Understanding Seller's Assistance

I get asked to explain how seller’s assistance works all the time and have recently been in heated conversations about it… so I thought it would be helpful to clear the air on how exactly it works. Before I get there though, I wanted to share a girlfriendsguide2 fun fact that really just amazed me. I was looking through the statistics on my views and found I have small audiences in India, Iran and Vietnam. This is kind of funny because I focus on local residential Real Estate, but hey, here’s to you my international (girl)friends! I hope you enjoy! J

Ok back to business, seller assist in my opinion, is a very useful and creative financing tool for today’s buyers. It has bunches of applications. Most common would be if a buyer is approved for a mortgage but doesn’t have enough money to cover all of their closing costs or simply would like to conserve some after sale funds then they can ask for seller’s assistance in their price negotiations. Typically a buyer will offer a little higher on the asking price to make it cost effective for the seller. The mortgage is based on the purchase price and at settlement a portion of the seller’s proceeds will be applied towards the buyers’ closing costs. Of course this needs to be approved through a mortgage professional before starting negotiations but it is a pretty common practice in today’s real estate world.

Every once in a while I come across a seller who is not thrilled about the idea of assisting the buyers to purchase their home. I hear things like “When I bought this home I saved to put 20% down and covered my own closing costs. Why would the new buyers expect me to help pay their closing costs” and “I wouldn’t even be able to give that much money to my own children why would I give it to strangers?” Very valid concerns indeed. The way I see it is to focus on the bottom line. If the offer with the seller’s assist factored in meets your financial goals and the home appraises for the purchase price then you’re in pretty good shape. If you are lucky enough to get two similar offers, one with assist and one without, then by all means consider the more financially stable buyer. In other words, sometimes it’s just how you look at things.

There are tons of unique situations and scenarios associated with every real estate transaction. The road to buying and selling can sometimes be frustrating. In today’s climate my best advice is to make the absolute best with what you’ve got and don’t sweat the small stuff!

A Short Sale Story...

This story started in 2007 when a lovely young couple excitedly purchased their first home. They bought the home with the hopes of raising a family and planting their roots. The husband worked in the military at the McGuire base in NJ. His perception of the base was that most people who work there usually retire there. So he and his wife were comfortable with purchasing their first home with a little help of the VA. With a VA loan you can finance 100% of the purchase price and that’s exactly what they did. My simple definition of a short sale is: owing more on your home than it is actually worth and getting the bank (or mortgage holder) to agree to accept less to satisfy the loan.

Flash forward to December 2010. The husband received orders that he was being deployed to London for the next 4 years and the chance of going back to the Maguire base was slight. The military or more specifically, USAA gives its members real estate benefits. So they contacted USAA and let them know they were thinking of selling their home and in turn, USAA sent out 2 agents from 2 different companies (a standard protocol). The first agent who came out told them that because they still owed $225,000.00 on the home that they should list $15,000 higher than what they owed so they could cover closing costs and that was their best bet to sell their home.

 I was the second agent who went out to meet with them. Before I went out I was aware that they purchased in 2007 and that they did 100% financing. I was also aware that the neighborhood they lived in experienced a significant decrease in home values.  Their home was a 2 bedroom; the neighborhood consisted of mostly 3 bedroom homes. There were also a LOT of homes on the market in the neighborhood and the average listing price was about $200,000. So one of the first things I did was talk to them about selling by way of a short sale. The last agent never uttered those words to them so they were a little taken back. From my perspective if they listed their 2 bedroom home for $240,000 when their competition (mostly 3 bedroom homes) were listed in the low $200,000’s it would be a great waste of time not to mention that even if they did sell for $240,000 we would probably not be able to get it appraised for that amount. They were leaving for London in September of 2011 and what in the world would they do if the house didn’t sell? They couldn’t afford to keep up with their mortgage when they were in London and how in the world would they be able to rent it out and manage tenants from over the pond?  Well, I guess they could have hired someone to manage their rental but their goal was to sell and get out from under their “dream home” so they could be free to go to London.

The message I tried to convey to them was that they did NOTHING wrong. They bought the home at fair market value at the time. No one could have predicted the way the market would go or that they would be deployed overseas for such a long period of time. They weren’t terribly concerned about how it would affect their credit since they weren’t planning on buying another home until their lives settled in the States again, so guns blazing they agreed to sell short and decided to list with me.

So just like my young couple, guns blazing, I decided that I would dedicate myself to selling their home short. In my mind it was their only option and based on the other agent’s strategy, I was their only option. We listed the home in January of 2011 and flash forward to April 15 2011 we successfully made settlement. I know I am skipping a lot here but the moral of the story is that we succeeded in what we set out to do. The negotiations with the bank were difficult at times but we followed directions and made it work. They got out from under their home and are free to go to London and I had one of the most fulfilling learning experiences of my career.

This story is about setting goals and reaching them and having the courage to do things that you have never done before. We can’t predict the future or the way the Real Estate market is going to go, we can only do the best we can with what we’ve got.