"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) What's the Home Worth Today? Get a good valuation from your realtor. In reality, when you meet to talk, she should already have the comps ready to hand you. Don't waste your money on a official appraisal as it won't be used anyway. This is one situation where you want to be incredibly realistic, even pessimistic about the value, and not succumb to emotional attachment for the house. The more upside down you are in the loan, the greater chance for success in your house short sale.
3) Now Do Some Figuring: Here's where I figured out if I needed a short sale. You can follow along with your own numbers: Take your total loan amount, and subtract the present value of the house. Not what 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 just to break even with the amount you owe on your loan. No profit, no realized appreciation. Now look at your Yearly Cost to Keep the House. Is it worth it to keep it for that many years?
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: $900,000 - $700,000 = $200,000 Estimated Annual Costs: Include all your yearly expenses = $60,000 Appreciation: A health growth real estate market = $200,000 x .08 = $16,000
Verdict: It will take 12.5 years of appreciation at 8% per year, just to break even with the original value of the property, and to get there, it will cost $60,00 per year! In addition, after 12.5 years of suffering, full ownership of the house is still far away and over $750,000 will have been paid in mortgage payments and expenses.
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! - 16738
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) What's the Home Worth Today? Get a good valuation from your realtor. In reality, when you meet to talk, she should already have the comps ready to hand you. Don't waste your money on a official appraisal as it won't be used anyway. This is one situation where you want to be incredibly realistic, even pessimistic about the value, and not succumb to emotional attachment for the house. The more upside down you are in the loan, the greater chance for success in your house short sale.
3) Now Do Some Figuring: Here's where I figured out if I needed a short sale. You can follow along with your own numbers: Take your total loan amount, and subtract the present value of the house. Not what 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 just to break even with the amount you owe on your loan. No profit, no realized appreciation. Now look at your Yearly Cost to Keep the House. Is it worth it to keep it for that many years?
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: $900,000 - $700,000 = $200,000 Estimated Annual Costs: Include all your yearly expenses = $60,000 Appreciation: A health growth real estate market = $200,000 x .08 = $16,000
Verdict: It will take 12.5 years of appreciation at 8% per year, just to break even with the original value of the property, and to get there, it will cost $60,00 per year! In addition, after 12.5 years of suffering, full ownership of the house is still far away and over $750,000 will have been paid in mortgage payments and expenses.
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! - 16738
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 what I learned and how I dealt with my house short sale!
