“Counting one thousand gifts, I discovered I could count on God.“ – Ann Voscamp
Introduction
Understanding the current real estate market is crucial for homeowners, especially those who purchased property in recent years. Many have overpaid, leading to financial strain given the state of the economy. This post will break down the impact of bidding wars, the concept of short sales, and steps homeowners can take to address potential financial difficulties.
Overpaying for Homes: The Bidding War Phenomenon
A bidding war occurs when multiple buyers are interested in the same property, leading to escalating offers that drive up the price. This competitive environment often results in homes selling for much more than their appraised value.
Consider one of my family member’s experience: they listed their home for $299,000, but due to intense bidding, it sold for $350,000. Such scenarios are common and illustrate how bidding wars inflate home prices, often beyond their actual market value.
The last few years people have been way over paying for the house that they bought. This has a lot to do with biding wars going on.
The Role of Appraisals
In many cases within these last few years, the appraised value of a home is significantly lower than the final sale price. This discrepancy can lead to financial challenges, particularly when homeowners struggle to keep up with mortgage payments and necessary home repairs.
Being on my cities tax board of review for my city, I have seen these last few years that condos and homes be purchased for way more than what the appraisal was. You also have access to this information. Call your city assessor and ask to see the ledger that they use to calculate the value of your home.
Short Sales: A Possible Solution
Steps to Consider
1. Consult a Realtor: The first step is to work with a realtor to determine your home’s current market value by reviewing recent sales in your area.
2. Discuss with the Bank: If your home is worth significantly less than what you owe, consult your bank about the possibility of a short sale.
3. Know your documents: Make sure you know if you have a second, third mortgage or any liens against your property.
The Short Sale Process
The duration and complexity of a short sale can vary depending on market conditions and the bank’s workload. Some short sales are completed in a few months, while others can take over a year. The process is also affected by the type of loans and the number of mortgages on the property.
Avoiding a Deficiency Judgment
Understanding Deficiency Judgments
A deficiency judgment is the difference between the total debt owed and the sale price of the property in a short sale. This remaining debt can still be pursued by the lender unless specific conditions are met.
Strategies to Avoid Deficiency Judgments
1. Negotiate with the Lender: Ensure that the short sale agreement states the transaction is in full satisfaction of the debt owed.
2. Seek Legal Counsel: Before finalizing any agreement, it’s advisable to consult with a legal expert to protect your interests and avoid potential deficiencies.
Conclusion
Navigating the real estate market can be challenging, especially for those who have overpaid for their homes. Understanding bidding wars, the appraisal process, and the intricacies of short sales can help homeowners make informed decisions. By consulting professionals and exploring options like short sales, homeowners can mitigate financial strain and avoid further complications.
