I recently received the following question from a home owner in Colorado Springs.

"I bought a new Pulte townhome in Feb 2007. Since then the builder has dropped prices about $30k. I seriously need to move but now I am really upside down. What are my options?"

Here is my response:

Hi Mandy :o)

I am very sorry to hear about your situation and I know such uncertainty creates a lot of stress, but you should know that you are not alone. The current market correction is making it very difficult for sellers who have purchased their homes in the last 3 or so years to sell now because, in most instances, they have 97% to 100% financing and any appreciation they would have experienced has been eaten up by the downward market pressure on prices.

However, you need to remember that existing properties are often more attractive to buyers because they already have many items that the builder either didn't include or offer as an incentive. These can include, Additional Finished Areas, Decks, Landscaping, Sprinkler systems, A/C, window coverings and other interior or exterior amenities...so all is not lost.

If you absolutely have no other option than to sell now as you indicated, you have a few options available to you:

1. There may be a possibility, albeit small from what you said about the builders prices, that your property might be able to sell on the market for at or near what you paid. You first need to consult with a Realtor professional, who has experience and education in property valuation or a licensed appraiser to give you a very tight analysis of what the approximate current market value of your property is. A Comparative Market Analysis (CMA) form a Realtor and/or an appraisal are in reality just educated snapshot in time guesses of what your property should be worth, so it's very important that you use an experienced Licensed Appraiser or a Realtor with extensive continuing education that has included how to properly perform a tight CMA.

If your property is indeed worth less in the current market than it would take to pay off your loan and you do not have the financial wherewithal to make up the difference, you can:

1. Ask the Realtor you choose to work with how much the going rental rates are in the area of the property to see if it's possible for you to rent it out at a rate that will allow you to make the loan payment each month. If you can verify for a lender that you are receiving a steady income from a property that you have converted to an investment rental, it is still possible for you to qualify for a loan on another property to use as your primary residence wherever you relocate to. A word of caution, you should go over your loan agreement with your current lender to make sure that there is no language in the agreement that would prevent you from renting the property out to others. You should also have a Realtor professional perform and investment analysis of your property to ensure that you can at least break even by renting the property out. While it is possible to do, I don't recommend to any investor placing yourself in a negative cash flow position with regard to the debt service on an investment property, unless they have a strong income stream from other sources and can afford to use any loss on a particular property as a write off or carry over on their taxes. If this is the case for you, then I highly recommend that you consult a Tax and/or a Financial Advisor to make certain that you have the proper advice and counsel. I would also recommend that if you are relocating out of town or the state that you use a professional property manager to manage your rental property. It's very worth the usually minimal 10% of the monthly rent in order to make sure the property is protected and well maintained by the tenants and that any maintenance, code enforcement, law enforcement or other issues can be addressed in a timely manner.

2. You can attempt to negotiate a short sale with the lender or lenders who hold your home loan(s). A Short Sale is generally described as a negotiated settlement with a loan holder for less than the amount due on the loan. This is usually more common if the loan is delinquent, in foreclosure, or less commonly, if you have been attempting to sell the property on the market for a long period of time and the offer you receive will not cover the full amount of the loan. Negotiating short sales is a very complex and time consuming process, so if this is an option you wish to explore I would highly recommend you have professional assistance from a Realtor with a good deal of verifiable experience successfully working short sales and a strong short sale negotiator on his team. I happen to have one of the best.

There are definitely some options open to you and some things you may be able to do to get out of this situation, so don't give up hope and make sure you talk to someone with the proven experience and education to properly counsel you. If you like I will be happy to sit down and discuss your options further.

Brian L. A. Wess
CRS, GRI, ABR, ASR, e-PRO
Realtor®, Broker Associate
Residential & Investment Specialist
Pat Newell & Associates, Inc - Metro Brokers
Colorado Springs, CO
Direct: 719-528-6672 
Web: www.BrianWess.com 
             Your Real Estate Gladiator!^TM

Copyright © 2008 By Brian L. A. Wess, All Rights Reserved.."Homes Selling for less than bought in 2007"