Trying to sell a home in this economy can be a heart-wrenching experience. Cutting the price may seem to be the obvious choice but is the obvious choice the right one? Here is a quick-and-dirty guide on how to sell your home now.
The unabating tide of foreclosures, sky-high inventory of unsold homes and a saddening “backorder” of distressed properties waiting for their turn to change hands make it so much harder on any seller. Whether you want to move to be closer to your extended family, take your chance on climbing the corporate ladder in another state, need a bigger house for the kids or want to down-size in order to retire, selling your home now can be as heart-wrenching as it gets. For homeowners facing foreclosure, it is often the last straw they can grasp at. But whatever your situation, you have to sell right.
Get Behind a Firewall
First of all, get a smart agent who will be on duty for you around the clock. When dealing through an agent, it doesn’t get quite as personal when you are offered a fraction of today’s fair market value for the house of your dreams, full of memories. If you have an agent you can fume at, laugh or cry with–nobody gets hurt, but if you upset a potential buyer, you are sunk. (But make sure the agent won’t hurry you into closing on a lousy offer just to get the cut.)
Most agents, however, are still set in their old ways, but many of the sure-fire methods of investing in real estate no longer work today. The same goes for selling. It is not about the granite countertops, the proximity to the golf course or desert landscaping. It is all about the financing and you must think out of the box.
One exception to the rule: Short sales. If you are attempting a short sale, do not list it with typical brokers (they may want to protect their other listings at your expense; they are used to setting the price high to test the waters and then lowering the price gradually). You can instead stage an auction starting at 50% under market value and get people to bid the price up (make sure you get the lowest possible BPO and convince the bank to agree).
It is Not About The Price
Most people fail to realize that it is not only about the price but also about immediate affordability and they are not necessarily the same thing. Banks are unwilling to lend. They would rather park the money in tax liens or U.S. Treasuries than put yet another mortgage on their books.
You can reduce the price and still end up waiting for months while you keep paying taxes and other expenses. A lower price does not make it more affordable if the banks don’t lend.
So what’s the answer? The answer depends, to a large extent, on your particular situation. There are no one-size-fits-all solutions anymore. If you manage to come up with creative financing, buyers will line up.
There are more opportunities to provide seller financing than you may realize.
It’s a Wrap!
Be forewarned: no matter what you do, steer clear of the so-called wraparound mortgage. It is a construction in which you issue a secured mortgage to the buyer while still paying back your original mortgage every month and pocketing the spread (the difference). Your bank will make you pay back your entire outstanding loan once they find out about it.
You cannot sell a property while you still owe your first mortgage on it unless your mortgage allows it and this is rarely the case. But you can lease the property with an option to buy. This means you and the buyer sign a lease contract and an option contract. The lease contract takes care of your mortgage payments and may put some money right into your pocket. The option contract is what makes it enticing for the buyer: It entitles the buyer to purchase the property at some point in the future, usually for the remainder of your original mortgage.
Why should a buyer want to get into s deal like this? Because of two reasons:
1. they don’t qualify for bank financing
2. if they rent, they are throwing away the money, but if they enter a lease option agreement with you, they are sort of “collecting equity”. Every payment they make lowers the outstanding amount and brings them closer to bank financing, which will allow you to close on the property.
It is a win-win situation, but also a potential mine field in terms of the risks each side has to assume. Do not attempt to go this route without a real estate attorney. Lease option certainly beats going into foreclosure, and there are several steps you can take to protect yourself:
Lease Option: How to Protect Your Interests in a Property
Contract for deed
The other thing you can do to provide seller financing is a contract for deed. In this scenario, the buyer does not receive the option to buy on top of the lease, but commits to closing the deal at some point in the faraway future, which should give both the seller and the buyer enough time to come up with financing.
Remember, the buyer may have enough cash on hand for a sizable downpayment and more than enough income to cover monthly payments, but without a bank willing to lend they can hardly buy a property except from a seller like you. This way your mortgage becomes valuable.
Using one of these techniques you can turn a liability–a mortgage you can no longer afford or no longer want to service–into an asset.
None of this can be taken lightly as there are some risks involved. But there are also ways for the seller and the buyer to protect their interests. We will explore them in an upcoming post. Stay tuned.
In the meantime, if you have any comments, you can write to: webmaster at real property check dot com.