Coeur d'Alene Idaho Real Estate Short Sale Q&A: If it sells for full price, does the seller still make a little money?
I regularly feature my blog posts on my Facebook page, and sometimes the comments they bring come in the form of questions.
Last week I posted a link to my post, Coeur d'Alene Real Estate Short Sale Heart Warming Moment. It was a story about some of my current clients who had just received an approval from their lender to short sale their house. I mentioned that we got their house under contract at full listing price. Then came the question as to whether or not those sellers would then make a little money since it sold for full price. The answer, no.
The home price was set at its value today in the Coeur d'Alene real estate market, not at what the sellers needed to pay off the mortgage.
The definition of a Short Sale is the sale of a home for less than is needed to pay off their mortgage(s). So if it's a short sale, it goes without saying that the seller will always be short of enough proceeds to satisfy their mortgage and/or closing costs. In a short sale, the lender will usually cover all closing costs. The lender's stipulation is that the seller doesn't receive any of the money from the sale of their home.
So then, what does it mean that it sold for full price if it wasn't enough to pay off the mortgage and closing costs?
A seller can be in a short sale situation for a number of reasons. It always has to do with the CURRENT market value of the home versus what they owe on the home.
Anyone who bought a home in 2005-2007 in Coeur d'Alene, at the top of the price run-up and feeding frenzy, has seen their home value decline. Let's use two of my clients as real life examples:
One bought a new home for $200,000 in 2006. It is now worth only $160,000. When he purchased it, he put $50,000 down and currently has it for sale at $160,000. It's not a short sale because he will be able to sell it for enough to pay off his mortgage, pay his closing costs and be done with it. A traditional sale, not a short sale. Although, this seller will still have lost his $50,000 down payment.
Another client purchased a home for $200,000 with 100% financing at the top of the market. That home is now only worth $160,000. Not having put any cash down, it's not possible for him to sell it for enough to pay off the mortgage. In order sell it, his lender will have to agree to take less than is owed. As with the guy in the example above, SOMEONE is going to lose $50,000 to sell it now - in this case the lender who loaned $200,000 to mortgage the house. In the other, it's the homeowner.
That's why two houses built and sold at the same time for the same price, can be For Sale side by side today for the same price, with one being a short sale and the other a traditional resale.
(Someone who bought a house at the top of the market, no matter how much they put down, isn't necessarily in a bad situation if they can afford to make their payments and don't have to sell right now. History has always shown that home values appreciate over time. After this rough market correction, they will rise again. It's just going to take some time, but values will come back.)
In this crazy market, you are bound to have real estate related questions from time to time. Don't hesitate to call or send an Email if there is something you would like help understanding. Knowledge is Power!
Links to recent posts of mine dealing with Coeur d'Alene Idaho Short Sales:
What does a short sale Realtor do?
Can I Short Sale My House To Avoid Foreclosure if I Have an IRS Tax Lien?
Coeur d'Alene Short Sale Success Story~ Today was a good day!
Is the FDIC killing short sales and loan modifications in Coeur d'Alene Idaho?
The Joy of Short Sales ~ Today was a GOOD Day
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