Tips for Home Sellers
Many Silicon Valley home sellers want to sell their homes As Is. In the case of short sales, it is likely that the sale will be As Is, and with foreclosed or bank-owned properties, you can be fairly sure that it will be an As Is sale.
But what does that mean, exactly?
As Is means that the home will be conveyed to the buyer at the end of the transaction in the same general condition it was in on the day that the buyers wrote the offer. If the roof has leaks, the crawl space is full of termites, and the appliances do not work, that is how it will be on the day escrow closes.
What it does not mean is that the seller can let the property condition deteriorate. The seller must continue to maintain the home and land in the same general condition. So if the lawn was green and well trimmed, the seller cannot suddenly let the grass die and neglect to mow it. If a baseball breaks a window after the buyer and seller have a ratified contract, the seller must repair it. The condition will not have to be better, but it should not be worse, either, than on the day the buyer and seller agreed on the price and terms of the sale.
Yesterday I met with some seller prospects – actually, I consider them clients since I’ve been assisting them, updating them, and giving them staging advice for about six months now. Their Blossom Valley home has been sliding in value and I have been concerned about the situation and trying to get them on the market sooner rather than later since they do want to sell. A couple of months ago, I told one of them that they’d now have to bring money to closing; I asked if they knew this and if they planned to do it. “I think we’ll be OK” I was told.
But now it’s the middle of March and prices have slid about 10% over the six months we have been chatting about their home sale. They’d told me that they were ready to list so I had spent hours getting comps and stats and trends pulled together as well as the listing paperwork. But I knew the issue of “bringing cash to closing” was the major hurdle.
So that’s where we started. One of them was clear that this was an issue, but one appeared surprised. Before I said the amount, I heard “well we might be a short sale”.
“A short sale?” I was just surprised to hear that idea even floated.
Both of them are very gainfully employed. They want to move, but I don’t see a “have to move” situation. It was clear to me that the short sale concept was not well understood, nor the punishment it brings appreciated.
I guess it sounded like an easy answer. After all, wasn’t everyone else doing it?
Certainly, in this particular area of San Jose, and in this particular price point, a good 80% to 90% of the homes appear to be short sales – and they are dragging values down for everyone else.
Let me briefly explain what a short sale is and isn’t:
(1) What is a short sale?
- it is usually a pre-foreclosure situation
- the buyer cannot continue to make the payments and will go into foreclosure if the short sale doesn’t happen (or this will happen in the near future)
- there is a significant “hardship” (job loss, sickness, death, divorce) causing financial problems
- the owner wants to sell the home but cannot pay off the lender in full because the home has declined in value – there’s not enough equity
- it is going to hurt one’s credit badly, but only half as badly as a foreclosure
- short sales often do not go through – most of the time, they end up becoming full blown foreclosures
(2) What a short sale isn’t:
- it isn’t a help to people who simply want to upgrade and don’t want to pay off the bank
- it is seldom an option if you have other assets (like other properties or money in the bank) – the bank will want your money!
- it isn’t a “get out of jail free” card – there are built in punishments for those who must resort to doing a short sale (trashed credit AND paying taxes on any amount “forgiven”)
- a short sale is never a happy thing – it is always the lesser of two evils (vs foreclosure)
I explained to these nice folks that it didn’t appear that they would qualify for a short sale (no hardship, no inability to pay the loan etc.).
What options exist for Silicon Valley folks who want to move but have no equity?
Here are a few thoughts:
- A promise was made to repay the loan, so the obvious first answer is to wait out the market or come up with the cash to buy out of the situation.
- Walking away: In some parts of the country, we are again hearing about “jingle mail“, in which owners simply turn in their keys to the bank and walk away. I remember decades ago that happened in Alaska when the market there tanked. Now it’s happening here too.In Sacramento, where some owners bought a home at 50% more than the identical house is selling for now, some folks are first purchasing the new home (same floorplan as current one) at the cheaper rate, then walking away from their old home. In effect, they get a home with half as much mortgage. No, it’s not very nice. It’s defaulting (a strategic default) on their promise to repay a loan. The lenders could potentially persue them for losses. Will they? I don’t know – this is a crisis of epic proportions!
- Renting it out: another possibility is to simply rent out the house (rents are rising due to increasing demand) and to move to the next house.
I don’t think anyone now doubts that we are in a recession which is fueled by the housing crisis. For every person who just “walks away” from a house, that’s the recession deepening for everyone. I’m not going to encourage it – it worsens the economy and trashes the borrower’s credit.
Rents are increasing with this crisis. So my suggestion: rent out your house and move on if you can. Talk to the nonprofit credit counseling agencies. Give it a few years, Then call me when you’re ahead of the market and we’ll sell it for you. Or keep it until you have kids going to college and you can then use it to pay tuition.
Eventually, the market will improve. You don’t have to sell when it’s at a low point.
Thanks for reading this article – I hope you find this Silicon Valley real estate blog to be of help to you!
Please see also these related posts:
Underwater & Considering a Short Sale or Loan Modification?
What is a “Kick Out” Clause?
How Long Does it Take to Buy a Silicon Valley Home?
Short Sales in the West Valley Areas of Almaden, Los Gatos, Saratoga, Campbell, and Nearby
Real Estate Inventory & Sales in Silicon Valley’s “West Valley” Areas of Los Gatos, Saratoga, Campbell and Cambrian Park
Interested in Buying a Los Gatos Short Sale?
All posts relating to “short sales” on this blog for real estate in Silicon Valley
I’m going to be blunt here: it is really hard to help when we, as agents, don’t know what is truly going on. It’s not a whole lot different than keeping important things from your doctor or lawyer. If you want help, it is imperative that you tell your hired professionals what is going on.
For that matter, if you are interviewing agents to list your home or to help you to buy your next home, expect those agents to ask you about your needs and motivation. Hiring an agent (and the agent agreeing to take you on as a client) is a two way relationship. Both sides need to be clear and honest with each other.
Let me give you an example. Years ago, I had some prospects (not yet clients) in Monte Sereno who inquired off and on for years about selling their home. At one point, it became a “hurry up” situation. Luckily, they told me the truth: one of them had been diagnosed as terminally ill. The sick one did not want to saddle the survivor with selling the home after the death.
A real estate agent is someone who’s taken a course (or more) and passed a state exam and is licensed by the state to sell real estate.
A Realtor (pronounced REEL-TOR, not real-a-tor) is an agent who’s ALSO a member of the National Association of Realtors, which is a voluntary trade group. Realtors promise to abide by and take very seriously their Code of Ethics. Ever wonder what is in it? It’s not short and is quite comprehensive. Take a look:
Please understand that not everything that is legal is also ethical – Realtors have a higher standard of practice. Often non-Realtors (at least in Siliocon Valley) are not full-time agents but dabble in real estate. Realtors are usually full-time and work as professionals.
Finally, if you have a problem with an agent who’s not a Realtor, you have to complain to the state. With a member of NAR, who is almost always also a member of the state association (CAR – the California Association of Realtors) and local (either SILVAR – the Silicon Valley Association of Realtors or SCCAOR – the Santa Clara County Association of Realtors), you can take action locally for most any issue and do not need to go all the way to the state level. Agents work hard to remain in good standing with the local, state, and national boards.
In the San Jose area, most of the large realty firms are “all Realtor” offices. Usually becoming a member of NAR, CAR and either SILVAR or SCCAOR is a requirement for joining the company. In other areas and in other states, in can be different. So it’s mostly the independents where you’ll find a real estate licensee who’s not also a Realtor. But ask!
When you interview an agent, then, the first question to ask is this: are you a Realtor?