Negotiating the New Normal in Real Estate

House Going UnderwaterMost locals know that real estate prices have corrected significantly from their artificially high peak. As a result, the real estate landscape has changed–here’s how those changes may impact buyers and sellers.

You may have heard that many homes today are “underwater”–but that isn’t a reference to flooded basements. It means that the house is worth less than what is owed to the bank. Some homes have a second mortgage or a home equity loan in which case more than one bank may be owed on the property.

A seller in this situation could pay out of pocket the difference between what is owed to the bank and the net proceeds (after expenses) of the sale. For example, the seller owns a house that can be sold today for $500,000; her expenses to sell the home are $30,000 and she owes $520,000 to the bank. In order to sell this home she would need to have an additional $50,000 in cash. A buyer interested in purchasing a house that is “underwater” would want to verify upfront that the seller has that money available and is planning to make up the difference.

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