short sale Archives - Live Debt Free

A good friend of mine from some years back—a real estate agent—used to tell me that a real estate agent is “one step above a used car salesman”. I never argued the point, it sounds about right, at least in how the public perceives the occupation. Most people, I think, see real estate agents as people who do very little work but collect a fat commission at the closing table.

In the post real estate meltdown world we now live in, my guess is that public contempt for real estate agents is even greater now. The steep decline in house prices across the country has made paying a realtor commission even more difficult to swallow. After all, why pay a realtor a six percent commission to sell a house that’s already declined in value by something on the order of 20% to 50%?

Actually, there are a whole bunch of reasons—at least five that I count—why you’d want to use a real estate agent to sell your house in this market.

It’s a buyer’s market—and you’ll need every buyer you can get

A buyers market is not the time to cut real estate agents out of the picture. In fact, you need them now more than ever! Buyers are harder to find than ever, and real estate agents have far more than any of us can ever come up with.

One reason is that they’re active in the real estate market. That gives them more potential buyers. People who call in on another property may end up buying yours, and that’s something you want to tap into.

Then there’s the multiple listing service, or MLS. This is the real estate agents ace in the hole, and the primary reason why anyone would list their home with an agent and pay a commission. Because of the MLS, real estate agents have access to more properties for sale, which also attracts potential buyers. It’s not an exaggeration to say that if your house isn’t listed on the MLS it isn’t really for sale.

You have better things to do with your time

Selling a house is time consuming. You have to market the home, hold an open house (or two or three), show the property to prospective buyers, take phone calls, and manage ads— it never ends. Usually, when you’re selling one house you’re in the process of buying another, or even relocating to a different city. That takes up a lot of time by itself, and will leave little for selling your present home.

A real estate agent can shield you from all of that. They take the phone calls, arrange showings and the open house, handle negotiations, and can market the house better than you can. They have pretty yard signs, professional looking flyers, and often maintain ad blocks in the newspaper or on the internet that they can easily add your property to.

All of that frees up your time to prepare for your upcoming move.

An independent marketing service

This is a more important advantage than most people know. Homeowners make poor sales people when it comes to selling their homes. That’s also the reason why real estate agents will ask that you not be home during an open house or during any showings.

Most buyers feel uncomfortable when they’re looking at a house when the owners are there. They’ll be afraid to open doors, look into crevices or ask critical questions. Most times they’ll move on to another property if the owners are home.

A real estate agent will take you out of the marketing phase of the home. Your job will be to keep the house need and tidy for lookers, and then to disappear when they arrive. The real estate agent will have a better chance of selling your home that way.

Handing the technical details

There are quite literally dozens of technical details when it comes to selling a house. Consider some of the following:

Writing effective property descriptions and ad copy
Writing up and amending contract offers
Coordinating attorneys, title companies, home inspectors, appraisers and other vendors who will be involved at some point in the process
Pre-qualifying buyers and recommending mortgage lenders
Setting up and managing the closing process

Most of us are completely unqualified to handle any of these functions, or to know at what point in the process they need to be done.

A built in third party negotiator

Abraham Lincoln said “a man who represents himself (in court) has a fool for an attorney”, and the same can be said for a homeowner when it comes to negotiating the sale of his home.

Here’s the basic problem: as the owner of the home you’ll be anything but objective in the negotiations. As a result you could lose out on a perfectly good offer. Too much emotion is connected to a house for the owner to negotiate its sale effectively.

A real estate agent isn’t the owner of your home, and that leaves him or her with a clear head for negotiations. The agent is representing you in the sale of your home and all efforts in the negotiations will be tailored toward that end.

When ever you get involved in high level negotiations it’s always best to have a third party as a mediator. That can keep the emotion-driven side comments and objections in the background while the parties agree to agree. By contrast, direct negotiations between buyer and seller have the real potential to get ugly. That will be the end of what could have been a perfectly good sale.
A six percent sales commission is hard to swing when house prices have already fallen. But the cost of not paying it can result in a home that takes much longer to sell, or maybe never sells at all.

What do you think about using a real estate agent to sell a house in this market? Do you think you could do better on your own?

Howdy from the North Carolina mountains y’all.

Picking up and moving everything

Betsy and I recently picked up and moved everything from Lansing, MI to Hendersonville, NC (just south of Asheville). We moved for a lot of reasons including but not limited to:

great location for the local food movement
living amongst the Appalachian Mountains
warmer weather.

We haven’t been very vocal about this on DFA because for the previous 6 months we had been in the middle of a short sale of our home in Michigan. While in the process I did not want to talk about it publicly but now that it has completed successfully I can share the details.

A short sale of our home

You may have an opinion on short sales, I had one opinion before the process and a different opinion after going through it.

First let’s define a short sale for what it is: basically you sell your home/property for an amount less than what is owed on the mortgage(s). It’s really as simple as that. Short sales do not lower the property value of your neighbors because, unlike a foreclosure, it sells at market value.

In a short sale the bank holding the mortgage is the seller and thusly pays all realtor fees (buyer and seller). In a normal sale we would be the seller and would be responsible for paying the realtor fees.

I won’t get into the numerical details of the sale but suffice to say we sold the home for $50,000 less than what we originally paid for it nearly 5 years earlier. While living in the home we also did quite a few improvements including:

60 yards of topsoil and a lawn installed throughout the lot
landscaping throughout the lot
a 350 sq. ft. paver patio off the sliding glass door
painting several rooms
all warranty work done throughout home before expiration (nail pops, etc.).

Though we sold the home for $50k less than the purchase price, when considering the improvements $65k is a more accurate assessment of equity lost over the 5 years we lived there.

Financial hardship

Before we go any further I wanted to clarify that to be considered for a short sale you have to be able to prove “financial hardship” to your lender(s). Betsy and I both went through job changes and were making much less than when we purchased the house so showing hardship was as simple as handing over our financials to our lenders. After looking them over both banks approved the transaction.

In short, you can’t just do a short sale because you want to, you have to be unable to afford your mortgage going forward. Be honest with the banks and avoid trying to pull any wool over their eyes; honesty is always the best policy.

Who should pay for the loss?

This is where it gets sticky for some people, but not for me.

Minus what we owed on the mortgages, we lost around $25,000 in equity. As mentioned above, in a conventional sale we would pay realtor fees (an approximate $14,000) in addition to our equity loss, putting the total loss around $39,000. Because the bank paid the realtor fees we were able to close with simply our equity loss and thankfully didn’t have to bring any money to closing.

Should the bank have to eat the rest of the loss, or should we have eaten it? That is the question. I used to believe we should, because we signed on for the debt. However, the errant lending practices of the banks had a lot to do with the market bubble and crash. Had they kept lending practices conservative the bubble never would have formed or popped. That makes them half responsible for all losses. We lost in equity, and they lost on the investment.

It’s important to note… because of the interest we paid over the nearly 5 years while living in the home, our first mortgage company still came out ahead on their investment. It is the 2nd mortgage (and lien) holder who ate the loss. They understood the elevated risk going in and charged a higher interest rate accordingly.

At the end of the day we shared in the loss with the 2nd mortgage company, and I believe that is the proper outcome. We both played a part in the transaction so we are both partially responsible for the losses.

You may feel different, which is fine; that’s one of the great things about living in a free country.

What about our credit score?

As I see it, your credit score is the only negative part of a short sale, but it doesn’t have nearly the negative impact you might think.

Before the short sale my credit score was around 790, which is considered excellent. After the short sale it went down to around 705, which is still considered good.

Here’s the kicker: the credit score went down because of missed mortgage payments, not because of the short sale.

Note: most banks will not consider you eligible for a short sale unless your mortgage is at least 30 days past due.

We’re not overly concerned about our credit scores – which are both still quite good – because we don’t plan to borrow money again and they’re plenty high to keep all insurance premiums low.

What about taxes on the forgiven debt?

It is the Mortgage Forgiveness Debt Relief Act of 2007 that provides tax relief for forgiven debt on mortgages of principle residence from 2007 through 2012.

As long as the home you’re selling is your principle residence, it does not count as income for tax purposes.

Where are we now?

After selling we decided against taking on the burden of another mortgage and are renting in our new location of Hendersonville, NC. Yes it’s a great time to buy, but taking on another long-term debt isn’t something we’re ready to jump back into right away. The plan is to rent for the near future and adapt as time and circumstances allow.

We’re both self-employed now running Debt Free Adventure, diy Natural, and writing books.

The only debt we have left is our student loans which you can see and track in the right sidebar. We’re planning to accelerate payments and pay them off within the next 3-5 years.

We have 3 months expenses saved for personal emergencies and are bringing in enough to cover our personal budget, business budget, fund our debt snowball, and build a modest savings.

We’re much happier working in our passions full-time and do not regret the decisions we have made, rather we’re quite satisfied with them.

A few more thoughts

Before the short sale we were hesitant to get involved in the procedure. It was unknown to us and we had heard a lot of negativity in relation to the process. After going through it we are confident to encourage others to look into it. It’s not as bad as the banks would have you to believe, and unless abused we don’t think the normal short sale process is “wrong,” quite the contrary actually – if it fits your circumstances, like it did ours, don’t be afraid, it can be a huge blessing.

If you do pursue a short sale, we recommend finding a local realtor who specializes in short sales. We did this and it made all the difference. Our realtor handled everything for us and took over all communications with our banks – I wouldn’t have it any other way.

If you do not use a realtor be sure to use a local counseling agency who specializes in helping underwater homeowners through mortgage modification, short sales, and foreclosures.

Share your thoughts and experiences

If you have an experience or opinion to share that will help the DFA community in a positive way, please add a comment below.

God bless.

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Five Reasons to Use a Real Estate Agent to Sell Your House