In this challenging real estate environment, which can be as nerve-wracking to navigate as playing a high-stakes game of poker, buyers seem to hold all the good cards.
But whether it’s luxury real estate or a rustic retro residence you’re looking to find a purchaser for, the key to “beating the house” and effectively unloading homes in a timely fashion today is knowing the best strategies for success. Here are the five proven ways nowadays to sell property fast, avoid the foreclosure process, and perhaps even cash in more chips than you came to the table with.
The traditional sale
The tried-and-true method of hiring a real estate agent and listing on the MLS continues to be popular. While the advantage to a traditional sale is that you get paid at closing as fast as possible, the disadvantage is that you probably got to the closing stage because you had to accept less money. Keeping your asking price low early in the game can result in a faster sale, but a steep price slash can be tough to stomach.
Following the traditional sale route can be frustrating in today’s market for reasons beyond high supply and low demand. It’s also about who’s setting the terms of the deal. In this market, the lenders dictate those terms. When banks impose stringent stipulations and lending requirements, you get fewer qualified buyers. They can’t get much wiggle room from lenders, so instead purchasers demand painful concessions from sellers in the form of a lower price, more favorable terms, and freebies thrown in the deal.
The lease purchase
An overlooked and underutilized tactic that can greatly benefit sellers and buyers alike is the lease purchase agreement, which essentially turns your property into a rent-to-own home for sale by owner. And when seller financing is offered, it completely eliminates the bank lender middleman, too.
When you rent out your home in a creative lease purchase arrangement, you’re likely to attract worthy candidates to buy, as their intention is to own, not just rent. These prospects are willing to invest non-refundable option money as a down payment that’s applied toward their purchase price, providing the tenant with the option but not the obligation to purchase the property within a predetermined time. In this transaction, you usually get a more favorable price for your home because you’re extending better terms to the tenant/buyer.
A twist on the lease purchase is the owner-financed home-which amounts to an upfront sale of the property whereby the seller holds a promissory note from the buyer that’s secured by the property as collateral, as a bank would, and title immediately transfers to the buyer. As with a rent-to-own home, the price and terms should be clear and mutually accepted in advance.
The difficulty with lease purchase agreements is that they require the buyer to be proactive, resourceful, and creative in generating an opportunity that otherwise doesn’t exist. Additionally, the terms and contract have to be carefully negotiated and structured to avoid legal problems.
The “pure” option
Another inventive way to attract the right buyer is to pursue a “pure” option. With this approach, you provide an “optionee” (who, in many cases, is an investor looking to sell the home to a third party) with a no-obligation, elective opportunity to buy your property at a predetermined price and within an agreed-upon time frame.
In exchange for receiving the option, the optionee should offer you some form of predetermined consideration, which can be upfront money and/or commitment to help promote your property (including any associated marketing/advertising/listing costs involved). The optionee can profit by selling his/her option to someone else if you agree upfront that this option is transferable.
The pros of the pure option are that you don’t have to recruit a real estate agent and pay a sales commission, saving you up to 6 percent or more on the transaction. What’s more, the optionee does the legwork of marketing to and finding a buyer for you, assuming he or she doesn’t personally purchase the home.
The cons are that you, the seller, have to fuel this opportunity yourself-in other words, it’s up to you to attract and appeal to prospective optionees, most of whom turn out to be investors. Another disadvantage is that you normally cannot sell your property to an outside party once your optionee has acquired the option on it.
The short sale
In a short sale transaction, the lender agrees to accept less on a property than what is currently owed on the mortgage. Banks would rather negotiate a short sale with you than engage in foreclosure because they typically net up to 15 percent more, on average with the former approach.
If you’re suffering serious financial constraints and risk having your home repossessed, you need to unload your property fast. The benefits of selling your home via a short sale are that you don’t have to endure the social stigma, stress, and severely damaged credit rating that accompanies a foreclosure, plus you’re eligible to buy another home in two years versus up to seven years if you had been foreclosed on. Additionally, thanks to the Mortgage Forgiveness and Debt Relief Act that expires after 2012, you won’t have to pay income tax on the dollar amount the bank writes off as a loss.
However, there’s no guarantee your bank will accept a short sale offer or work quickly with you, and if you don’t have the assistance of a skilled short sale specialist to guide you through the process, the likelihood increases that your short sale will fail.
The “subject to” sale
A “subject to” sale involves you drafting a contract to a buyer, who acquires your property’s deed but not the mortgage loan, which remains in your name.
Here’s how everyone benefits: The buyer makes your monthly loan payments in exchange for having a controlling interest in the property. The lender is paid on time in full every month and satisfied. You’re able to preserve your credit. Plus, after you inform your lender that you’re engaging in a “subject to” arrangement, you reduce the risk of the lender invoking a “due on sale” clause that normally happens when a property is sold. This provision permits the lender to demand immediate payment of the mortgage balance, which would be terrible timing for you.
Aside from the fear of an impending due on sale demand, the primary caveat of the “subject to” sale is payment uncertainty. While the buyer is liable for the title in a “subject to” arrangement, if the buyer doesn’t pay the monthly mortgage on time, they’re not liable to the lender-you are. It may be wise to secure an intermediary like a loan servicing or trust company that can collect and disburse the mortgage payments. In most instances, a buyer who is a professional investor will have these services in-house or a company that leverages these services.
Don’t go it alone
Smart sellers are wise to consider utilizing creative real estate strategies to unload properties in 2011 and beyond.
But you don’t want to pursue these maneuvers without the guidance of a real estate and investment expert who knows how to properly structure the transaction. A skilled professional can help you determine the best approach that fits your risk profile, understand the complex mechanics involved, and compete and succeed in a difficult and competitive market.