| |
Printable version  |
For Sale Signs and Foreclosures
Are Busting Out All Over |
Spring is traditionally the busiest time of the year in real estate, but this year, with declining sales of new and existing homes, a glut of properties on the market, and foreclosures on the rise, observers suggest that the struggling housing market won't hit a bottom until this summer at the earliest.
While the housing-market slump has created a buyers' market, would-be purchasers appear reluctant to purchase their piece of the American dream despite a large drop in prices. Median
|
The Problems With Short Sales |
Normally when homeowners face a foreclosure they often can take advantage of an alternative known as a short sale.
A short sale occurs when the outstanding loan balance against a property is greater than the amount the property can be sold for at fair market value. Through an agreement with the mortgage lender, the borrower sells the home for less than is owed and the lender forgives the remainder of the debt.
The borrower's credit rating is hurt but for less time than in a foreclosure.
Mortgage companies often prefer to come up with repayment plans or to modify existing mortgage terms rather than agree to a short sale. But if they must resort to a short sale, the lenders set a price they are willing to accept and often will reject any bid they believe isn't in their best interests.
For lenders, short sales can be less expensive than foreclosures because they save on such costs as foreclosure lawsuits, attorney fees, eviction processes, bankruptcy delays, property damage, taxes, insurance, and maintaining the property until it is sold. If the property is auctioned off, lenders may lose even more of their investment.
But arranging a short sale isn't as easy as it used to be.
These days, real estate agents contend that many lenders are demanding excessively high prices before agreeing to a short sale, slowing the process.
Banks, on the other hand, note that they have pre-established guidelines from investors that they must follow, including the minimum amount a mortgage servicing company or an investor will accept. Often mortgages are packaged into a security, which means the interests of the investors have to be considered.
Another factor that can slow the process is having more than one loan on your property. If say, you have a home-equity loan, that lender, too, will have to agree on the short-sale deal.
Realtors also complain that many lenders have neither the staff nor the procedures in place to handle the surge in short-sale requests. That just lengthens the wait for approval.
A study by IFM/Campbell research puts the average wait at 4.5 weeks, but it can be as long as several months. Most buyers aren't willing to wait that long, particularly if they are homeowners with their own property on the market. | sales prices dropped 7.7 percent in March from the year earlier, according to the National Association of Realtors (NAR). The group also noted that inventories gained about one percent to a level that will take about 9.9 months to deplete at the current sales pace. The NAR cited the slow pace of short sales for both the price drops and inventory gains. (See-right-hand box for an explanation of short sales and the current difficulties in obtaining them.)
Sales of previously owned homes dropped in March, after a brief respite the month before, according to the NAR. Sales during the month fell two percent to an annual rate of 4.93 million units, 19.3 percent below the year earlier.
Add to this mix the increasing number of foreclosures. Filings for foreclosures jumped 57 percent in March from the year before, according to RealtyTrac, an online marketer of foreclosure properties. Real estate analysts say foreclosures across the nation have reached a three-decade high.
According to the U.S. Census Bureau, the number of vacant homes rose by one million in the past year to a record 18.6 million. Of those vacant homes, a record 2.3 million were for sale at the end of the first quarter, pushing the vacancy rate for homes, excluding rentals, to a record 2.9 percent, the highest quarterly numbers since 1956.
U.S. new-home sales in March slid to their lowest level since the 1991 recession, according to the Commerce Department, adding to the evidence that the country is likely not yet near the bottom of the housing slump.
Part of potential buyers' wariness to take the plunge on a new home is increased credit scrutiny and tighter borrowing rules, as well as expectations that home prices will continue to tumble. Despite historically low mortgage rates after the Federal Reserve Bank's recent rate-cutting, applications for home loans plunged 14.2 percent in one recent week from the preceding week.
Just last week the Fed cut rates another quarter of a percentage point to two percent, but it indicated it may take a break in its recent aggressive rate-cutting campaign.
Some of their reluctance is also explained by the recent consumer confidence index, which fell to a 26-year low in April on concerns over increased unemployment, record gasoline prices and inflation.
So, what is a seller to do to help ensure a sale when new listings are at record levels and home-buying intentions are starting to decline? Here are six tips that may help your home make the cut with potential buyers:
1. Size up the competition. Study your local market to see what other sellers are asking and what buyers are paying. Ask your real estate agent for selling prices in your area, but don't rely just on price lists. Visit open houses to evaluate the competition, to determine what features are offered for the listed prices, and to listen to what other viewers are saying about the properties.
2. Price to sell. If you genuinely want to sell you must be competitive. You may not be able to simply set the price you want and wait for the bidding. If buyers think your home is overpriced, they will move on. Increased listings give buyers more choice so they can wait to find their perfect home for their perfect price. Consult with your agent to determine if setting an asking price just below what the market will bear would generate more traffic and put your home into serious play.
3. Do some work on your own. Don't rely completely on your agent. You can use the Internet and some networking to assist your agent in finding a buyer. You could e-mail a property brochure to real-estate investment groups and encourage your friends and relatives to talk up your property to anyone who hints at being in the market for a new home.
4. Negotiate. You may boost your chances of a successful quick sale if you offer such concessions as
 |
|
Begin building a cash reserve if you haven't already. A nest egg is always a good idea and it pays to have something tucked away to help weather hard times, such as a slowing economy. | making minor repairs. Buyers weigh the time, effort and cost they will have to invest in even the smallest repairs. When there is a glut of listings, the little things can make all the difference. Most buyers are looking for a home that is ready for immediate use. Talk to your agent about hiring an inspector so you know what to repair before the property goes on the market.
5. Highlight the assets. With listings setting records, it's up to you to impress buyers. Repaint the interior and get rid of clutter to make the house appear more spacious. The idea is to help the potential new owners see themselves in the house. Clean out the closets and garage. You can donate eligible items to charity and take a tax deduction, or hold a garage sale and make some extra cash. Don't worry about taxes on money earned at a garage sale, it is generally tax-free. However, should you wind up selling art, antiques or collectibles where the sales price is more than your cost you usually will have a reportable gain.
6. Know when to take the money. The longer your house stays on the market, the more you risk losing. If you get a reasonable offer now, even if it's below your asking price, you may want to take it. Otherwise you could find that after some time you may have to lower your asking price anyway and still be unable to sell. Making a deal now rather than later may save you money, particularly if the housing market continues to cool off. If local sales are sliding, you might want to get out while you can.
It can be difficult to know when it's the right time to simply take a loss. If a cooling market means making a smaller gain than you expected, consider relocating to a less expensive area to make your money go farther.
|
|
|
 |
|
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
|
|
Full Newsletter
