What could be worse, in times of financial hardship, than receiving news from your real estate agent that his or her services will cost you, out of pocket, before any work begins?
Now that would be adding insult to injury.
In a normal real estate transaction, the cost to sell a home is typically on the shoulders of the home-owner who has hired a listing agent to market the home. A rate is negotiated, and the resulting fees are split evenly between the listing broker, and the selling broker, and these fees are drawn from the proceeds of the sale of the home at closing.
A short sale is a different beast altogether, because it’s assumed that the homeowner has fallen on hard times; specifically that they owe more on the house than it will sell for (see the article “What Does It Mean to Be Upside Down in Your House”) When the amount you get at sale is less than what is owed, the seller either needs to come to the table with cash out of pocket to bridge the gap, which most cannot do, or seek out the approval of the lender to release the property for less than is owed. Sometimes the lender will ask the seller to sign a personal note for the difference. This is commonly asked, but rarely agreed to. This happens all day long and for good reason. Banks aren’t in the real estate business. They’re in the money business.
The prime time for a short sale to be approved by a lender is when it’s clear to the lender that the home is headed for foreclosure, or there’s an inevitable need to sell due to other unforeseen circumstances.
In the event of a short sale, whereby the seller has no money left over when the house sells, how do the REALTORS® receive compensation for their work?
That’s easy. Fees are built into the transaction and paid for by the lender releasing the note. The banks know that it takes time and expertise to properly sell a home, and since they aren’t in the real estate business, they’re more than happy to partner with REALTORS® to ensure the job gets done. Selling your home short of what you owe lightens the blow on the property values in the neighborhood which is an additional plus for the banks, as they may own multiple properties near your home. Save one, save many.
So, on a house that sells for $120,000.00 that has a payoff of $150,000.00, the bank will subtract the broker fees and closing costs from the final sales price, resulting in an even lower net payment to the bank. In this example, it’s possible that the bank will only receive a payment of $105,000.00, maybe more, maybe less. It all depends on what they’re willing to take.
What this ultimately means is that you, the home-owner, receive top notch professional representation at ZERO OUT OF POCKET COST to you.
There are implicit associated costs when you sell your house for less than you owe, but they come in the form of a temporarily affected credit rating, and potential tax consequences. The impact upon your credit score if you foreclose is far greater than if you sell short. What does zero cost mean to you?
It means my services are completely free of charge to you.
But what if we don’t want our credit to be affected?
The only way to protect your credit from the effects of a short sale (which are far less damaging than foreclosure), is to sell the home and cover the difference between what it sells for and what you owe, so the lender will report your account as “Paid in Full.” Either cash at sale or a note for the deficiency will accomplish this.
If you have any questions about the process of preventing foreclosure, whether you’re just now considering it might be a possibility, or you’ve already received a Notice of Trustee sale, please contact me today: (602) 312-3262