ISLIP, NY - FEBRUARY 09: A padlock hangs from a door of a foreclosed home on February 9, 2012 in Islip, New York. (Image credit: Getty Images via @daylife)
For homeowners with a home that’s worth less than the balance(s) owed, what does this mean to you? This means taking the chance of the debt forgiveness law being extended past the end of the year or getting off the fence and exploring your options for a short sale now.
After a foreclosure or a short sale, the former homeowner is not taxed on forgiven debt under federal and state laws that will expire at the end of this year. In both cases, the lender likely ends up receiving less than the full amount of the outstanding balance. If so, the amount the borrower is no longer responsible for paying to the lender is considered “cancellation of debt” income and, thus, income to the borrower that – prior to the adoption of the federal and state protections – was subject to income tax. Those federal and state protections are scheduled to expire at the end of 2012.
Pride comes before a fall. We know of many people who have simply walked away from their homes that fall into foreclosure, perhaps because they are too proud to ask for help. Not only do borrowers ruin their credit unnecessarily with a foreclosure rather than pursuing a short sale, foreclosures are devastating to entire neighborhoods by dragging down property values of the homes around them. Do you know of someone in your neighborhood who needs help but is too proud to ask for it?
Short sales are a common part of the real estate landscape these days. The best thing we can do is to help get the word out about what homeowners’ options are so that they can make informed decisions…
We are in the midst of an interesting dilemma with pricing several properties for sale.
- A house that’s JUST on the cusp of being a short sale
- A property that is not a short sale but is stuck COMPETING with short sales
- A luxury home that is unique, rare and in a neighborhood where it appears that a “fire-sale” has taken place around the corner, lowering the average price per square foot
How do we deal with pricing?
For the potential short sale: Just price it right, based on what’s happening in the neighborhood with similar homes. Remember, the seller’s lender still has to approve the short sale amount before a buyer can purchase the property. There are programs available to qualified sellers that will give them money ($3000) for relocation assistance, such as HAFA.
For the property with equity competing with short sales: Just price it right, based on what’s happening in the neighborhood of similar homes. It’s important to be careful not to have a downward spiral of competing price reductions against those short sale sellers. Example: You lower your price, they lower theirs, then you lower yours again, then they lower theirs again…STOP the madness before it even starts!
Sometimes it’s better to stand firm on (the reasonable) list price and be willing to budge when an offer comes in. Short sale sellers often have nothing to lose since they have no equity anyway. Representing a seller who has equity takes a certain level of care…
For the unique luxury home: Just price it right. There’s nothing in the world like this home. In the absence of enough suitable properties to compare, we make sure a formal appraisal is conducted for this type of luxury estate to determine an objective third-party basis for a List Price. Many luxury sellers do not have to sell their homes. They can sit tight and wait for the right buyer to come along.
The one common denominator for determining a List Price for the three scenarios above:
JUST PRICE IT RIGHT.