Selling a Home in a Foreclosure Burlington VT
South Burlington, VT
South Burlington, VT
Selling a Home in a Foreclosure
How to Sell Your House Quickly When Facing Foreclosure
By LaTonya S. Johnson
If you are currently in foreclosure, strongly consider selling your property as a backup plan. The object is to pay off all debt and expenses, walk away without a foreclosure or bankruptcy on your credit history and perhaps put a little cash in your pocket to start over. Some lenders provide assistance with seller-paid closing costs as well; which is always a plus.
Many people underestimate the value of personal credit. Credit isn’t just used for purchases anymore. Do you know that many employers run credit checks prior to making a hiring decision? Foreclosure and bankruptcy are two of the worst marks to have on your credit because they drastically reduce credit scores. There is definite value in doing all that you can to prevent these items from being posted on your report. One of the strategies to stop foreclosure is to sell your property as quickly as possible; keeping in mind that the foreclosure process can be complete in a little over one month in certain states.
Your lender may agree to accept the sale as total satisfaction of your mortgage obligation even if the proceeds of the sale are less than the amount that you actually owe. This is called a short sale. In order to qualify for this option, you must be at least two months behind on your mortgage. The "as is” appraised value and the sale price should be least 70 percent to 80 percent of the unpaid principal balance of the home. You must also be able to close on the sale of your house within one to two months. (Note: These percentages are not a hard-and-fast standard for all lenders but they are a starting point.)
For example, if you owe $180,000 on your existing home loan, then the house must sell for a minimum of $126,000. The house can then be sold for a minimum of $126,000 (which is 70 percent of the appraised value), although selling the house for $180,000 would be more favorable.
There are three steps that must be taken in order to successfully sell your home quickly. They are:
- Valuing your property,
- Figuring out your bottom-line sale price, and
- Locating buyers.
Be aware that realtors and investors can be quite sophisticated. They often know more about the market value of your home than you do because a great deal of information can be found on the Internet. They have access to such information as the value of your home, the square footage, the number of bedrooms and bathrooms, what similar houses in the neighborhood have sold for, and if the owner on record is current on taxes.
The very best advice that I can give is for you to do your homework prior to calling a realtor or investor. Each of the three steps to sell your home quickly are discussed below:
1. How to Value Your House
Let’s start by discussing how to value your property, otherwise known as “market analysis.” It involves comparing your house to houses with the following characteristics:
- Similar square footage, number of bedrooms/bathrooms
- Similar features (fireplace, pool, waterfront, etc.)
- Within one mile of your home
- Similar year built
- Sold within the last six to 12 months
There are several real estate websites that allow you to compare your house to houses with similar characteristics and provide a ballpark figure of the value of your home. Another method of obtaining a rough estimate of the appraised value of your home is to research the data contained within your county website. Many county websites provide information regarding market value, neighborhood sales information, house description, tax information, and much more.
Once you have a rough idea of the market value, contact a realtor and request a market analysis to obtain more detailed information. Ask the realtor to provide a list of ALL comps in your neighborhood; not just the three or four that he or she feels are the most relevant. To confirm their analysis, get a second opinion. It won’t take long to find a list of realtors in your area in the yellow pages or on the internet. Then make the call.
It is also important that you know the cost of all necessary repairs. Obtain at least three quotes and be willing to provide information regarding the lowest repair quote to the buyer upon request.
Gathering all of the information above will assist you with the next step.
2. Developing a Bottom-Line Sales Price
Now let’s discuss how to develop a bottom-line sales price based on the following formula:
- Closing Costs
= List Price
Remember, time is not on your side if you are currently in foreclosure. Therefore you cannot afford extensive negotiations. Again, the object is to be able to pay off all debt and expenses, walk away without a foreclosure or bankruptcy on your credit and perhaps put a little cash in your pocket to start over. On the other hand, many lenders in the current market are overwhelmed with foreclosures and may take a long time to get back to you on a short sale request. The good news is that if a short sale offer has been submitted, the lender will typically temporarily postpone foreclosure proceedings until they respond to the offer.
3. How to Locate Buyers
There are several ways to locate buyers, depending on the amount of time you have to complete the sale. The three most effective methods for quickly locating buyers are:
- To Google “foreclosure listings” and then list your property on the Internet for free,
- List your property with a real estate agent and/or contact an association of real estate investors.
- You can also sell the house yourself by putting a “for sale” sign at a major intersection near your house and placing an ad in local classifieds.
Here we’ll only discuss two options in detail:
1. Listing with a Realtor
The conventional method of locating buyers is to contact a Real Estate Agent and ask them to list your property. In order to locate a realtor, review the Yellow Pages or request referrals from friends. If you contact an agent, they will come out to evaluate your home and more than likely request that you sign a document that allows them to represent you when speaking to prospective buyers. Remember, DO NOT LET ANYONE PRESSURE YOU INTO SIGNING ANYTHING. After evaluating your property, the agent will run a market analysis to identify the price houses with similar square footage, number of bedrooms/bathrooms, and features have sold for within one mile of your neighborhood in the last six to 12 months. The agent will then suggest a list price that you can either accept or reject. Once your property is listed in the Multiple Listing Service (MLS), it will be available to all agents (thus potential buyers) in your area.
Although the agent handles all of the details, they do not do it for free. Agents usually charge between three percent and six percent of the final negotiated sales price. The seller (that's you) customarily pays for fees associated with both the buyer’s and seller’s agent (which usually totals 6 percent). If you have requested a short sale from your lender; they the lender may agree to pay the closing cost.
Another disadvantage is that most buyers who are looking to live in the property want the house to look brand new. Therefore, you must take into account the cost to repair your property prior to listing it or, if enough equity exists, be prepared to reimburse the seller for requested repairs after closing. Please note, you do not necessarily have to perform repairs. You could sell the house as-is, yet unless your house is in tip-top condition more than likely you will not get full market value.
The number one advantage to listing your house with an agent is that you may be able to obtain full market value for your home. Again, this is time dependent, so if you have lots of time you can request more money. The coverage that the multiple listing obtains is also a huge advantage. Another advantage is that the agent walks you through the entire process. Therefore, you do not have to search for prospective buyers, negotiate the price and terms of sale directly, or even know the entire sales process. The agent will handle all of the details and walk you step-by-step through the process.
2. Selling to an Investor
An alternative to listing your house with a realtor is to locate an investor who is willing to purchase your home. This is the best option if you must sell the house quickly, because they are often able to make cash purchases. Therefore, the loan processing time is eliminated. Investors are also very helpful with developing creative solutions so that you can sell your house with no out-of-pocket expenses, thus you can walk away without any financial obligations. If requested, they will often provide guidance on how you can save your home as well.
You can take matters into your own hands by locating an investor on your own. In order to locate an investor, review your local newspaper or Yellow Pages. Their ads usually state “I Buy Houses” or “ Cash for Houses,” so they are pretty easy to recognize. Another great way to find multiple investors is to contact your local real estate investment club. Visit the following link in order to obtain a list of investment clubs throughout the nation: http://www.creonline.com/real-estate-clubs/index.html. Ask if they can refer you to someone who may be interested in purchasing your property. If you have time, it may also be a good idea to pass out flyers at their monthly meeting.
The disadvantage of working with investors is that they purchase houses in order to make money by performing repairs and reselling the house or renting it out. In order to make money, they must obtain the house at a discounted rate (usually 10-30 percent below market value). That means that you will not walk away with all of your equity. So prior to making the decision to sell to anyone for less than the full amount, consider what you stand to gain and what you stand to lose. Also, watch out for scammers. Certain people will try to prey on your lack of knowledge, so take heed of the useful tips provided here.
The advantage to working with an investor is that they can move very quickly. Plus, you most likely will not have to perform repairs, make back payments, pay foreclosure attorneys, pay a reinstatement fee, or pay late fees. You will walk away with a portion of your equity in order to start over (depending on the amount of repairs needed), no foreclosure or bankruptcy on your credit, and hopefully less stress. Remember what I said at the beginning of the article, this is a temporary situation. Just make sure that you walk away with all that you can, and don’t allow anyone to push you around. The key is to educate yourself as much as possible…so you’re already on the right track.
About the Author: LaTonya S. Johnson is a noted educator who has helped thousands of homeowners save their homes from foreclosure over the past 10 years. She also is author of “The Game of Foreclosure and How to Play It,” which provides step-by-step instructions on how to save your home from foreclosure. For more information, visit www.foreclosure-er.com.