Valley of Heart's Delight Blog

Is A Silicon Valley Short Sale For You?

Yesterday I met with some seller prospects - actually, I consider them clients since I've been assisting them, updating them, and giving them staging advice for about six months now. Their Blossom Valley home has been sliding in value and I have been concerned about the situation and trying to get them on the market sooner rather than later since they do want to sell.  A couple of months ago, I told one of them that they'd now have to bring money to closing; I asked if they knew this and if they planned to do it. "I think we'll be OK" I was told.

But now it's the middle of March and prices have slid about 10% over the six months we have been chatting about their home sale. They'd told me that they were ready to list so I had spent hours getting comps and stats and trends pulled together as well as the listing paperwork. But I knew the issue of "bringing cash to closing" was the major hurdle.

So that's where we started. One of them was clear that this was an issue, but one appeared surprised. Before I said the amount, I heard "well we might be a short sale".

"A short sale?" I was just surprised to hear that idea even floated.

Both of them are very gainfully employed. They want to move, but I don't see a "have to move" situation. It was clear to me that the short sale concept was not well understood, nor the punishment it brings appreciated.

I guess it sounded like an easy answer. After all, wasn't everyone else doing it?

Certainly, in this particular area of San Jose, and in this particular price point, a good 80% to 90% of the homes appear to be short sales - and they are dragging values down for everyone else.

Let me briefly explain what a short sale is and isn't:

(1) What it is:

• it is a pre-foreclosure situation
• the buyer cannot continue to make the payments and will go into foreclosure if the short sale doesn't happen
• there is a "hardship" (job loss, sickness, death, divorce) causing financial problems
• the owner wants to sell the home but cannot pay off the lender in full because the home has declined in value - there's not enough equity
• it is going to hurt one's credit badly, but only half as badly as a foreclosure
• short sales often do not go through - most of the time, they end up becoming full blown foreclosures

(2) what it isn't:

• it isn't a help to people who simply want to upgrade and don't want to pay off the bank
• it isn't an option if you have other assets (like other properties or money in the bank)
• it isn't a "get out of jail free" card - there are built in punishments for those who must resort to doing a short sale (trashed credit AND paying taxes on any amount "forgiven")
• a short sale is never a happy thing - it is always the lesser of two evils (vs foreclosure)

I explained to these nice folks that it didn't appear that they would qualify for a short sale (no hardship, no inability to pay the loan etc.).

What options exist for Silicon Valley folks who want to move but have no equity?

Here are a few thoughts:

• A promise was made to repay the loan, so the obvious first answer is to wait out the market or come up with the cash to buy out of the situation.
• Walking away:  In some parts of the country, we are again hearing about "jingle mail", in which owners simply turn in their keys to the bank and walk away. I remember decades ago that happened in Alaska when the market there tanked. Now it's happening here too.
  
  In Sacramento, where some owners bought a home at 50% more than the identical house is selling for now, some folks are first purchasing the new home (same floorplan as current one) at the cheaper rate, then walking away from their old home. In effect, they get a home with half as much mortgage.   No, it's not very nice. It's defaulting on their promise to repay a loan. The lenders could potentially persue them for losses. Will they? I don't know - this is a crisis of epic proportions!
• Renting it out: another possibility is to simply rent out the house (rents are rising due to increasing demand) and to move to the next house. 

I don't think anyone now doubts that we are in a recession which is fueled by the housing crisis. For every person who just "walks away" from a house, that's the recession deepening for everyone. I'm not going to encourage it - it worsens the economy and trashes the borrower's credit.

Rents are increasing with this crisis. So my suggestion: rent out your house and move on. Give it a few years, Then call me when you're ahead of the market and we'll sell it for you. Or keep it until you have kids going to college and you can then use it to pay tuition.

Eventually, the market will improve. You don't have to sell when it's at a low point.

Being Secretive with Your Realtor? It's Not a Help.

Recently I've had the uncomfortable experience (a couple of times) in which potential clients were overly secretive about their situation. One was in Los Gatos, another in San Jose.

I'm going to be blunt here: it is really hard to help when we, as agents, don't know what is truly going on. It's not a whole lot different than keeping important things from your doctor or lawyer. If you want help, it is imperative that you tell your hired professionals what is going on.

For that matter, if you are interviewing agents to list your home or to help you to buy your next home, expect those agents to ask you about your needs and motivation. Hiring an agent (and the agent agreeing to take you on as a client) is a two way relationship. Both sides need to be clear and honest with each other.

Let me give you an example. Years ago, I had some prospects (not yet clients) in Monte Sereno who inquired off and on for years about selling their home. At one point, it became a "hurry up" situation. Luckily, they told me the truth: one of them had been diagnosed as terminally ill. The sick one did not want to saddle the survivor with selling the home after the death.

It helped me to help them in knowing the truth. I cannot give tax or legal advice, but I recognised from what they were telling me that it would probably save the survivor a TON of money to hold onto the house until after the spouse's death because of the stepped-up basis. Now I can't say that to them, but knowing it, I could and DID say, "before you list with me or anyone else, tell your tax person what you just told me, and tell your tax person that you are thinking of selling now". That couple's CPA told them to wait. They did. Had I not known the real reason for the sudden uptick in motivation to sell their home, I could not have assisted them. Their openness and honesty saved the surviving spouse hundreds of thousands of dollars.

In contrast, I've had conversations with seller prospects who did not want to tell me why they were selling, or where they were moving afterwards. I'm not sure what the concern was, but simple questions were responded to along the lines of "you don't need to know that".

Makes it hard to feel like there's a team approach to selling the house, and makes it far less desireable to work with those kind of folks.

If you want to buy or sell a home, you really take on a partner when you hire a Realtor. Do your due dilligance in hiring, but trust enough so that you can have a functional relationship that will be a win-win. Being overly secretive will hurt your chances of hiring well and will likely undermine your ultimate goals.

Biggest Homeseller Mistakes

Right now, it's a deep buyer's market (though I see signs of things improving!) and most homes are not selling in any given month. In fact, the odds are steeply stacked against a home being able to sell.

So what can Silicon Valley home sellers do to improve their odds that their home DOES sell? I posted about this yesterday on another of my blogs, Live in Los Gatos (LiveInLosGatos.com) and I invite you to read my post, "Want to Sell Your Silicon Valley Home? Biggest Homeseller Mistakes to Avoid".

Selling A Home? What are the Costs in Preparing a Home to Sell in Silicon Valley?

If you are mulling over the idea of selling your Silicon Valley home, one of the issues that might concern you is how much it will cost to get your house ready for the market.

Some costs that you might anticipate include pre sale repairs or improvements. Others might be strictly staging line items.

This morning I posted about this on another site, my Valley Of Hearts Delight Homes blog. I invite you to visit there and get a ballpark idea of what most San Jose or Santa Clara County homeowners might face in terms of the costs in getting a home ready to sell in the current market.

And Happy Holidays to you and yours!

And for further reading...

Seller Kit

Going it Alone Is a Tough Task for Home Sellers

Do you know the best way to go about selling a home and buying a new one so that you won’t get stuck with two mortgages?

Best regards to you & yours,

Mary Pope-Handy