Beware When Refinancing

Sadly, I meet many folks who want to sell their home after a recent refinance, then learn they cannot sell their home.  Just yesterday, I met nice retirees who refinanced their home about a year ago for $157,000.  The problem is the house might be worth, at the most, $155,000.  Most likely, it is worth $150,000. After my fee, state transfer tax and other settlement costs, the seller would need to sell for approximately $164,000 to break even, and walk away from the property. 

There is a second part to the story, which involves the 2 real estate agencies who had their property on the market before I met the seller. Both agents took the seller’s listing at $195,000.  This is $45,000 more than what I think it will ultimately sell for. To put it another way, this is a thirty percent higher asking price than the probable value.  Can you imagine listing a $500,000 home for $650,000? How did this all happen?  Here are my thoughts:

1. The seller had good credit, and the lender stretched the limits, gave them more than what it is now worth, and made a nice commission on the refinance. The more you borrow, the more they make.

2. The seller probably didn’t need to take that much equity out of their home, and should have been more conservative.

3. The agents who took the listing 30% too high either:

a. Have no idea what they are doing.

b. Were shooting for the “office listing award” for the month, and are not paying for any of the marketing expenses associated with the sale, so what the heck?

So, I simply suggest you list with someone who knows what they are doing, or ask a friend or family member who they used, and do they consider that agent to be competent? 

Amazingly, agents don’t know how they get bad reputations.

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