Home Owners In Trouble!

Real Estate Bubble, Rising Interest, Variable Rate Loans Concern Fed.

By Greg O. Bacon

Hurricane Katrina, floods, earthquakes, high fuel prices, shrinking pocketbooks, and now, worries over variable interest rate loans are discussions heard throughout the nation.

With mounting concerns by the Fed over rising inflation, there is a serious push to increase the current rates of interest. This may help to curb inflation, but will also have a devastating effect for millions of homeowners tied to variable interest rate loans. As rates go up, so do most underlying mortgage payments, placing an even greater stress on those who want, or need to sell their property.

For these concerned homeowners, many are beginning to find themselves in an ‘upside down’ sales position. In other words, decreasing home values in some areas of the country are already leaving owners in the dire position of owing more on their property than the current market price will bring. In addition, rising mortgage payments coupled with slower real estate sales, are forcing more owners into foreclosure, and in some cases bankruptcy, which is currently on the rise and heading toward one of the highest levels in U.S. history.

In an effort to curb this combination of economic pressures, and for saving equity wealth positions, many homeowners are now resorting to selling their property as a, For Sale By Owner. In doing so, they are saving large portions of equity profit that would otherwise be paid out as a real estate commission.

What many owners have discovered is that a 6% rate on a $200,000 home is in fact, $12,000. If their equity wealth position is $24,000 on their property, then they have effectively paid 50% of their profit to a real estate broker, not 6%! This financial inequity is created because the 6% commission is being charged on the gross price rather than on the net proceeds from the sale.

Add to this, the standard 2 1/2%-3% normal closing costs for each transaction, also calculated on the gross price, and again, a home owner’s wealth diminishes even further! To avoid this loss, an ever-increasing number of owners are opting to ‘do it themselves.’ In an attempt to help homeowners succeed on their own, the following five basic steps are being provided as a solid foundation in the For Sale By Ownerprocess:

Step #1: Determine A Fair Market Price For The Property. This can be done by visiting a local Title Insurance Company and having them run price comparisons for ‘SOLD’ property (over the past two years) within a 2-block radius. Using ‘sold’ prices in an immediate area will help establish a price/value range and trend a homeowner might effectively use for marketing their property.

Step #2: Connect With An Attorney and Escrow Office. One of the first connections to establish is with a qualified real estate attorney. This attorney will be used for helping guide the homeowner through the legal portion of the transaction and for finalizing any Offer To Purchase (also known as Earnest Money Agreement). The best place to start looking for a qualified real estate attorney is at the same Title Company used for researching the property value. Larger Title Companies usually have a full service escrow department for closing transactions. In addition, they can also provide a good alliance with some of the better, local real estate attorneys. By choosing the right Title Company in the initial research phase, it can prove to be a one-stop-shop for helping solve many of the home-selling challenges.

Step #3: Find A Mortgage Lender. Now that the attorney and escrow office are lined up, a good mortgage lender will be needed for helping to qualify purchasers and ultimately, for financing the transaction. My recommendation is that at least two conventional bank lenders, and one or two mortgage brokers are contacted for this purpose. The reason for having choices is that each lender will offer different financing packages. It is this loan diversification, which will open a wider range of financing opportunities when working with buyer prospects.

For completing these first 3 steps, the homeowner should figure on creating one ‘Action Day’ where all research and connections are finalized. At the end of this day, a complete sense of control and organization for the selling process should be accomplished.

Step #4: Advertising and Marketing. Now that the attorney has been chosen (and contact has been made), a location for escrow and closing the transaction has been determined, and all mortgage lenders lined out, it is time to place the yard sign and begin advertising.

            There are many sign companies found on the Internet for purchasing a For Sale By Owner yard sign, and one that may be of interest is Victory Signs at:http://www.victorystore.com. However, for immediate service, a homeowner might also check out the offerings and pricing from their local sign shops.

            As for advertising, the most effective ad placement will be a clearly written classified ad stating the most unique feature of the home. This targeting of the ad copy will help to draw out the one most likely prospect that will purchase the property. When writing the ad, it should be kept economically viable remembering that serious house hunters will read all ads within in a column, whether they are promoted in bold type, or not! Knowing this information can help to keep your ad costs lower.

            The other most important real estate advertising to consider, is through creating a simple flyer that will be placed in a clear plastic holder attached to the outside yard sign. This flyer can also become an effective advertising tool when used as a handout at all open houses.

            From my own research, almost 60% of homebuyers actually locate their homes by driving the neighborhoods where they intend to live. Realtors have known this for years, and that is why yard signs are so heavily used in promoting property for sale. If signs were not effective as a marketing and branding vehicle, agents and brokers would resort to advertising only through display and classified advertising media channels. But they don’t! So, it quickly becomes apparent this is an effective means for marketing any property. And one you do not want to overlook.

            As a final note on this subject, make sure the flyer box on the yard sign is always kept full of flyers for the people who are driving the area. To help in creating the most professional looking sales flyers at a reasonable cost online, a good source to check out is:  http://www.myfsbo.com.

Step #5: Writing Your Offer. When initially meeting with a chosen attorney, the homeowner should also ask him/her how they would prefer the initial offer to be drawn up for a prospective purchaser? At this time, the attorney will also be able to provide a list of what questions need answering and any other legal paperwork required for state compliance. The attorney can also provide good initial direction for making sure negotiations hit the most key elements when consummating the sale. This initial pre-sale legwork helps to alleviate many future concerns. Once again, proving there is no magic formula used for selling real estate or for writing an Offer To Purchase. What it really boils down to is the intent of the seller and buyer for consummating a fair and legal transaction between them, and with full disclosure.

In Summary: If you find yourself at the mercy of rising interest rates and variable rate payment adjustments, these five, For Sale By Owner steps, can help you to move beyond traditional marketing methods, potentially avoid foreclosure, and help save more of your equity wealth position. Taking these steps can also help to alleviate stress-causing unknowns from misinformation and lack of preparedness.

About The Author: Greg O. Bacon, President of MXMRQ® Corporation, is a former sales and operations manager for Coldwell Banker® Real Estate, and is the author of:“Warrior Economics – Taking Back Your Home Selling Profits! A Complete For-Sale-By-Owner Program.” For more information in regards to this money saving marketing system, the Master Real Estate Resource Center, or the author, click on: www.MXMRQ.com

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