Home Selling in Atlanta>Question Details

WestSideBlues, Both Buyer and Seller in Atlanta, GA

What to expect when selling a home for less than its worth but covering the difference.?

Asked by WestSideBlues, Atlanta, GA Sun Jun 17, 2012

My wife and I currently live in west midtown Atlanta and want to move outside the perimeter for a variety of reasons (want to start a family, closer to my job, get out of a bad debt situation, etc.). We currently owe $255,000 on our loan but the home recently appraised for only $202,000 (we were hoping to refinance and rent this home but couldn't refinance with the low appraisal). We have enough to cover the difference and we'll rent for a few years to build our savings back up for a down payment before buying again.

What I'm interested in understanding is what, if any, are the obstacles when selling a home for less than it’s worth but still covering the difference? Will our credit still be adversely affected (currently our scores are in the 780 range)? Should we go back to thinking about a short sale (we wanted to avoid the hassle and credit impact)? Does the selling realtor we hire get commission on the $202,000 or $255,000? Thanks in advance for the help!

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Answers

15
Hi WestSideBlues,

I think other folks have covered your other questions, but with respect to considering a short sale I think a major point has been left off. To be considered for a short sale you must demonstrate a hardship. Banks don't decide to take less than what's owed because you want to. A valid hardship would be something like job transfer, divorce, loss of income, etc. It doesn't sound like you are in a situation like that so a short sale isn't an option for you.

You may however want to reconsider renting. I assume that the reason you decided to not rent is that the monthly rent would be less than your housing payment. However, if you have enough cash to cover your loan deficit I think you could rent for a long time and subsidize the monthly shortfall. There are of course a lot of other things to think about with renting, but financially it could be better in the long run over selling.

Have you checked the covenants in your neighborhood for possible rental restrictions?

Good luck with whatever you decide to do.

Best,

Jonathan Huff
http://www.homesforatlanta.com
Keller Williams Realty Metro Atlanta
m 404-492-7804 .:. f 678-815-0955 .:. jon@hfatl.com
1 vote Thank Flag Link Mon Jun 18, 2012
Very good answer!
Flag Mon Jun 25, 2012
Hey WestsideBlues,

Commissions are typically calculated based on the actual sale price of the property, so whatever you house sells for multiplied by the agreed-upon percentage. Your house could sell for more or less than the appraised value (appraisals are always done with a certain perspective in mind -- in this case being done for a bank refi it was probably very conservative, so it's possible you could get a higher actual sale price).

To get the highest possible price for your property, make sure it looks absolutely perfect (especially if you're going up against new construction in the same development -- you're direct competition will be the developer's model unit -- you'll have to beat it in appearance and price to overcome the fact that your house is not new). Next, make sure you hire an agent with an aggressive marketing strategy (take a look at the agent's other listings and how they are marketed and ask questions about exactly what will be done AND WHEN to market your property). Definitely make sure you'll have professional quality photos online the day the house hits the market (that's REALLY important). Finally, make sure you price the property competitively from the beginning. High priced listings are death.

If you'd like a no-obligation opinion about your property, please give me a call. My partner, Jeff DePaola, is a westside expert and I'm a marketing specialist. We'd love the opportunity to discuss your property with you and let you know how we'd position it in the market.

Lisa Crowder
Atlanta Communities
lisa@intownagent247.com
404.422.2947
1 vote Thank Flag Link Sun Jun 17, 2012
I'll keep it simple and summarize the lengthy number of responses from below:

1. The Realtor gets paid on the actual sale price NOT the appraisal........forget about the appraisal!

2. Since you are current with your payments - if you pay the bank the difference between what you net at the closing table (after the commission is deducted ) and what you owe them - pay it out of pocket - you will be fine, and your excellent credit will remain excellent!


I just had a closing in which the seller did the same thing - he paid for the difference he owed......he had moved on, and was renting in a different area for the time being.
His credit score is still high, and he will be free to buy when he chooses to do so in the future!

Best wishes!
0 votes Thank Flag Link Mon Jun 18, 2012
Very good answer, however, I will say that the realtor gets paid whatever they have negotiated to be paid in their brokerage agreement. As an example, my $4500.00 pending short sale listing in Oakland City has a listing agreement that establishes a $2000 flat fee commisssion for me and my co-op. The seller's lender will only pay $750. My client, the short seller, is making up the difference. For the record, we are not worried about appraisal..
Flag Mon Jun 25, 2012
GREAT ANSWER!!!
Flag Mon Jun 18, 2012
If you sell the home for less than the mortgage balance, but pay the difference out of your own pocket then your credit is not harmed, because the bank was paid in full for the mortgage owed. Of course, you would also have to cover the realtor's selling commission out of your pocket. The realtor's commission would be based on the selling price, which would be $202k.

I am a CDPE certified Realtor, which means that I am specifically trained to handle short sale properties. It would be my pleasure to assist you with the sale of your home at a discounted commission rate, and to find you a suitable rental, or lease-to-purchase property. Please contact me if you would like my help.

Sincerely,
Alex Sedlecky
Century 21 Results Realty Services
770-855-3349
asedlecky@youneedresults.com
0 votes Thank Flag Link Mon Jun 18, 2012
You must be in Habershal or Dupont Commons...I understand how you must feel.

I think that the bigger question is how soon do you need to move outside of the perimeter?

Also, what are your expectations for your next residence and how will this sale affect your affordability on that purchase?

I would appreciate the opportunity to meet with you when you interview agents for the listing of your house.
0 votes Thank Flag Link Mon Jun 18, 2012
Dear WestSideBlues,

I am sorry to hear about your situation. I think your idea about renting your current home is on the right track, IF there is not a restriction in your community that would prevent you from doing so, and if the rent would cover your current mortgage payment. However, you would have to be willing to move into a rental yourself until your first home has been rented long enough to convince a lender that your current debt is covered and long enough for you to find a new home. You should verify with a couple of lenders that this strategy will work. Once in your new home, you could decide about whether to keep your first home or sell it.

A short sale may not be the worst option, I can put you in touch with someone who specializes in negotiating short sales if you want to explore that option.

If you sell your home and can pay off the balance of your debt at closing, I see no reason why your credit would be affected.

The sales commission is deducted from the amount your home sells for. That will sound like a lot of money, but the benefits of hiring a Realtor to handle all the facets of selling a home for you, more than justify the expense, but that is the subject of many other posts in this forum.

As to the appraisal, I would not be too quick to dismiss it. Newly built homes in your community are competition simply because they are new, and to the degree they offer similar features to yours, the new homes will be worth more than yours.

Call me if I can be of any assistance at 404-425-4945.

Best regards,

Dave Herren
Best Atlanta Properties
0 votes Thank Flag Link Mon Jun 18, 2012
To begin with I wouldn't be particularly concerned about the low refi appraisal. Refi appraisals tend to come in lower (I won't get into a long explanation)

Should you in fact sell your home for less than you owe on the mortgage and cover the difference nothing negative will happen to your credit at all. This is not the case with a short sale and honestly my guess is you would not be approved for a short sale (most sellers aren't by the way and waste a lot of time pointlessly) as you obviously do have the means to pay off your debt.

Agents get paid on the selling price not the listing price or any other price.

You should look for a highly experienced agent who spends the money on marketing. Experience, marketing strategy, etc all should be verifiable. I"ve attached a link below on how to find such an agent.
0 votes Thank Flag Link Mon Jun 18, 2012
Hi WestSideBlues, thank you for the additional information in your later message. It is helpful.

Please email and/or call me.

Sincerely

Elizabeth 'Beppy' Walton
beppyswalton@gmail.com
C/404 234 9418
0 votes Thank Flag Link Sun Jun 17, 2012
Hi WestSideBlues,

If you are going to pay the difference between what you owe on the home and what you sell it for (including commissions and other closing costs), there should be NO obstacles and NO negative affect to your credit (as long as you remain current on your loan payments until the Title transfers to the new owner). If you do not want your credit negatively affected, do not do a Short Sale - if you can afford to pay the difference between selling price and what you owe (including commissions and closing costs). Commissions are based on selliing price of the property, not on what you owe on the property.

Shanna Rogers
SR Realty
http://www.RealtyBySR.com
0 votes Thank Flag Link Sun Jun 17, 2012
To provide some additional background; the home loan is not secured by Fannie Mae or Freddie Mac. We're neither behind nor in danger of being behind on our mortgage payments. We're in a neighborhood that was under development (we were 30th or so home in the neighborhood) and at the time our home was priced in the mid-range of the other homes. The builder (in the last 12 months) has picked back up on developing the ~500 remaining homes in the master plan for the community but those homes are selling for between $200,000 and $235,000. We bought the home in 2006 only expecting to be in it for 3-5 years and then we'd move out of the perimeter to start a family.

Not sure if the above details help others in answering this question. Thanks.
0 votes Thank Flag Link Sun Jun 17, 2012
If you are current on your mortgage now and are willing to cover the difference between what the buyer brings to closing, closing cost and commissions and it is important to you to save your credit, then that is what you should do. The bank doesn't care where the money comes from as long as it covers what you owe. In that instance there is no adverse affect on your credit.
0 votes Thank Flag Link Sun Jun 17, 2012
I do not understand the previous poster's comments.... but first let me address yours.

Appraisals sometimes aren't worth the paper their written on. Call an agent ( I can recommend someone if you'd like) and have a CMA done... get their opinion on what you can sell it for and what your net proceeds will be. It may be more or less than you're expecting. Then make sure you have the cash.

If you cover the deficit at closing, your credit is not going to be negatively impacted and you are not doing what we all refer to as a short sale.

Agents usually charge a percentage of the sales price - which may be either or neither of the numbers you mentioned.

As to Ron Thomas's answers... I have no idea what he is talking about... it doesn't matter if you're buyer pays cash or gets a loan, they will pay whatever the agreed upon sales price is.... so pay no attention that that $93K number.

He is right about how your credit will be adversely impacted, but I don't think those things apply here.

And since you're not really talking about doing a short sale (which WILL have a negative impact on your credit), then the rest of it is unnecessary. Please, do not deliberately stop paying your mortgage on time because of what he said - please - you'll get yourself into a bad situation. (AND YES I HAVE DONE SHORT SALES WHERE PEOPLE WERE NEVER BEHIND AND THEY DID GET FULL DEBT FORGIVENESS - but their credit still took a big hit. Even so, they can purchase a new home in 2-3 years after the short sale is complete.)

If you'd like the contact info for an agent in your area, I know a couple. Call or email me tomorrow: MyAgentVicky@Gmail.com or 703-669-3142.

Hang in there. You'll get this figured out - I think you already have.
0 votes Thank Flag Link Sun Jun 17, 2012
If you are trying to refinance an investment property, then the you are going to have more limitations. Under HARP 2.0, most lenders are are going to limit the LTV to 105% on an investment property. If you were to stay in the home, then you might have refinance options as a primary residence. For a mortgage qualifying for HARP 2.0, we do not have an LTV limit on primary residences.

To do a short sale, most mortgage companies will not give approval unless there are recent late payments. If a short sale is completed and there are late payments, then HUD will require a 36 month waiting period before you would be eligible for an FHA mortgage with a 3.5% down payment. Fannie Mae has a 24 month waiting period, but would require a 20%+ down payment.

If you pay off the difference between the sales price and the current mortgage balance, then there would be no impact to your credit. A real estate agent's commission would be based off of the sales price.

Regards,
Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
rodney.mason@prospectmtg.com
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | HomeStyle Renovation | VA | USDA | GA Dream | Jumbo Financing
0 votes Thank Flag Link Sun Jun 17, 2012
Hi WestSideBlues, thank you for your inquiry. Sorry for you that your appraisal came in lower than you expected. Doesn't make your situation any easier but just know probably millions of Americans are experiencing the same thing! Amazingly, when I sold my own personal townhome earlier this year, it appraised for more than the contract price.

I would be pleased to tak with you and answer your questions as well as make a viable plan for you to sell your home and find a new one.

M contac information is below, please email me and/or call me.

I look forward to your reply and to assisting you!

Sincerely

Elizabeth 'Beppy' Walton, Realtor
ASP, CFIS, DPP
C/404 234 9418
beppyswalton@gmail.com
0 votes Thank Flag Link Sun Jun 17, 2012
First, understand that if the house appraises for $202,000, then the max that the Banks will loan on it is $161,600, which is 80% of the appraised value.

We are not talking about a small amount; $255,000 - $161,600 = $93,400.

Have you taken that number into your computations?

Your credit will be adversely affected if;
1. You are late for your payments,
2. You create a deficiency by selling for less than you owe.

Georgia is not a NON-RECOURSE state; meaning that the Lienholder may pursue you through a Deficiency Judgement.

If you try a Shortsale, you will probably have to be behind in your payments, (although a lot of people are saying otherwise), and you will have to prove to your Lender that you have a Hardship, (although we are hearing otherwise to this too!)

My experience is that the Loss Mitigation department will not talk (negotiate) with you unless and until your are in default.

If you do try to do a SS, you should try to leverage a letter saying that they will NOT pursue a D.J. against you; it has been done/

Don't worry about Realtor's commissions, you have enough problems of your own.

Good luck and may God bless
0 votes Thank Flag Link Sun Jun 17, 2012
I don't understand your comments on LTV. There are plenty of loan programs that will lend above an 80% LTV. Only if the buyer is purchasing the home as an investment property or if the current home owner tries to refinance as an investment property, would an 80% max LTV come into play. If they are HARP 2.0 eligible, that 80% limit might not even apply to a refinance.
Flag Sun Jun 17, 2012
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