Should Buyers Look at Short Sales? Are they a good deal compared to foreclosure homes?

By
Real Estate Agent with Silver State Realty & Investments

 

Recently, this question has come up from Realtors and clients alike.  Many Realtors refuse to show "short sale" homes because they can be a huge hassle for the Realtor and extremely discouraging for the home buyer.  (I will save my opinions about why they are such a hassle and why the banks are pretty much shooting themselves in the foot when it comes to short sales for another blog.)  I have considered making it policy not to show short sales, but decided that my job is to educate my buyers and let them make the decision about whether or not to look at short sales.

 

For a while now, my responses about short sales (for buyers) where based on generalities...gut feeling based on select and somewhat random experiences and office chatter.  I always explain to the clients looking at a short sale..."Don't fall in love with the house...The list price doesn't mean anything...this could take weeks...just to hear a NO...we could get a yes which could later turn into a NO etc..."

I didn't THINK short sales were going for prices that would make my investors happy, but I really didn't have the facts to back up my statements...and in this day and age, that's not good enough!

 

So here are the facts based on the Southwest Las Vegas Area priced under $300k since 1/1/08.  I am continuing to research different areas and different price ranges, and will provide that information as it pertains to my individual clients' needs.

 

 

Southwest Las Vegas Area priced under $300k since 1/1/08

 

430 Bank owned property sales

Median sale price per square foot $119.86

Average sale price per square foot $120.84

Median list price to sale price = 100%

 

89 Short Sales (only 89 closed!!!)

Median sale price per square foot $129.70

Average sale price per square foot $128.64

Median list price to sale price = 99%

 

512 NON short sale or foreclosure sales

Median sale price per square foot $131.55

Average sale price per square foot $135.19

Median list price to sale price = 98%

 

 

The first big obvious is that only 89 actually closed!  That's very small considering there were more short sales listed at any given time compared to bank owned homes.

 

The next thing I notice is that the short sales are selling for about $8-$10/square foot more than the bank owned.  Could this be reflective of the general condition of the home?  Maybe, but with only 89 sales, the short sale is looking like a long shot with very little, if any pay-out for the buyer.

 

My conclusions from this information would be:

1. The biggest bargains appear to be from the bank owned homes.

2. If you're willing to make a reasonable offer on a short sale, it MIGHT pan out, but don't hold your breath.

3. Trust your "gut" - it's usually right!

 

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Ambassador
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I tend to agree with you that bank owned homes are likely to be better deals, but I've seen many REO's that are in very rough shape, and not so much with short sales. 

Like you, I educate my buyers and tell them of the pitfalls for short sales.  I had one buyer who waited weeks on a short sale before getting a no from the bank.  He then made another offer on another short sale on which we closed escrow for a very good price.  He was in no hurry and had the time to wait on the bank.

 

May 25, 2008 12:19 PM #1
Ambassador
570,519
Konnie Mac McCarthy
McLean, VA
Associate Broker - VA & MD
I too don't have much experience with short sales..only my limited bad experience with them, and in the end, I discovered the same thing you have, it's such a long short, to buy one of these..
May 25, 2008 01:31 PM #2
Rainer
44,756
Joe Virnig
RE/MAX Gold Coast REALTORS, Ventura County, California - Ventura, CA
No Ordinary Joe

My gut just says no to shortsales.  The time spent working them would be served propecting.

May 25, 2008 02:08 PM #3
Rainmaker
25,041
Joseph Alfe
Short Sale Processing Inc. - Chicago, IL

Here is how I interpret those statistics:

 

The short sales have a low closing ratio simply because 99% of the agents I have encountered have no clue how to properly conduct a short sale.

 

As far as an REO being a better deal, I also find that not to be the case.  With an REO, the lender has already spent money on legal fees for the foreclosure and eviction (up to $10,000)  a year or more of unpaid interest, carrying and marketing costs, and agent commissions, as well as taxes.  There is little incentive for a lender to discount an REO below what is owed, and that is most likely at or near market value.  A short sale, on the other hand, is an opportunity for the lender to take a loss that is usually smaller than a foreclosure.  If you know what you are doing and can communicate this to thy lender, you will usually get your approval.  I average a 47% discount when doing a short sale for an investor.  You just need to know the tricks.

http://activerain.com/blogs/short_sale_expert

Aug 18, 2008 07:15 PM #4
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Damon Botticelli

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