Addressing Negative Equity Issues
Mar 12, 2010
Problem #1 - Under-Reporting of Negative Equity.
Although the media is filled with statistics regarding the number of under-water homes, it still manages to under-report the full impact of the problem. This is due to several reasons; first of all, the numbers used to compile these averages are based upon the overall decline in value for a given area rather than a specific home. Many financial distressed homeowners have failed to maintain adequate maintenance or allowed taxes, insurance and other lien payments to lapse. The actual amount of negative equity for any given property is often far in excess of the official estimates.Problem #2 - Counting Transaction Costs
In addition to the one out of every four homeowners that are currently upside down on their mortgage, there are literally millions more that are "borderline"; basically their current mortgage more or less equals the value of their home....at least on paper.Unfortunately, that status can quickly turn negative if they decide to actually sell. Sales commissions to real estate agents and brokers easily average seven percent while local taxes or closing costs frequently add another two to three percent. A ten percent premium above and beyond the current mortgage/market value is well within the average range quickly transforming a "break even" property into a negative equity position.