The Burn Rate of Short Sales

Does anyone know what a “Burn Rate” is? We refer to the Burn Rate in discussions with our short sale seller clients as being the amount of money a home is costing every month to keep. Most of the time this includes the mortgage (principal & interest), taxes, insurance, in some cases HOA dues and also maintenance costs on the property.

The Burn Rate is something we are sensitive to always take into consideration for our seller clients. It is utterly important to price a home properly when first starting out marketing a property. Some say, “Start low to get people interested!” The drawback with this is that even if a buyer wants to pay the incredibly unbelievable low price, the seller’s short sale LENDER may not go for it.

We believe that if a home is marketed for a reasonable price at first, the sellers’s short sale lender can be shown that at least an effort was made to get a higher dollar amount for the property. If it still doesn’t sell after a period of time, it is wise to have price reduction discussions on an on-going basis with our clients.

However, when we work with buyers who wish to purchase short sales, we are also very careful to make sure that our buyers are counseled on making a reasonable offer based on the local market. Just because a property is priced at $199,000 doesn’t mean it’s only worth $199,000! The seller’s short sale lender may laugh when they receive the contract and do their own due diligence on what homes in an area are actually worth based on recent market activity.

So, the long and short of it is this:

“Price it Right” if you’re a seller, and: “Be Reasonable” if you’re a buyer!