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Down market prompts new types of sales for buyers

The down market in real estate has created a boomlet in two obscure types of property sales: the “short sale” and the “house swap.” A short sale is an alternative to foreclosure. If a property owner is unable to make mortgage payments, but the lender doesn’t want to go through the legal hassle of foreclosure, the owner and the lender may agree to a short sale. The property is sold, and if the sale price is less than the balance on the mortgage, the lender writes off the difference.

For lenders, this can be a good deal not only because the cost of foreclosure proceedings is high, but because owners of property in foreclosure often stop caring for the property, resulting in maintenance problems that lower its value.

For buyers, a short sale can be a great deal. You may be able to buy a property from a motivated seller at a price comparable to a foreclosure sale, but without the maintenance and other issues that are common when buying property after a foreclosure.

One drawback to short sales is that it frequently takes the lender a long time to respond to an offer. Before responding, a lender will often want to confirm that the owner really can’t continue making payments, get an appraisal of the property’s market value, and determine that the offer is preferable to what could be obtained through foreclosure. Lenders often want to investigate whether the offer comes from a relative or a friend of the owner who is colluding with the owner to produce a “lowball” price. And since many loans are sold in part to investors, the lender often has to get an investor to agree to the offer. But if you’re patient, a short sale can pay off.

The other new type of sale is a “house swap.” A number of websites have spring up recently that allow people who want to sell a home and buy a new one elsewhere to connect with people who are selling in their “destination” city and moving to their “home” city. The idea is that these people can buy each other’s homes.

The chances of a perfect match might not be very great, but there have been a few success stories involving homes that wouldn’t sell otherwise. The websites include OnlineHouseTrading.com, GoSwap.org, and DomuSwap.com. Some swaps are also advertised on Craigslist.org.

One problem with a swap is that you have to make sure the closings are held simultaneously. If you buy the “swapper’s” home, but some difficulty arises and the swapper isn’t able to complete the purchase of yours, you’re probably out of luck.

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