is knowledgeable about short sales. These are complex deals with their own rules and procedures which require a solid grasp of what's expected. A common mistake is that inexperienced Associates submit incomplete documents and then wait for the bank to respond.

3. Buyers thinking of making an offer should come prepared with a pre-approval letter (as opposed to a pre-qualified letter) from a reputable Lender and have a professional home inspection completed before making the offer. This way there are no surprises and all parties can act quickly if the bank does approve.

4. The listing price should reflect the market value of the home, not the balance owed, but the Lender has the final say on any offer based on the their own internal appraised value or a Broker's Price Opinion (BPO). Sellers should price their home with these thoughts in mind and Buyers should make their offers accordingly.

5. Be prepared for challenges. Banks aren't required to take these deals and some short-sale properties come with strings attached such as unpaid property taxes or association dues that could be liens.

Despite the obstacles, a short sale can be a great benefit to Buyers and Sellers. A little patience and preparation, along with a qualified Associate, should lead to positive results for all parties involved.

Homebuyer Tax Credit Extension Benefits All

After much discussing and negotiating, an expansion and extension of the First-Time Homebuyer Tax Credit was approved by Congress on November 5th. The current credit, which will end November 30th, allots an $8,000 tax credit to first-time Homebuyers with an income of no more than $75,000 for individuals or $150,000 for couples. Under the new tax credit, those income caps have been raised and a credit also has been added for current homeowners looking to sell and buy a new home.

The First-Time Homebuyer Tax Credit was extended to any homes under contract as of April 30th, 2010 and the income level was extended to individuals making no more than $125,000 for single Buyers and $225,000 for couples. The purchase price of the home cannot exceed $800,000.

In addition, the new version includes a $6,500 credit for any Buyer who has lived in the home they are selling (or have sold) as principal residence for 5 consecutive years in the past 8 years. If potential Buyers have a binding contract on or before that date they will have until July 1, 2010 to close the transaction.

The economists at the National Association of REALTORS® estimate that the current First-Time Homebuyer Tax Credit has contributed about $22 billion to the national economy and approximately 2 million people will take advantage of it this year.

This should have a healthy economic impact. Besides the direct funds from the sale of a home, once someone purchases a home they typically spend on upgrades or other items which generates momentum in other areas of the economy as well.