Friday, March 23, 2012

Aces of Real Estate: 8 Short Sale Negotiation Strategies

Ready to tear out their hair, many agents and buyers have declared, “I don’t want to look at another short sale!” Like a game of poker, I always look at it as a game of strategies. You just have to know who you are playing with and what their next move is. When you know what to expect, this will help you to negotiate the best deal.

While the seller accepts an offer on a short sale, their short sale bank has to review and approve the price and terms of the offer because, ultimately, the bank will be taking the biggest loss. Each bank handles negotiations differently, but I have found some patterns that make it easier to negotiate. These items need to be considered when making an offer so that there are no surprises, only negotiations:

1. First and foremost, Buyers must understand that short sales take longer than the traditional sale. While the banks have improved on their time frames, they still require anywhere from 2-6 months on average to review the seller’s financial records and the offer. See Short Sale--An Oxymoron--A Word for Wait.

2. Normally the offer has to be reasonable within 10-15% of the comparable properties in the area. The bank will have an appraisal to compare the offer to.

3. Depending on the type of loan the buyer has and the price offered, some banks may pay for termite inspection and work, repairs, and closing costs. A lot of banks tend to be more flexible with VA and FHA buyers.

4. Most short sale banks will not pay towards Homeowner Association (HOA) Dues in the rear. If the seller can, they should continue to pay their HOA dues. The mounting fees seem to be a real source of contention for short sale banks or buyers to accept. The buyer’s first reaction is “why should I pay” for something the seller should have kept up. But if buyer can get the bank to pay closing costs or reduce the price in exchange and looks at it as part of the cost of buying a nice home at a great price, it is easier to accept.

5. Depending on the Bank, they may also ask the buyer to pay for the HOA documents which range anywhere from $200 to $500. Again it is best to look at it as part of the cost for a nice home.

6. Most banks won’t pay for the Buyer’s home warranty. So no need to ask.

7. Normally, the oven/stove will be sold with the home; however, the seller will often want to sell any other appliances separately outside escrow.

8. If the seller has two loans on the home, the first lien holder offers the second lien holder money to release their interest. Depending on the situation, a second lien holder may ask for more money than the first lien holder is willing to give. It may seem that you are in a stalemate. Without the second lien holders' cooperation, the sale cannot happen. While the seller cannot contribute any more money, and the banks cannot ask the buyer to contribute. If it is a great house, rather than let it go, the buyers may offer to contribute to the cause.

Short Sales definitely have a longer bumpier ride with less frills than a traditional sale normally does. However, with the help of a knowledgeable short sale specialist, one who understands the game and with these ace strategies you may be able buy a great home at a lower price. The long ride and some added cost may be well worth it.

Virginia Hall
Coldwell Banker Residential Brokerage
Direct (619)258-8585

Saturday, March 10, 2012

Short Sale Now or Pay Tax Consequences

A seller recently called me in a panic, "I received a 1099C from the bank and I owe the IRS almost $18,000." She had done a Short Sale last year and was preparing her taxes. She received the Bank's 1099 Form showing the forgiven debt, the difference between what the house sold for and what she owed.

However, the good news for this seller is the Mortgage Forgiveness Debt Relief Act of 2007. The law saved her from having to pay this huge tax. Once the seller filed the IRS Form 982, the problem was corrected on her taxes.

According to the IRS, "The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief."

Prior to 2007,the difference between what the house sold for and was owed, was considered forgiven debt, and may have been taxable.

Since the law only protects those that qualify until of the end of 2012, if you have been considering a short sale now is the time to do it. Since short sale bank approvals can take anywhere from 3-6 months, you need to start making plans .

While I always advise sellers considering a short sale to consult with their attorneys and/or an accountant, you will also want to consult with a Realtor who has the Short Sale Foreclosure Resource designation from the National Association of Realtors. Agents with this designation have gone through special training to specialize in short sales.

For more information, you will want to visit the IRS website on Mortgage Debt Relief Act of 2007 .

Virginia Hall
Coldwell Banker Residential Brokerage
Direct (619)258-8585