Short Sale, Question Answered...

Over the next few days I’ll be posting some questions Janet and I get from short sale sellers and our best practice answers.

Why does my property have negative equity?

Here are a few common reasons:

Person bought at the height of the market and the market has now declined or paid more than the property was worth.
The area has become less desirable for any number of reasons, so property values have declined.
Person purchased the home with little or no money down and wants to sell within a few years of purchase… and the property value has not increased during that time. Therefore, costs associated with selling the property may create a balance due at closing,
Person refinanced the home (with a high appraisal value) and now has little or no equity.
Person bought in a brand new subdivision or recently developed area that has not been fully developed or has not appreciated (or has depreciated) in value
The market is soft because there is too much builder (new home) inventory or too many existing homes on the market (buyer’s market)

What is Negative Equity?

Also known as being "" negative equity is the difference between the value of an asset and the outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former. For example, if your car is worth $10,000 and you owe $15,000 on it, you would have a negative equity of $5,000.  Negative equity can result from a decline in the value of an asset after it is purchased.

Some areas decline in value. In other areas, prices may remain flat so that the properties in that area do not appreciate. If a seller wants to sell within 2-3 years of purchasing their property, they may be in a situation where they have negative equity.