New dilema...seller is underwater but current on mortgage

[buyhouse36]

Well...we walked away from a FSBO so we are back at square one.  Now we have found a house we love even more but the sub division has declined in value so the sellers are underwater.  This builders homes were HOT 4 years ago when they bought. But the builder stopped building a little over a year ago due to declining market with 2 homes unsold.  After a year, the builder slashed the prices of those last 2 homes by $20K and sold one 2 months ago.  IMO that brought down the value of all the homes in the sub division. Our seller is the first resale for the subdivision so we had to come up with our own formula to determine fair market value.  When we compared it to the closing 2 months ago, this house is 200 sq feet smaller , lower end finishes, and 4 years old,  so we wrote an offer for $20k less than what the other house closed for. Per our realtor, the sellers went ballistic because it is less than what they paid. They need to move due to job relo, and we are the only ones to present an offer in the 3 months on the market.  They can not do a short sale because they are current on their house. Nor can they afford to bring the difference to the closing table. We are not going to pay more for the house than its worth. But we do love the house. Are there any options here for either side??

[Jazzzy]

If they can't do a short sale, then someone has to pay the difference between appraised value and what the seller wants.

That "someone" would be either the buyer or the seller...or both. That may be higher than your estimates, or lower than the seller's estimates.

One other possibility...you mentioned relocation...is there a relo company in the mix? If so, that's where you may get your difference. Many relo companies ultimately take the hit. It depends upon their contract with the employer. My daughter bought a house from someone who was relocating for a job a year ago. Her seller went ballistic as well. My daughter walked away. Then her phone started ringing. The relo company got involved and made the seller whole.

[Lel]

I don't think being current on a mortgage is a barrier to a short sale.  The sellers will take a big hit in their credit score, and it may take a very long time for the deal to close (which may not be acceptable to you) since it has to be approved by the sellers' lender.

The sellers have to face the reality of their real estate market.  If their asking price were in line with the fair market value of their home, it would sold shortly after listing.  The fact that it has sat on the market for 3 months is proof that their asking price is too high.

Unless you and the sellers are able to find some middle ground, then you may have to move on.  I know you love the house, but you shouldn't pay more than what it's worth, otherwise you may find yourself upside down very shortly after you buy, if home prices continue to sag. 

[Anonymous]

honestly, depending upon the market you are in, 20K less than the new sale may very well be too high.  if you are in a 100K market or so that is probably fine.  But if you are in a 200K plus market you are probably overpaying.   If you had guaranteed financing you could probably walk into the builder right now and get that new home for about that.  Again, it of course depends upon the market and price point you are in.

[tleventer]

As others have said, SOMEONE has to pay the difference... whether that's you as a buyer, the seller or the lender.  The sellers are probably doing their best, but need to be realistic on what the market is.  I'm going through this right now and fully expect to have to bring about $15K to the table to sell my current house (initially listed $5K UNDER what I paid, selling for approx $7K UNDER what I owe between 1st and 2nd mortgages).  it's up to them, but if they want to sell badly enough, they'll figure out a way to do it

[buyhouse36]

Thxs for all the responses!

Its is a $100K market. The bigger (1600+ sq ft)unsold ones were listed at $159K each. Builder just closed at $139K with concessions.  The first resale....(1400+ sq ft) is listed at $134K...we offered $119K with up to 4k for closing. Seller didnt even counter. They need $126K just to break even.  They wanted us to come back at $130K with the 4K for concessions. We walked away.

[Lel]

I think you made the right decision.  They were offering to drop the selling price of their home by only 3%.  I understand the difficult situation that they're in, but that's not justification for your paying more than what the home is actually worth.

[buyhouse36]

OK...now the sellers are ready to counter. They have closed on their new home and have 2 mortgages. So now the seller came down to 123K including our closing costs. We are the only ones to ever put an offer on this house and  only  2 other showings. We still think this house should be $119K including our closing costs. We came up to 120K but we are holding there.  Should we hold there or give in since we are only 3-4K apart?

[Jazzzy]

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@buyhouse36 wrote:
OK...now the sellers are ready to counter. They have closed on their new home and have 2 mortgages. So now the seller came down to 123K including our closing costs. We are the only ones to ever put an offer on this house and  only  2 other showings. We still think this house should be $119K including our closing costs. We came up to 120K but we are holding there.  Should we hold there or give in since we are only 3-4K apart?

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You are to the point that it comes down to how much you want the house.

If you're ready to start looking again, then hold to your price.

The question: How would you feel if someone walked in and bought that house tomorrow? In your gut...how would you feel?

At our house, that is pretty much how we would decide something when only $3k apart.

Message Edited by LynetteM on 02-01-2010 10:00 AM