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Short Sales Not Just About Cancelling Mortgage

by Desi Sowers, REALTOR, ABR, GRI

We're hearing a lot about short sales these days. The key words in the Multiple Listing Systems around the country are "third party approval required," or "bank approval required," which is a signal that the property you're looking at is actually being sold by the mortgage holder rather than the deed holder.

Before you get involved in one of these transactions, understand what they are not: a short sale is not simply a sale of a property for less than the original purchase price. It is not necessarily a "pre-foreclosure." It is not always a good deal.

What a short sale is: A short sale is a pre-foreclosure only in the fact that the lender has decided to receive payment on the note for less than the face amount. The sellers have determined there's no way they are going to get as much for the house as they owe and they can't stay in the property for one reason or another. The terms of such sales will differ lender to lender. Some require that the owners demonstrate they can't afford the house (that they're broke, in essence) and that there's no money to bring to the table to make up the difference.

It's a sticky situation for the sellers/owners. They don't want to hurt their credit or go into foreclosure, but they have to move because they've been transferred, lost a job, took a new job or are overextended, but they don't have the cash to pay the marketing costs, closing costs and pay off the mortgage.

Short sales are real diamonds. I've seen some that look great -- offering closing costs, aggresive pricing, and selling bonuses -- just to get the house off the books.

Conversely, they can also be some of the toughest deals to get through to settlement if the lender has lost too much money already and just wants to wait out the buyers until one comes along who's willing to buy the house in disrepair with no closing costs.

If you're writing a contract on a short sale here are a few tips to keep in mind:

Be patient. Because of the current default situation on mortgages, the lenders are inundated with many of these type properties. You're offer is one of many and the processor will get to it in turn. Don't expect a response in a day -- maybe not even two to three days. Sometimes a week is not out of the ordinary. Putting in language such as "response required within 24 hours," may just be a waste of time, rather than a stimulus to get a faster response.

A good comparative market analysis is imperative. Be sure to hit the price right on the head and offer close to it. Most lenders have already lost enough money, they don't want to lose more with a really low offer. If it's overpriced, then offer right at the CMA amount. But if it's right on, offer the full price.

Pile on the contingencies. This works well if you're writing a full price offer. Those would include inspections (home, pest, radon, etc.); appraisal; financing; etc. Ask for a lot and expect nothing.

Be on top of your walk through. Most short sales don't like home inspections, thus be aware of the condition of the property. If possible, test all the systems (electrical, plumbing, heating/air). This is as simple as flushing toilets, using a socket tester (available at hardware stores); and turning on the furnace/heater/air. You may even want to turn on the washing machine and dishwasher -- but ask the listing agent beforehand.

If you're on the selling side of a short sale, keep in mind you're not the one in control anymore. The buyer/agent is going to be dealing with the listing agent and the lender more than anyone else. You may want to be involved in the sale, but you're mainly there to agree to the terms set forth by the lender. Sign the paper work. Move your stuff -- out. They want their money and your home is the only thing standing in the way.

So you're out of trouble, right? Not so fast. The bank could come after the rest of the balance separately from the sale, just like they can with a foreclosure. On top of that, any cancellation of debt above $600 is supposed to be reported as income to you through Form 1099-C (Cancellation of Debt) to the IRS. For instance, let's say you sell your house for $30,000 less than you owe, that 30-grand could be additional income the IRS will want to tax.


Written by M. Anthony Carr

Head Count Shows Shifting Population

by Desi Sowers, REALTOR, ABR, GRI

The country's fifth largest city is in the desert, according to the latest Census Bureau estimates. And though it is only half the size of the next largest city, the nation's No. 1 city in terms of population has more than twice as many people as its closet rival.

Yes, New York reigns supreme as the largest city in the United States, with a population of 8.2 million. The next largest city is Los Angeles, which has just 3.8 million residents.

Chicago is third with 2.8 million inhabitants and Houston is fourth with 2.1 million.

Phoenix, the aforementioned desert city, moved into fifth place, according to the latest count, moving ahead of Philadelphia. The head count in Phoenix in 2006 was 1.5 million. In Philadelphia, it was 1.45 million.

The switch is further evidence of a shift in the U.S. population that began decades ago.

In 1910 -- nearly a century ago -- all of the ten most populous cities were within approximately 500 miles of the Canadian border. Now, seven of the top ten and three of the top five are in states that border Mexico.

In another big change, only three of the largest cities in 1910 -- New York, Chicago and Philadelphia -- remain on the current list. At the same time, three of the current top ten -- Phoenix, San Jose and San Diego -- were not even among the top 100 largest cities 97 years ago, while three others -- Dallas, Houston and San Antonio -- had populations of less than 100,000.

The estimates also show what many of us already know, that many of the nation's fastest-growing cities are suburbs of those cities or small towns that border on them.

For example, North Las Vegas, Nev., a suburb of Las Vegas, had the nation's fastest growth rate among large cities (those with populations of 100,000) between July 1, 2005, and July 1, 2006. North Las Vegas' population increased 11.9 percent during the period, to 197,567.

Furthermore, three of the 10 fastest-growing cities are in the Dallas metro area: McKinney (second), Grand Prairie (sixth) and Denton (ninth). In the same general vicinity, Ft. Worth just missed the list, ranking 11th.

Phoenix had the largest population increase of any city between 2005 and 2006, adding more than 43,000 residents. But Texas dominated the list of the 10 highest numerical gainers, with San Antonio, Ft. Worth, Houston, Austin and Dallas each making the top 10. Three other Texas cities made the list of 25 biggest numerical gainers.

New Orleans had by far the largest population loss among all cities with populations of 100,000 people or more. The Big Easy lost slightly more than half of its pre-Hurricane Katrina population. It fell from 452,170 on July 1, 2005, to 223,388 one year later, a loss of 50.6 percent.

To put that into perspective, Hialeah, Fla., which experienced the second-highest rate of loss over the period, saw its population decline by 1.6 percent.

Meanwhile, the Census Bureau threw out another tidbit recently that the real estate community might find interesting: An average of 2,356 people went into business for themselves everyday in 2005, bringing the number of businesses without a payroll to 20.4 million. In total, 860,000 people became business industry "loan wolves" in 2005.

The District of Columbia led the nation in the growth of these small businesses with a 9.6 percent increase between 2004 and 2005, followed by Nevada at 7.7 percent and Florida with a 7.6 percent growth rate. Rounding out the top five were Georgia and Utah, which had increases of 7.6 percent and 7.2 percent, respectively.

Among the nation's most populous counties, Los Angeles County, Calif., had 799,108 non-employer businesses as of 2005. Cook County, Ill., was second at 380,457, followed by Miami-Dade, Fla., at 296,456.

Counties with big increases in non-employer businesses included Orange County, Fla. (9.4 percent); Clark County, Nev. (9 percent); Miami-Dade (8.6 percent); Tarrant County, Texas (8.4 percent); Gwinnett, Ga. (8.4 percent); and Hillsborough, Fla., and Mecklenburg, N.C. (8.3 percent each).

The ten largest cities:

  • New York -- 8,214,426
  • Los Angeles -- 3,849,378
  • Chicago -- 2,833,321
  • Houston -- 2,144,491
  • Phoenix -- 1,512,986
  • Philadelphia -- 1,448,394
  • San Antonio -- 1,296,682
  • San Diego -- 1,256,951
  • Dallas -- 1,232,940
  • San Jose -- 929,936


    Written by Lew Sichelman
  • It's A Buyers Market. So, When Are You Going to Buy?

    by Desi Sowers, REALTOR, ABR, GRI

    A buyer's market is technically defined as: "A market condition characterized by an abundance of goods available for sale."

    The in-depth definition from the same source is: "When a buyer's market exists in commodities, the buyer is able to be selective in purchasing contracts, as there are many individuals wishing to sell. Furthermore, these buyers will generally be able to purchase contracts at lower prices than those that were previously prevalent."

    The simple version is: when no one else wants a product of value -- buy it, because the price will be lower whereby you'll be able to maximize your investment for future gain. In essence -- buy low, sell high.

    When it comes to purchasing real estate, it's not as easy as investing in your 401K or savings account. Those are simple. You can select as little as $1 to invest each month or as high as the law will allow -- thousands per year.

    Most people really don't worry about how the stock market ebbs and flows as they are using the practice of dollar cost averaging to invest: "Dollar cost averaging is the practice of investing or saving money at specific times, regardless of market conditions or your personal financial outlook," according to a beginners guide to investing from About.com. The idea is that if you keep investing over the market levels (low and high) you will, through the law of averages, make money in the long haul.

    The challenge with that type practice in real estate is that you can't slip into real estate investing. We don't buy our housing investments month after month with prices up and down. Instead, we slap down the down payment when it's time to buy. And wherever the market is, is where we start.

    The best strategy for real estate and the best way to make money in real estate is to buy low, when the conditions are in the favor of the buyer to buy. Your start-up purchase is where you "begin" your investment growth -- and that's why I submit to my buyer friends the above headline question, again: "It's a buyers market. So when are you going to buy?"

    Today in many markets you can buy a house for 5 to 10 percent below asking price. For a $300,000 purchase, that's between $15,000 and $30,000 off your mortgage. On a 30-year fixed rate mortgage at 6 percent, that reduction in mortgage amount would save about $180 per month (more than $2,000 per year).

    In addition, many sellers are willing to help with closing costs just to sell their house. For example, in Fairfax County, Virginia (just outside the Washington, D.C. area) half of the 3 bedroom 2 bath single-family homes sold in the last 30 days included a seller subsidy ranging from $500 to $15,000 (the average seller subsidy was $8,790).

    Then there are the prices. While they have been flat over the last couple years, they are starting to increase. This is where you're research on the housing market must turn local. The national numbers mean nothing to you when it comes to investing in real estate. Where are your average prices? Are they flat, deflating or appreciating?

    Nevertheless, there are hot pocket markets. In the DC area, there are several zip codes that, when looking at the numbers, are technically in sellers markets. In these areas, homes are selling in under 60 days, prices are up, unit sales have outpaced the level from a year earlier and total sales volume is expanding. The thing is, though, the pressure from surrounding zip code markets keep the prices from escalating as fast as their potential.

    Let's review -- you have plenty of housing inventory from which to choose. Sales are slow, so sellers are offering thousands of dollars in incentives to tempt you to buy. Prices are flat. Interest rates are still historically low. Sounds to me like the buyer who has been waiting on the sidelines needs to get off the fence and pull out his checkbook.


    Written by M. Anthony Carr

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