Caryn Baker

I know many of you have been hearing the term Short Sale for quite some time. I also know, many people still do not have a clear understanding of what a short sale is. Below you will find a basic explanation, which I hope provides a better understanding of this term and the process associated with it. This explanation covers many FAQs and should give a good sense of what a short sale is. As a Professional REALTOR® and CDPE (Certified Distressed Property Expert) I specialize in short sales and foreclosure properties and welcome your questions and comments.

Q : I keep hearing the phrase 'short sale'. What is it and how does it affect me?

A : Many people have heard the term but don't have a good or full understanding of what it means. A short sale is when a homeowner needs to sell but owes more on the home than it is currently worth. The seller has found themselves in a situation where they can no longer afford to stay in the home due to a legitimate hardship; i.e., divorce, job loss, illness, etc. Just being "upside down" in your property (owing more than the home is worth) does not qualifiy as a hardship. The seller markets the property for sale through the help of a REALTOR® (preferably a CDPE or an agent with considerable short sale experience). Once an offer is received, it is presented to the lender. The lender is asked to forgive the debt owed by the borrower; Mortgage(s) - sales price.

Q : Is this really realistic?

A : Yes, it is happening every day. On average, 85% of properties that are in pre-foreclosure are likely eligible for a short sale. The lender and owner are both making the best of a bad situation by trying to avoid foreclosure - the lender does not want the house back and for a seller, a short sale is the most favorable option in this situation. Foreclosure can be an expensive and lengthy process for a lender. At the end of the foreclosure process, the lender will own the property. With a short sale the lender saves money, the seller avoids foreclosure, which can be very damaging to their credit record and the community avoids an even more drastic fall in home values, which could be the result of foreclosures in the neighborhood.

Q : What is expected of the seller?

A : The seller is expected to show proof of hardship. They will need to produce financial statements and cooperate with all parties. The seller, in most cases, is not required to bring any funds to closing nor be responsible for any closing costs.

Q : Should I have an attorney involved if I plan to sell via ‘short sale'?

A : It is never a bad idea to have an attorney involved. Many times sellers in this situation do not have the funds to retain an attorney, which is why it is so important to work with a qualified professional. When working with a professional REALTOR® and/or CDPE®, they will handle the negotiations with your lender(s) and lenders prefer to negotiate with a REALTOR® vs. a homeowner.

Q : How do I market my property?

A : The same way you would in normal conditions. You work with a Realtor®/CDPE and place the home in the multiple listing service (MLS). Once an offer is in hand, the CDPE® takes the offer to the bank.

Q : When I ask a REALTOR® about a short sale I get the feeling they do not want to participate. Why is that?

A : Many Real Estate agents don't have the experience necessary to handle short sales. This is an unfamiliar process to most. Some of us understand that this is something we have to work with and adapt to...others do not. Also, the short sale process can be very labor and time intensive to a REALTOR® and it is not always clear what an agent's compensation will be, as is not the case with a typical sale. The commission is paid by the lender and is often negotiated to a lower rate and will not be known until an approval is received.

Q: How do I find out if I qualify for a short sale?

A: You will need to sit down with a REALTOR®/CDPE® and determine that you qualify for a hardship. This can be a relatively easy process. If you can no longer afford your mortgage payments due to a change in your financial situation, for a variety of reasons, you most likely qualify.

If you have a genuine hardship and find yourself in this situation, you shouldn't feel alone. I specialize in Volusia County - approximately 736 properties just in Ormond Beach are in pre foreclosure and over 1000 in Daytona Beach. This is a difficult situation and can be a very emotional one as well. It needs to be handled with compassion and expertise. Consult an expert.

Still on the fence? Time to get off it! Now is the time to buy! Not in the past 20 years has housing affordability been better than it is now. The combination of historically low interest rates, a large inventory of homes to choose from and affordable home prices makes this the market to jump in to.

As it currently stands, prices for homes and rates are still low, and are only expected to rise. Those of you that have been waiting will already be paying more. Effective April 18, for those planning to use FHA financing to buy a home, Annual Insurance Premiums have increased by .25%. That means a loan at $250,000 just increased by $52.08 per month. Couple that with the fact that we are indeed seeing pricing increases in many areas, many buyers could be paying more than if they hadn't waited as long.

Sellers are motivated. Many homes have been on the market for months because of current market conditions. Sellers are eager to finally make a sale, and this means they are likely to approach what they may not consider the "perfect" offer with a more favorable attitude. We are seeing more willingness to negotiate price, as well as other aspects of negotiations such as closing date or throwing in a few extras like appliances, certain repairs or contributions toward closing costs. You're also unlikely to end up in a bidding war that could drive up the price or make you completely lose out on a home that has really caught your eye. However, be cautious, as we are seeing the return of multiple offers - another sign of an upward swing and yet another reason to get moving!

For those interested in a new builder home, take advantage of the perks! Home builders are competing with the resale market and are offering incentives to potential buyers to reduce their inventory of unsold new homes. Cash for furniture, free refrigerators, washers, dryers, these are just some of the things we're seeing.

Also keep in mind that the government is even now reviewing down payment lending requirements. Congress is working on legislation to define rules for a Qualified Residential Mortgage which includes provisions that would require 20% down payments on new loans. This rule does not apply to Fannie and Freddie loans, however, there has been much talk of doing away with Fannie & Freddie, which currently constitute 90% of the loan market.

Another good sign is the fact that investors are jumping in to the market again with both feet. Short sales and foreclosures are great deals and rental prices are increasing.

In my area of Volusia County Florida (Daytona Beach, Ormond Beach, Port Orange, Ponce Inlet), where we have been hard hit by short sales and foreclosures, I have recently had several of my buyers lose out on properties they had an interest in because they waited too long to make a move. Multiple offers are cropping up and sellers are being extremely receptive to the offers coming in.

So Mr. & Ms. Buyer - time to come off the fence now!