I often have buyers ask me whether or not to shop for and secure the new house now or after their existing home has sold?  This is how the age-old 'chicken or egg' question comes about.

The market conditions that make it difficult to sell your home right now are due mostly to just very little velocity – too few buyers buying. This is the same market condition that makes a new home builder interested in doing a very low margin deal.

 As the market improves for the prospect of selling your existing home, so too does the market improve for the new home builder – the person you are buying your home from. With this improvement, the new home builder becomes less interested in doing love, low margin deals.

So, it is my recommendation that you secure a fixed price as well as a price lock for 3 to 6 months with the builder. It gives him assurance that when your home sells, the builder can start construction on the new one. Without doing the upfront work to secure the great deal on the new start now, when your house does sell, you’ll be that much further behind and may, in fact you may end up with less house for the same price in the long run.

Most builders are willing to lock a price on a new start for a period of time while you get your existing home sold – that is, if your existing home is priced appropriately to sell. This lock puts you in a great position – no risk either way. If you sell your house, you know you’ve  got the low price secured on the new one. If your home doesn’t sell , you’re still not out anything since you’re not obligated unless your house is sold. Many clients I work with are faced with exactly the same dilemma and have chosen to proceed with the pre-construction work while they are selling their existing home. They are then ready to dig a hole the moment their home is sold. It works out quite smoothly.

Your home value is less than the amount owing on your mortgage loan. You still have a job, but have been falling further and further behind on payments since your company ‘right-sized’ you. You’re getting to the stage where there may be no catching up.

A short sale may be appropriate for you. New rules governing short sales are designed to make the process faster and less difficult.

The Treasury’s Home Affordable Foreclosure Alternatives – “HAFA” program is aimed at speeding up the lender’s decisions on short sales and to make life a whole lot easier for you, the seller. Before this program came to being, the period for a short sale could take anywhere from 3 to 18 months with plenty of anguish through the middle.

A short sale can only be done with the lender’s permission. If the lender takes forever to decide, you as seller, may have lost opportunities to sell the home when a prospective buyer just doesn’t have the time or patience to wait through such an uncertain process.

Under the HAFA program, the lender decides up front the minimum price it will accept. Then there are tight deadlines for the lender and homeowner to meet. In the end the seller gets $3,000 in moving expenses for leaving the home in good condition.

Those who qualify for HAFA and request a short sale receive a 7 page document called a “Short sale Agreement” from their lender. The borrower has 2 weeks to respond and then has 4 months to sell their home.

Step 1: borrower hires a real estate agent while lender obtains a market valuation

Step 2: borrower continues to make mortgage payments but they are reduced to no more than 31% of their monthly income. The lender tracks the shortfall between what is owed and what is paid

Step 3: borrower waits for prospective buyers to make offers. The lender decides the minimum acceptable net proceeds. This amount is impacted by the presence and amount of the second mortgage; amount owed on first mortgage; unpaid interest owed, closing expenses & real estate agent commissions.

The lender established the acceptable net amount, although they are not obliged to tell the borrower this bottom line amount.

The Seller and buyer send the lender a “request for approval of short sale” or RASS to which the lender will provide a yes or no answer within 10 days. If the offer meets the minimum acceptable net proceeds, the required answer from the lender is “Yes”.

It doesn’t pay for an expensive move, but the $3,000 paid to the seller as a ‘relocation incentive’ is very useful as it allows the seller breathing room to find other accommodations.

Before there was HAFA, there was HAMP – the “Home Affordable Modification Program”. Though well intended, HAMP failures are in the 70% range since HAMP focused upon modification of the terms and rates for the mortgage loan instead of addressing the core issue – that the value of the note exceeded the market value of the home. Both programs are specifically designed to help homeowners stay out of foreclosure.

Although this new HAFA program definitely streamlines the previously very cumbersome process of short sale, there are circumstances where it can get more complicated. Lenders holding a home equity line of credit may block the short sale if they don’t get paid in some manner.

Faced with the all too ugly prospect of having to sell your home in a short sale, there never has been a better time to do it. The process is much easier with the HAFA program and, the process is a much less public experience than a foreclosure. As well, there is less damage to your credit with a HAFA short sale. If I can be of any assistance with this or other real estate needs, please feel free to call.

We’ve never been here before. In principle, we would all agree that purchasing a spec home that’s been on the market for a long time and has had price reductions is a better deal than starting a new home from scratch right?? Well, I personally would have agreed with this as late as 5 months ago. But we are in a Brave New World these days in real estate. Can we still make the same assumptions??  Not necessarily.

A standing inventory home may have a builder who has walked away from BOTH profit and his/her invested capital. And, there is no builder in the world that is going to build you a home from scratch with no profit and loses capital. So, at face value, it makes sense that the dirt start cannot be as good a value as the standing inventory RIGHT??

Well hold up here. All the above is true. And, what else is true is this:

• Most builders wrote down the value of their vacant lots in 2009 in order to take a loss on their tax return and put themselves in a much better position going forward.

• Standing inventory homes presently on the market were started at least 3 years ago when labor and materials costs were much, much higher than present.

• Standing inventory homes have the burden of interest carry adding to the underlying price. A new home built specifically for you has no additional interest carry burden. The builder doesn’t have to build in a padding of interest & tax carry because it will not languish on the market waiting for a buyer. The buyer is already here. Plus, since most custom builders are much smaller now, they are far more nimble and can build your home faster than in the past. Faster means a shorter construction time. A shorter construction time means less interest paid during construction, which means savings for you.

So, as unlikely as it seems, a new dirt start has as many pricing advantages as the standing inventory home and a few advantages a spec doesn’t have:

• Many builders are willing to build at little to no profit to move substantial inventory of vacant lots. Banks are pressuring builders carrying large inventories of vacant lots at an unprecedented level, motivating them to move inventories through build out at no or low margins.Spec inventory is largely picked over at this time. It is likely that you’re not finding the floor plan that suits your needs. Starting a custom home from scratch resolves that problem.

• Choose the best location for you and your family

• Interior finish selections are all yours – not something someone else thought you should have and you need to tear out once you move into your brand new home.

• Most Denver real estate professionals agree that prices are firming up right now and look to be increasing in the future. Starting a home now gives you tomorrow’s house at today’s price – helping you build equity before you actually move into the home.

• Worried about interest rates rising before the home is finished? Long term rate locks are back, allowing you to safeguard against higher interest rates in the future.

Add it all up. If you can’t find exactly what you’re looking for, don’t dismiss starting a home from scratch. If you don’t, you might miss out on a terrific opportunity!