You see short sales in declining markets. You also see short sales when the home owner has taken a large home equity line on the home, expecting the prices to climb and cover the difference between the home value and the home sale price. In downtown San Jose and surrounding South Bay communities, real estate prices are slightly lower now than any time in the last two years. This is an opportunity for buyers to get a great price on a home or San Jose condominium – because the seller may need to sell and the bank may wish the homeowner sells before going into foreclosure.

For homeowners who are having a lot of trouble paying the mortgage, a short sale provides a tool to sell the home without going into foreclosure or bankruptcy. For example, let’s say an ambitious home buyer in 2006 paid $400,000 for a downtown San Jose condominium. Let’s say the buyer paid for the home all in loan with no cash down. That is an example of 100 percent financing.

Now let’s say that homeowner cannot make the payments, and falls three or four payments behind. To ward off foreclosure, the seller makes an arrangement with the bank. Realtors are helpful for coordinating these efforts. The realtor lists the home for $400,000 and doesn’t get a nibble. Now, the realtor may drop the price to let’s say $378,000. This is a short sale! The sale price is not as high of an amount as the debt on the home. The bank may accept as low as $350,000 or $325,000 as months go by – just to be compensated for some part of that loan. As a buyer, this is a great opportunity to get in and purchase a home for less than market value.

What to look out for: buyers may want to make sure that they are financially prepared to manage the full mortgage payments for the foreseeable future. Buyers may opt for a 30-year-fixed loan opportunity to lock in the home payment well into the future. The safest way to buy in a declining market is with 10 percent to 20 percent down payment – because this will protect you from going into a short sale yourself in the future! Good luck home shopping. It is a great time to invest in San Jose condominiums, single family homes, or multi-family residential units. Rents are remaining constant and prices are dropping. Short sales are a great way to get in the door.