What are my options? This is the most common question for homeowners in today’s market. The war in Ukraine, the seemingly historic levels of political polarization, economic uncertainty, and the questionable decisions of the Federal Reserve, all these factors affect more industries than just real estate, which one could argue has been affected more than others.
Let’s take a closer look at the consequences of the Fed’s recent policy on the real estate market. When the Fed cut interest rates and began buying mortgage-backed securities, it spurred huge buyer demand and home prices skyrocketed. But now the Fed is raising rates and is back to reverse repo. These policies have made it much more difficult for people to get a mortgage loan or to afford to get one simply. This has, therefore, caused a drop in demand and a collapse in house prices.
Looking at the number of homes for sale is an important indicator of a market shift. As we can see, some areas of Florida are already starting to feel the inventory of homes for sale increasing. The Las Vegas real estate market is cooling faster than any other market in the country amid rising mortgage rates, inflation, and widespread economic uncertainty. Properties for sale are sitting on-market for months now without offers.
According to Redfin analysis, the real estate market in Las Vegas is slowing down, second only to Seattle, faster than any other major city in the USA. Home prices in Las Vegas were down 3% in August from the month before, and about 26% fewer homes were sold than in the same two-week period last year. And as of this writing, current median home prices have nearly dropped back to January 2022 prices. That’s an 8.71% decrease from its May 2022 high of $482,000, a loss of $42,000 and expected to continue.
“These are all places where homebuyers feel the sting of rising home prices, higher mortgage rates, and inflation very sharply. They’re slowing down partly because so many people have been priced out and partly because last year’s record-low rates made them unsustainably hot,” said Redfin Chief Economist Daryl Fairweather, in a statement. “The good news is that the slowdown is dampening competition and giving those who can still afford to buy more negotiating power.”
We understand that this uncertainty might be a challenge to most investors but not the smart ones. Every situation in the market is an opportunity but only for people who have the vision to see it.
“It’s impossible for people in this market to afford these homes, and so something’s gotta change,” said Nicole Bachaud, senior economist with listing site Zillow.
For the last 10 years, real estate investors presented the cash offer as the magical solution for all problems the homeowner might be facing, but it isn’t quite the silver bullet in today’s market. Because it’s based on today’s market prices which aren’t in favor of the homeowner. However, there are plenty of other solutions which will give homeowners the maximum benefit of selling a property without giving up the value as in most of the cash offer scenarios.
What can be done if your property no longer has much, if any equity? What can you do if you don’t want to take a hit from the potential capital gains tax when receiving a lump sum payment for the sale of your property? What can you do if you’re tired of dealing with tenants but like the monthly cash flow? What if you’re suddenly unable to afford your payments but have no equity so you would have to come out-of-pocket just to sell your home? What can be done if you’re in pre-foreclosure but can’t afford to bring the loan current? There are many creative solutions that are available to you as the seller. See below how Peace Home Offers might be able to solve those problems for you.
One such solution is Seller Financing. Seller Financing is a real estate agreement in which the homeowner becomes the bank instead of a traditional financial institution. But what’s in it for you as a homeowner?
You get monthly payments and usually get a much higher purchase price than a cash offer. Homeowners are also attracted to seller financing because it typically involves few or no closing costs, typically doesn’t require an appraisal, and is much faster, often settling within a week. Plus, if you don’t have a specific home that you want to buy soon with the money from the sale, and aren’t set up for a 1031 exchange, you will likely reduce your capital gains tax burden from receiving a lump sum. And, best of all, you still get rid of your real estate problem.
And from the same concept of seller financing, we can also explain Wrap-Around Loans. Wrap-around loans or wraps, build on the owner-financing concept, and deploy the same basic structuring. A wrap structure is used in an owner-financed deal when a homeowner has a remaining balance to pay on the property’s first mortgage loan. A wrap takes into account the remaining balance on the homeowner’s existing mortgage at its contracted mortgage rate and adds an incremental balance to arrive at the total purchase price. For example, you, the seller, have owned the home for 10 years and owe, let’s say, $100,000 on the mortgage but are selling the home to an investor for $200,000 with seller finance. This is where a wrap occurs. Payments from the buyer get sent to a “servicing” company who then sends payment like usual to the existing mortgage lender, and the remaining monthly payment amounts to you the seller. Both you, the seller, and the mortgage lender get paid like clockwork, each month until the full balance of $200,000 has been paid. There may or may not be a balloon payment, in which the buyer has agreed to pay the amount in full at the end of a predetermined amount of time, typically 3, 5, 10, or 20 years.
Also one of the solutions used frequently in today’s market is a Novation. Novations are used for both residential and commercial real estate transactions. Most home transactions are between two parties: a buyer and a seller. Here is an example of a residential real estate novation. A buyer has made an offer on a home. According to the inspection report, the fence around the pool is not high enough to comply with city regulations. You have two options. Either the owner can replace the fence or they can negotiate a lower sale price for the home. The buyer and seller agree to a lower price for the property and a new purchase agreement containing the new price is offered for both parties to sign. The old contract is invalidated and the transaction continues with the new contract.
There’s even a method in which the buyer and seller can partner. The buyer, likely an investor, can offer to pay for the fence to be replaced, upfront, and for any other repairs that might be needed. The property is then put on-market and sold to an end-buyer. When the property sells, you, the homeowner, get paid your agreed on a price and the investor keeps the rest.
There is also another solution referred to as subject-to or sub-to which means buying a home subject to the existing mortgage. It means that you, as a homeowner, are not paying off the existing mortgage. Instead, the buyer simply takes over monthly payments on the mortgage. No need for the buyer to go get a loan, taking possibly 30 days or more to qualify, just to pay off your loan. When getting a loan to pay off a loan, the only party that wins in that situation is the bank.
In the event the homeowner was in default or pre-foreclosure, the investor-buyer will usually offer to pay off the arrears or amount past due to bring the loan current. Although, it might just be that the seller simply can no longer afford to make payments.
The biggest advantages of selling a property subject-to are there are no realtor commissions and the seller can save their credit from a HUGE hit if they were in default with the lender or even in pre-foreclosure. Additionally, this transaction can usually be done in less than a week.
So having a cash offer for your house is not the only option you have, nor is it always the best option. It depends on your situation. With Peace Home Offers, we create tailored solutions for our clients. We want a win-win situation because it’s our belief that a successful business is one where all parties are winners. So make your life easier and Call Us at (702) 623-8705 today or Click Here and we’ll reach out.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Peace Home Offers encourages you to reach out to an advisor regarding your own situation. Please consult with your advisor when making legal or financial decisions.