"Do I really need a house short sale?" That's the first question you should ask yourself. If your way upside down on your mortgage, and you want to avoid foreclosure, read on! I'm not a real estate pro, I'm just an investor who got caught up in the same situation your in now. For me, it hurts so much more because I have so much more debt. Here's how I determined my positions:
1) Find a Realtor: I'm using a realtor. I called a bunch of places that claimed they specialized in short sales, but most of them were referral services. My CPA advised me to run, if anyone asked me for money up front, and a bunch of them did. That seemed like sound advice, and I found that to be the general consensus among the professional community. I consulted my CPA, and my real estate attorney, and both of them advised me that a realtor would be the best person to handle my house short sales. Besides, they're used to talking with lenders. I chose to go with a real estate agent who is also happens to be a broker. I feel safe in using a person like this, because she has a "fiduciary duty" to look out for my best interests, and even more so because she is a broker. That's in the real estate laws!
2) Price It: The first step is of course, to determine just how much trouble your in. The worse the situation, the better your chances of a successful short sale. Most realtors will help give you a current fair market value for your house, and what the short sale price should be. Don't waste you money on an appraisal, they won't do you any good here! Be realistic, and be aggressive in lowering the price. Don't let emotional attachment to the house set the price. You'll be even more emotional if you can't sell it! The goal is to be relieved of the debt with a successful short sale.
3) Judgement Time: This is where you determine if you need a house short sale. Take your total loan amount, and subtract the present value of the house. Not what you think it's worth, but how much you can get for it TODAY. This is how much your "Upside Down" in the loan. Then, figure your annual expenses including a year's worth of payments, taxes, insurance, maintenance, and repairs. This is your "Yearly Cost" to keep the house. Now, take the amount your upside down and multiply it by 8%. We will assume the best case scenario. In a FAST appreciating market, this is how much your house value would go up each year, if the housing bubble was over today. (yeah right!) We'll call this number: "Appreciation per Year." Finally, divide the Upside Down amount, by Appreciation per Year. This is how many years it will take for you just to break even with the amount you owe on your loan. No profit, no realized appreciation. Compare the Number of Years to Break even with Yearly Cost to Keep the House. Can you hold out for that long? Does it still make sense to hold on? Or would letting it go make more sense?
For example: You bought a luxury condo with a $9,00,000 loan. In one year it has depreciated drastically and will sell for only $700,000. Should you put the house on the market for a short sale?
Upside Down: $1,000,000 - $800,000 = $200,000 Annual Cost to Keep the Property: Includes all yearly expenses = $60,000 Appreciation: In a good market = $200,000 x .08 = $16,000
The Bottom Line: It will cost $60,000 per year in payments, for 12.5 years, just to break even with the original value. That's assuming a strong market with all 12.5 of those years of appreciation, at 8%. In that time period over $750,000 will have been spent in principle, interest, taxes, and insurance, along with other expenses with no equity gain.
So there you have it, and its your decision to make. It it worth the 2-3 year credit hit to get out from under the house? You have to know when to throw in the towel, and when to fight it out. Either way, we'll make it though this mess together! - 16752
1) Find a Realtor: I'm using a realtor. I called a bunch of places that claimed they specialized in short sales, but most of them were referral services. My CPA advised me to run, if anyone asked me for money up front, and a bunch of them did. That seemed like sound advice, and I found that to be the general consensus among the professional community. I consulted my CPA, and my real estate attorney, and both of them advised me that a realtor would be the best person to handle my house short sales. Besides, they're used to talking with lenders. I chose to go with a real estate agent who is also happens to be a broker. I feel safe in using a person like this, because she has a "fiduciary duty" to look out for my best interests, and even more so because she is a broker. That's in the real estate laws!
2) Price It: The first step is of course, to determine just how much trouble your in. The worse the situation, the better your chances of a successful short sale. Most realtors will help give you a current fair market value for your house, and what the short sale price should be. Don't waste you money on an appraisal, they won't do you any good here! Be realistic, and be aggressive in lowering the price. Don't let emotional attachment to the house set the price. You'll be even more emotional if you can't sell it! The goal is to be relieved of the debt with a successful short sale.
3) Judgement Time: This is where you determine if you need a house short sale. Take your total loan amount, and subtract the present value of the house. Not what you think it's worth, but how much you can get for it TODAY. This is how much your "Upside Down" in the loan. Then, figure your annual expenses including a year's worth of payments, taxes, insurance, maintenance, and repairs. This is your "Yearly Cost" to keep the house. Now, take the amount your upside down and multiply it by 8%. We will assume the best case scenario. In a FAST appreciating market, this is how much your house value would go up each year, if the housing bubble was over today. (yeah right!) We'll call this number: "Appreciation per Year." Finally, divide the Upside Down amount, by Appreciation per Year. This is how many years it will take for you just to break even with the amount you owe on your loan. No profit, no realized appreciation. Compare the Number of Years to Break even with Yearly Cost to Keep the House. Can you hold out for that long? Does it still make sense to hold on? Or would letting it go make more sense?
For example: You bought a luxury condo with a $9,00,000 loan. In one year it has depreciated drastically and will sell for only $700,000. Should you put the house on the market for a short sale?
Upside Down: $1,000,000 - $800,000 = $200,000 Annual Cost to Keep the Property: Includes all yearly expenses = $60,000 Appreciation: In a good market = $200,000 x .08 = $16,000
The Bottom Line: It will cost $60,000 per year in payments, for 12.5 years, just to break even with the original value. That's assuming a strong market with all 12.5 of those years of appreciation, at 8%. In that time period over $750,000 will have been spent in principle, interest, taxes, and insurance, along with other expenses with no equity gain.
So there you have it, and its your decision to make. It it worth the 2-3 year credit hit to get out from under the house? You have to know when to throw in the towel, and when to fight it out. Either way, we'll make it though this mess together! - 16752
About the Author:
If you liked this story, come read some more on my blog at HouseShortSale.org. It's free and there's no sign up, just good information about how I dealt with my house short sale!
