The only ones thrown a life preserver are the investors (like they really need it). I understand why it’s important to keep the security aspect of package mortgages relatively stable, but what’s wrong with throwing a few hundred billion to aid those on the brink of foreclosure? After all, the banks are the ones who encouraged this whole mess. They knew exactly what was going to happen-they went through it just a few years ago-SNL scandal.

The real estate market is like any other market: There are only so many customers we are all vying for and there are only so many products to sell. When one of those is out of whack you have a problem-in this case they both are out of whack, no buyers & too many homes.

Neither of these will be solved by this bailout. Worse yet we are in store for a tsunami of foreclosures just around the corner and if nothing is done we may see property values down to what they were 20 years ago or lower.

Noel Padilla

"Doing Business Right"

Appraising a property is a process in which a certified appraiser determines the value of a property based upon strict criteria and variable factors such as subdivision amenities. Value is placed on things like bedrooms, bathrooms, square footage and any extras a property may have, a pool or great room for example.

There are many different ways a property can be appraised, but the most common is the comparable method. Properties that have sold, that are similar to the 'subject' property, are used to 'compare' value based on those factors I mentioned earlier. This appraised value is then used by lenders to determine maximum loan amounts.

Value of a property is determined by what the general public is willing to pay for the property. It can be more than the appraised value or less. The problem when selling a property for more than the appraised value is that the buyer will have to come out of pocket with the difference. For example, if a property is sold for $125,000 and it's appraisal came in at $100,000, the $25,000 difference would have to be paid at closing in addition to any closing costs and down payment. A buyer with limited funds would have a tough time buying this property. However in an all cash deal, this would be a mute point. Another thing to consider is resale. If you buy a property above its appraised value, you might have a difficult time selling it later on if the purchase price hasn't equaled its value over time.

Buying or selling a property below appraised value is probably the most common occurrence. This is because of the perception of a 'good deal' that makes a property more marketable. No one likes to pass up a good deal. It's also a more attractive risk to the lender, thus making it easier to finance. Imagine the feeling the buyer gets when the lender calls to tell them that the property they just purchased appraised for more than what they paid.

Nothing affects appraisals or value more than the market conditions. During a strong market, buyers often find it difficult to purchase a property below appraisal. Inversely sellers have to become more flexible and creative to market their property during a slower market. Before buying or selling a home you should know what the market conditions are so you know what to expect. Interestingly enough during slow markets more people seek out Realtors to help in the sale of their homes. During stronger markets they elect to try selling the homes themselves first, before seeking assistance.

A point to consider, a study from the National Association of Realtors. stated that 'for sale by owners' sold their homes for less money than when they listed it with a Realtor. Why? Because even though they may have valued their home correctly, the buyers know the sellers are not paying a Realtor commission so they figure they can discount the price by that amount and get a better deal. The seller winds up doing one of four things: sells for less money, doesn't budge on price and the house sits on the market, pulls the house from the market or yep you guessed it, they list it with a Realtor.

I have always told family and friends you should always try selling your home by yourself first, before listing it with a Realtor. I would give it 2 to 4 weeks, unless you really need it sold then contact a Realtor right away. You might be asking, why is a Realtor telling me to try to sell it myself? The answer is twofold. First, you might find someone who is willing, able and qualified to buy your home. Secondly the study from the National Association of Realtors also said that close to 80% of all 'for sale by owners' eventually listed their home with a Realtor. Knowing this, I am taking a risk that you would appreciate my honesty and I would be at the top of your list when you consider hiring a Realtor from the thousands that are out there.

Noel Padilla

I chose to carve out my niche in distressed properties and the fruits of my labor over the past two years is finally paying off. People thought (and still do) I was crazy to "limit" myself to such a market. Now those people are calling up and begging me for information on how to handle a short sale listing they took on that they have no idea how to close.

It never ceases to amaze me that everyday I talk to agents who are broke and sitting on the sidelines waiting for good times to roll around again. I ask them how they are handling their short sales and I get the standard reply: "I don't take those listings" or "They cut your commission, I don't bother with them." Oh yeah, then give them to me because for the foreseeable future it's going to be the only game in town.

I don't want to brag but I have it down to a science. So much so I hired a team to help me handle the short sales. I have turned the negotiation process into a minor inconvenience. Typically after an offer is received and forwarded to the bank for approval, there is a 30-45 day waiting period. During this time I take advantage and get all the ducks in a row to be ready to close within two weeks of approval. So the sales cycle is only extended by a few weeks if you do this right.

The only thing I can say is I hope everyone else keeps turning away distressed listings, heck if you send me any I might even pay a referral fee. Did I mention that the agents sending me their business aren't even asking for referral fees. They feel sorry for me.

Noel Padilla

So as a homeowner in this situation what are your options? Well for one keep paying as agreed and wait for the market to turn around. If that isn't an option because of an upcoming ARM reset, forced relocation, or other outside circumstance out of your control, then you have some tough choices to make. You have to look at your monthly expenses and arrange them according to priority and see if paying your mortgage makes logical and economical sense. For example if your refrigerator is empty and you have 1/4 tank of gas and your choice is pay your mortgage or eat and be able to get to work then the answer should be obvious.

I would never advise anyone to miss mortgage payments for the sole purpose of gaining leverage for negotiating a short sale.  This is the same type of thinking that got us in this mess to begin with. There is nothing wrong with not paying your bills if you can't, it's using it as a strategy for some other reason is what I have a problem with. 

Owners of investment property may have a tougher time but it really depends on the individuals financials. If he has a portfolio of investment properties and wants to short sell one because it is under performing, good luck. On the other hand, the small time investor with one or two properties may have a fighting chance if you present a good case.

Of course there are people in our business advising this type of behavior my only response to those who are thinking of it to speak with a competent attorney and/or accountant.

Noel Padilla