Real Estate Investing

A short sale can be a very good way to score a deal and a great way for all affected parties to avoid the hassle of a foreclosure. It is essentially a transaction where property that is headed toward, or in the process of, foreclosure is sold for less than the remaining balance on the loan. Short sales require permission from the lender, who will typically want to see the buyer’s contract, a settlement statement and a hardship letter from the seller. A lender may not approve the deal, and the prospective buyer may then counter-offer.

Lenders don’t like the hassle of foreclosures because it requires them to fix the property up, market it, sell it, pay closing costs, etc. On the other hand, they also don’t like losing money, and that is what a short sale amounts to. They must forgive the remaining debt not covered by the property sale. Short sales, also known as pre-foreclosure sales, are very popular. 731,244 short sales have been filed thus far this year. The following are some tips to help buyers close short sales.

Analyze the situation: What are the circumstances surrounding the pending foreclosure? What is the interest rate on the loan? What is the outstanding loan balance in relation to fair market value? Not every home facing foreclosure is a good opportunity for a short sale.

Develop a plan: Try to put yourself in the lender’s shoes and anticipate his moves. Decide what your initial offer will be and how you will justify it. Also consider what your counter-offer will be and any justifications for it as well.

Talk often with the lender: Keep in communication with the lender and share information you discover about the property itself and the surrounding market. This info may help you justify your initial offer or counter-offer.

Do research, be prepared: Research and preparation are part of gathering the aforementioned information that is so key to the negotiation process. Have all your ducks in a row, so to speak, to avoid embarrassment when talking with the lender.

Be persistent: Don’t roll over when your offer is rejected. It’s not personal, it’s business. Make a counter-offer and inquire as to why your offer was rejected. Typically it will be because the offer was not high enough. You may need to submit a higher offer, but you should also show the lender more documentation in an effort to justify a lower price than they may have had in mind.

Hire a negotiator: A paid negotiator can be good if you are continually striking out, hopelessly intimidated by the negotiation process or simply don’t know where to begin. You can either hire a successful professional who has been down this road before, or you can even hire a former bank employee who used to get paid to work against people like you. They will best understand the other side and how to win.

The real estate market is still in limbo in most areas of the country and foreclosure rates are well above average. It may be tempting to seize the day at a real estate auction. A few things to know before you go:

1) Keep your emotion in check. It can be easy to get caught up in the excitement of an auction, or the competition of outbidding everyone else. Keep in mind, however, that this isn’t Ebay. You are playing on a whole different level. This is business and you must keep a level head. You are not necessarily going to get a tremendously discounted price. Know when to walk away.

2) Inspect the property beforehand. Try to purchase only from those auctions that allow bidders to inspect the property beforehand. This is essential. Particularly with foreclosures, there are two reasons the property might be run down. If the homeowners didn’t have the money for mortgage payments, it is doubtful they had the money for property maintenance. Worst case scenario: the homeowner is so resentful over losing their home that they allow all sorts of “accidents” to happen around the house in the final days, lowering the home’s value.

3) Research the property first. What is the neighborhood’s approximate price ceiling? Are any developments planned that could affect property values? Information is the greatest tool in controlling yourself and keeping a level head at auction.

4) Be discreet. The name of the game at auctions is to play it close to the vest. If the research or inspection phases reveal anything that drastically changes your perception of the house, use it to your advantage in the auction.

5) Get your cash together. There is usually going to be a minimum $5,000 due immediately from the winning bidder, with financing often available through select lenders. Cash is king in the auction business.

One thing to keep in mind with the current market is that auctions are no longer all about foreclosures. There may be out-of-town job transfers or homeowners who bought a new home, never imagining that their old home would stall on the market. These types of frustrated buyers are also turning to auctions as a means of unloading property quickly. Whatever the situation, real estate auctions are nothing for the savvy, educated, level-headed buyer to sneeze at.

We have talked about how eco-friendly home design can cut your long-term operational costs. Lately, more homebuyers are learning that “going green” can get more house, too!

Eco-friendly home loans, also known as “green mortgage programs,” will truly enable the borrower to get a bigger loan or a lower interest rate in most cases. Columnist David Myers recently fielded a question from a reader inquiring about such programs. Myers’ answer:

Consumers who choose green loans often can borrow more money than they could with a conventional mortgage because the bank will consider their future savings on utility bills as extra “income” that will be available to make their home-loan payments.

There are three ways a homebuyer can get a “green loan”. One way is to buy a new home that was designed energy efficient. Even if it means extra upfront cost, that cost can probably covered by the larger loan and will quickly be recovered through monthly energy and utilities savings.

Alternatively, a person may buy an older home that has undergone an energy efficient makeover. A buyer may also choose to redo their home themselves, restructuring their home loan terms in the process through a refinance. There are tons of ways to “green” your home, from choosing more energy-efficient appliances and plumbing fixtures to installing fluorescent bulbs. Of course, serious green home renovations would include projects like replacing all your old windows with the low-E variety.

There are a few extra hoops to jump through with the green loan programs, which have actually been around for years. However, all things green are hot property at the moment, so lenders are actively promoting their eco-friendly offerings. Look for incentives and perks to accompany the already-good deals. And you score some highly marketable real estate while helping the earth - what’s not to love?