The problems with selling homes in a home buyer's market are in the news everyday. While the politicians may think it is up to them to legislate the solutions, given a chance the market has a unique way of solving its own problems. Instead of looking to the government, mortgage lenders, or banks for help perhaps it is time to look to one another for some very simple, creative, and effective mortgage funding solutions.
This buyer's market is severely impacted by a tremendous credit crunch. One of the results is the crisis suffered by the investment bank Bear Stearns. You have probably heard by now about the buy-out of Bear Stearns by JP Morgan Chase at an astounding $2 per share. Bear Stearns' stock fell from a 2007 high of $158.39 to about $30 last Friday. The sale at $2 per share is not zero, but it is too close for comfort.
The dominoes continue to fall in what began as the sub prime mortgage crisis. Credit for everyone is much more difficult to get regardless of credit score. Underwriting guidelines typically require a 20% down payment, much lower debt to equity ratios, and six months of capital reserves. What is even more disturbing is the fact so many lenders don't have money to lend as a result of the credit crisis.
This high profile credit problem has the attention of both the private and the public financial sectors. Don't be surprised if we end up financing the recovery of the problems created by outrageous behavior by selfish and greedy individuals and businesses.
Let's quickly define the problem and a solution. Home sellers need home buyers. That is pretty simple right? When a property is for sale the normal question a buyer will ask a property seller is, "how much do you want for your property?"
In a home buyer's market like this one that is not the right question to ask. The question you must ask is, "how much is the property worth to me?" You see in a home buyer's market inventory exceeds the demand for property. In some markets the estimates are fifteen sellers for every potential home buyer.
According to the National Association Of Realtors there is enough inventory in the market right now to last ten months in the best circumstances. As you know these are not the best circumstances.
The most difficult reality to overcome for the current home sellers is the fact most properties are not as valuable as they may have thought. In truth a property value is determined by market demand, not by how much you owe. While it may be true that a property is not likely to have zero value, if it doesn't sell within an acceptable time frame, is there much difference? If you can't cash in when you need to, the value may as well be zero.
Home sellers need home buyers. In a market like this one there is tremendous emotional turmoil when a house or property gets no traffic, no interest, and no offers to buy. When a prospective home buyer makes an offer to purchase your property, that is a very good thing. At least you have a starting point towards the sale of your property.
It is extremely important for the seller to understand there are many ways to sell your property. In most cases it will be either a cash sale or a terms sale. If you expect a "cash" sale, be prepared to discount your sale price. How much of a discount depends on your situation. Consider the location, condition, and price of your property.
If you need debt relief and a full price sale, you can expect to structure some sort of "terms" sale. This arrangement will get you closer to top dollar for your property, but it will take a little more time to cash out.
A clear understanding of what your particular circumstances are will make it much easier for you to effectively negotiate for the sale of your property. It is not as simple as running comps, establishing a value, and adding on to the sale price to cover ancillary costs.
Lots of properties are over financed, or worth less than the mortgage balance. That is a major reason why Bear Stearns was sold for $2 per share. Too many mortgage backed securities have inflated property values. By contrast, too many foreclosures are deflating property values.
The property seller must have a clear understanding of what your objectives are relative to the sale. This will help you determine whether a "cash" or "terms" sale provides the best solution for your situation.
The property buyer must make sure your financial home work has been done effectively. This is a great time to determine how much you can afford to invest in home ownership. Work the numbers, and be sure to make arrangements for savings and investment funds in your cash flow projections. If you don't how will you be able to handle unexpected emergencies?
If you have resources that allow you to offer both a "cash" solution and a "terms" solution, that would be ideal. If not, simply make a well researched and constructed offer to purchase the property.
If you are a potential home buyer, this is the perfect time for you to find the property you really want, to organize your resources, to make an offer that is almost impossible to refuse. Every offer needs to be considered by the property seller. The lenders are intimately familiar with the problems in the housing market. Taking more properties back in foreclosure will not solve their problems. Getting properties sold will solve the problems of everyone involved. Home buyers this is your time. Take advantage of it.
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