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Its no secret that it can be tough to sell in this market.  It can also be tough to buy--especially if you've got late pays, a short sale settlement, foreclosure or bankruptcy on your record.  An overlooked solution that sometimes can serve everyones' interests is the lease option.  It serves the landlord because they can get a little more rent for the property than they otherwise could get--sometimes helping them avoid having to sell the property in a down market. It serves the renter because they can start socking away a bit of potential future equity while renting--an entry into (or back into) home ownership.

HOW DOES IT WORK?  In a lease option, the tenant (renter) enters into a lease--typically for at least a year--just like in a standard lease transaction.   The rental amount is usually the going rent (call it fair market rent) plus a little "more".  A portion or all of this "extra" rent is applied to the purchase of the home when and if the renter elects to purchase the property.

WHAT PRICE DOES THE RENTER PAY FOR THE PROPERTY?  This is up to negotiation.  It is usually done one of a few ways.  Either the renter can elect to purchase and pays (1) a purchase price that is agreed upon at the start of the lease or (2) the fair market value of the property at the time of purchase (often determined by an appraisal) or (3) the fair market value at the start of the lease.  Which one should you chose? Depends on if you are the landlord or the renter and if you think the market is going to be up or down at the end of the lease. 

BEWARE!  Make sure your lease option is well drafted.  There are a few legal pot holes to avoid and few things to remember (1) The lease option is an "option".  The renter is not obligated to purchase--they decide if they want to buy or walk away (or extend the lease--if the lease allows it or the parties agreed to it). The landlord can not force them to buy the property.  (2) The option should cover things like when the renter can elect to purchase, how long they have to decide and when the option expires.  The lease option is a legal document and is best prepared by a lawyer or real estate agent that is comfortable with these type of agreements.

Have any questions about lease options or any other real estate issues? Don't hesitate to call! (714) 863-5485

Recently I had a client ask about the credit impact of a short sale. We all know it won't look good on your credit...but how bad will it be?  It took a bit of research.  The mortgage guys were not really sure because those who have suffered short sale hits on their credit reports are not "back in the market" yet--so the mortgage guys have rarely seen a post-short sale credit run. 

I tracked down a credit repair company and their rough (and highly disclaimed) estimates were that a typical person's credit will take a 30 - 60 point hit.  There are no promises though.  Credit is impacted by many factors (debt ratios, late pays, if the short sale is reported as "settled" versus "as agreed").  This was their best, very rough, estimate.

Melinda

Lately I've had several homeowners with equity in their homes (yes, there are still plenty of you out there despite media reports!) express concern with selling their homes in this market.  Feeling threatened by the short sales and foreclosures, they hesitate to put their home into what they see as "shark infested" waters.   Here is some the advice I've been giving them.

You will have to compete, to some extent, with some of those "short sale/foreclosure listings".  The obvious advantage to these "distressed" sales is the opportunity to scoop up a good deal.  However, keep in mind that these distress sales have their disadvantages, too.  Short sales take time, have delays and  require third party approvals throughout the process. Lately I've seen several buyers who don't want to be bothered with them.  They ask me up front if my listing is a short sale.  Foreclosures also have their disadvantage, too (lack of history on property, limited information regarding the condition of the property since the homeowners are out of the picture, the need to take the property "as is", etc). 

A regular sale by a homeowner has value, and the market is starting to recognize it.  Not everyone has the time or wants to stomach the distress sale.  They are willing to pay market value for a standard sale--a home with a living, present home owner--a traditional sale.

For homeowners who have some equity, it really can be a great time to sell.  While you have undoubtedly lost equity compared to what you had a year or two ago, the price of your replacement home has also gone down.  One of the hidden benefits to these drops in values is lower property taxes--a great long term financial benefit.  If you plan to move up, you'll pay much lower property taxes than you would have a year or two ago!

If you'd like to discuss your particular situation (your equity, home's value, values of potential replacement homes) and some of the benefits of buying and selling in this market, give me a call or email me.

Wishing you the best.  Melinda Johnson, Freedom First Properties. (714) 863-5485

Purchasing a short sale is not at all like a traditional purchase from a homeowner.  If you bought a home a few years ago--a short sale purchase is likely going to be nothing like that transaction.

In a typical real estate transaction, the Buyer makes an offer to the Seller and Seller has a few days to get back to the Buyer with an answer--accepting the offer, rejecting the offer or making a counter offer. Waiting those "few days" for the Seller to respond can often be emotionally exhausting for some buyers.  If you are that kind of Buyer, prepare yourself, a short sale is a long, bumpy ride in comparison to those "few days".

In a short sale, the Buyer makes an offer to Seller and then waits. And sometimes, waits and waits and waits.  While the Buyer is waiting (and waiting), the Seller's agent submits the offer to the bank.  Since it is a "short sale" (meaning the bank is agreeing to accept less than its loan balance), the bank gets to approve the sale.  And that takes time.

To save time, some banks will pre-approve a price range--but they typically still will review the file once the offer is in.  Some will not pre-approve a price range at all and will not assign anyone to the Seller's file until there is a written offer (from you the Buyer) in hand.  This means that no one at the bank has even reviewed the file before your offer is submitted to the bank for its consideration.  The bank may need to perform a detailed review of the Seller's financial situation--and in the meantime, you wait. Depending on the work load of the person at the bank reviewing the file, this can take some time--weeks to a month or more.

You must also be prepared for more potential delays as the transaction moves thru escrow.  Any changes to the deal may also need to be approved by the bank--it’s just not up to the Buyer and Seller.  There is third party who has a say (and does not always rush to say it). 

So why bother?  A short sale can be an opportunity buy a home at a great price.  The bank is willing to deal because they don't want to take the property back as a foreclosure.  The Seller is willing to deal because they are not going to get any money out of the sale--they just want a price the bank will approve.  The Seller simply hopes to avoid a foreclosure.

So, patience is a virtue, one for which you can be well paid, especially in a short sale. 

Happy home shopping!

Have a short sale, foreclosure/REO, or other real estate question?  Email me at johnsonlaw@sbcglobal.net or call me @ (714) 863-5485

Melinda