This is the second in a series of short articles on Howard County Maryland’s real estate market from the buyer’s viewpoint. For other articles see: How to Value A Home (Recognizing Value); Finding Great Deals – Auctions & Foreclosures; Finding Great Deals – FSBO and Short Sales; Finding Great Deals – Realtor® MRIS; and How To Negotiate A Great Deal.

FINDING Great Deals – FSBO and ‘Short Sales’

Where is the best place to look for a great deal on a home in Howard County today? For sale by owner? Auction or foreclosure? “Short sale”? Word-of-mouth? The Realtor® owned multiple listing service, MRIS? Let’s review each.

Homes “For Sale By Owner”

The National Association of  Realtors® tracks homes sales all across the country. Of homes offered for sale “by owner”, fewer than 18% actually sell.

One reason is limited marketing – individual owners don’t have the experience or money to market their home as well as an army of local Realtors® can. And, unlike the Realtor® MRIS system, there is no single, reliable source for all ‘by owner’ listings.  Newspaper ads are hit-or-miss, and ‘by-owner’ websites are notoriously out-of-date, being both over- and under-inclusive (they continue to post ‘by owner’ homes that have gone off the market or have been listed with a Realtor®, and they fail to include a majority of ‘by owner’ homes that currently are for sale).

A second reason most ‘by owner’ homes don’t sell is because they typically aren’t staged or priced well.  Most owners tend to have biased view of their own home, and often ask too high a price while at the same time taking too little care to ‘spruce up’ or “stage” their home for the market.

Can you ever find a good deal on a “by owner” home? Sure. One reason is that, on the rare occasion when a home actually does sell “by owner”, 42% of the time it’s between family members and/or close friends, according to the National Association of Realtors.

Even if you don’t know the owner, you can sometimes negotiate a good price with a ‘by owner’ seller. But, if you are not experienced in negotiating purchases in the hundreds of thousands of dollars, you may wish to allow a Realtor® to act as your buyer’s agent. Not only can a buyer’s agent protect you in preparing contract papers correctly, they can also arrange to have expert professionals inspect the home for problems. And, more often than not a good buyer’s agent will be able to negotiate a better deal with the owner than you could yourself.

So – if you have a family member or close friend selling their home, “by owner” may be a good way to find a “good deal” on a home. Generally speaking, though, you are far, far more likely to find 10 good deals on the Realtor® MRIS system than to find just one good deal “by owner.”

(For the most complete Howard County home search – ‘by owner’ AND Realtor® listed homes – click here).

Howard County “Short Sales”

Short sale defined: a lender allows a property to be sold for less than the remaining balance on the mortgage loan, forgiving the unpaid remainder.

In the typical sale only two parties must agree on price and terms: buyer and seller. But, in a short sale a third party – the seller’s lender – must also agree to the terms of sale.  (Bankrate.com has a simple and clear article on the short sale process here).

Suppose a home is worth $375,000, the current owner owes $400,000 and costs of sale will be $28,000 – meaning the owner is “short” $53,000 from being able to sell ($375,000 value, less $28,000 sale costs, is $347,000 or $53,000 “short” of the $400,000 mortgage balance). If the owner is cash-flush he can sell the home for less than the mortgage amount, and pay the difference ($53,000) in cash.

However, in today’s market a lot of owners owe more than their homes are now worth and they don’t have any assets to pay the difference. In such cases, the homes can only be sold if the lender agrees to a “short sale”, agreeing to accept less than full payment on the mortgage.

Why Would A Lender Agree To A Short Sale?

When a home owner gets in financial trouble the lender has no good options. If they agree to a short sale the lender will “lose” thousands on the unpaid mortgage amount. However, foreclosing on the homeowner isn’t must better as the lender will likely lose the same amount on the unpaid mortgage amount and will also have to pay the legal costs of a foreclosure. And, a foreclosure can add months and months of delay, which a lender will want to avoid. Agreeing to a short sale is often the lesser of two evils.

How Do You Find Short Sales In Howard County?

Virtually all short sales can be find via the Realtor®-owned Metropolitan Regional Information System (“MRIS”). It’s simple. Lenders who agree to a short sale want the home sold as quickly as possible and they will always choose to market short sales through a Realtor® who can “list” the home on the MRIS.

What Are The Benefits, And Risks, Of Buying A Short Sale?

The benefit of buying a short sale home is that it can be offered at an attractive price. (However, this is not always true, and just as often a “normal” sale may be offered at an equally or even more attractive price than many short sales).

The downside of buying a short sale is long delays and complicated paperwork.

Suppose a home is offered for sale at $375,000 and you want to offer $360,000 with $5,000 back for closing costs. An individual seller will give you an answer typically within 24 hours. However, in a short sale you are dealing with a “committee” at a bank, often at a distance of thousand of miles. You easily may not get an answer back for literally weeks.

And, even when you do get an “answer”, it may be simple a request that you submit additional paperwork. In a short sale the paperwork is much more complicated and it is easy for an inexperienced agent to neglect an important detail. So, you can make an offer, wait 2-3 weeks for an answer, and be told “we need document X completed plus two info on two additional comparable sold homes.” You may not hear a real response for an additional 2-3 weeks.

Any Realtor® who has access to the MRIS can help you find short sale properties. However, the process of actually buying a short sale can be somewhat ugly unless your agent is experienced in such matters.

Questions/comments? Please email me.

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