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Five Most Common Options When Selling A Home

Friday, January 20th, 2012

1 - Normal Sale

  • Equity is Positive (Note: Liens & Penalties divided by .92 = Rough Estimated Break-Even Selling Price)
  • Sales Price minus [Loans, Liens, Prepayment Penalties and Selling Expenses) = Net Positive Cash to Seller

    • 2 - Wait (Increase Equity)

  • Equity is Not Optimal For Seller To Sell in Current Market
  • Seller Stays in Home, Continues Making Payments in anticipation that Sales Prices / Values Improve
  • Equity may Improve but Only as Real Estate Market Improves
  • Seller can List and Sell in Future if and when Property Appreciates and Seller has Sufficient Equity
  • Potential Risks: Equity continues to decrease or Interest Rates and Prices Also Go Up for the Property that Seller Intends to Purchase

    • 3 - Negative Equity (Seller Brings Cash)

  • Equity is Negative (Liens and Selling Expenses are Greater than Sale Price); But Seller is Solvent
  • Sales Price minus (All Liens and Selling Expenses) = Negative Amount, Potential Loss by Sellers Lender(s)
  • Seller Has Cash to Make Up the Difference; Brings Cash to Escrow to Payoff the Negative Amount
  • Sellers Bank(s) Approval Likely Not Needed Because There is No Actual Loss to Bank at Closing
  • No Damage to Sellers Credit

    • 4 - Short Sale (Seller Has Resources)

  • Equity is Negative (Liens and Selling Expenses are Greater than Sale Price); But Seller is Solvent
  • Sales Price minus (All Liens and Selling Expenses) = Negative Amount, Potential Loss by Seller's Bank(s)
  • Seller Doesn't Have Cash to Make up Negative Amount to Bank (But Seller Also is Not "Wiped Out")
  • Seller Negotiates and Signs Unsecured Note for Loss Amount with Bank, if Bank Agrees, During Escrow
  • Bank(s) Might Approve Because of No Actual Loss, But Generally Only as Last Resort to Foreclosure
  • Property Sells, Closes Escrow; Seller Makes Payments to Bank until Unsecured Note is Paid Off
  • Seller Gets No Money at Closing

    • 5 - Short Sale (No Seller Resources Available)

  • Equity is Negative (Liens and Selling Expenses are greater than Sale Price); Seller is Not Solvent
  • Sales Price minus (All Liens and Selling Expenses) = Negative Amount, Will be Loss by Sellers Bank(s)
  • Seller Accepts an Offer Subject To Sellers Bank Agreeing to Accept Less than Full Payoff
  • Bank Might Forgive the Net Loss if Seller Qualifies (Foreclosure Appears Inevitable to Sellers Bank)
  • Bank Hopefully Agrees - Generally Only if Foreclosure Appears Inevitable (Seller is "Wiped Out")
  • Seller Gets No Money at Closing

    • Other Options for Homeowners

    Please consult with the appropriate professionals for advice concerning these (including but not limited to attorneys and/or financial/tax advisors).

  • Bankruptcy
  • Foreclosure
  • Deed in Lieu of Foreclosure

    • This article is for information purposes only. Always consult the appropriate professionals regarding your financial situation, such as but not limited to a tax advisor and/or an attorney about potential ramifications before selling your home in a distress situation.