What is Shadow Inventory?

Real Estate Broker/Owner with RE/MAX Diamond, Realtors

This information is just as useful for New Jersey as it is for Las Vegas NV. We have difficulty working with the banks. We have an unknown quantity of Shadow Inventory that is always talked about and that we fear will explode any day now.

It is good to show the other side of what the bank is also facing. The legalities are enormous and must be handled slowly through the courts and other processes.

Katie the Real Estate Lady

Kate Reilly Lund

Original content by Renée Donohue~Home Photography B.1000860.LLC

What Exactly is Shadow Inventory in the Las Vegas Real Estate Market?Las Vegas Shadow Inventory

Shadow Inventory has been a HUGE boogeyman in the Las Vegas Real Estate Market.  Experts wring their hands and have been telling us for YEARS how we are just going to get a bunch of Las Vegas REOhomes for sale just dumped on us overnight.

I actually feel bad for those that parrot what they hear on the news and pretend that they know what they are talking about.  Some people’s perception of REO shadow inventory is that banks just sit there and hold on to properties that have already been through the foreclosure process.  This could be further from the truth.  Banks (or servicers to lienholders/investors) DO NOT want to hold on to inventory or assets longer than they have to.

They want to get this stuff off their books & quickly!

There are many things that hold up the process to get them listed by a real estate agent on the free market such as bankruptcy, tenants, unwilling occupants, trash outs and even property rehab.  Once those items are taken care of, the home is listed or sold to investors in bulk packages.

Another way shadow inventory is presented is how many homes are in default or at risk of default.  Unfortunately this is not a good indicator for “the big dump” because many real estate market forces will absorb that inventory:  the homeowner could accept a loan modification, the homeowner could short sale the home successfully or an investor could purchase the home at the trustee sale or foreclosure auction and either rehab and resell or rehab and rent out for a long term hold.

Las Vegas Foreclosures will be around for awhile – I am not doubting that.  The only thing I doubt is that the shadow inventory fairy dumps an abundance of inventory on us one day.  I have been hearing about this for two years, I am sure I will be hearing about it for the next two years.  The only way we will see an abundance of inventory GROW is if all the Las Vegas Buyers decided to leave the building all at once.  Doubtful – but I have been wrong before.

Comments (2)

John Woodward
Sarasota Real Estate Group - Sarasota, FL
Broker - Sarasota Real Estate

I always here this "they want to get it off their books quickly" but I don't so much agree when talking about short sales.  I think there is a lot of motivation for the banks to foreclosure.  Why?  Credit Default Swaps substituted what MI did years ago when the loans went into securitized pools.  Swaps only pay in a default situation, which a short sale or deed in lieu is not. 

I don't know how much they pay so I use 25% (it's what MI was).  Just do the math, if the lender is able to collect 25% of the sellers original mortage going the foreclosure route, you can understand what the banks are doing what is their interest and not the seller (why should that be a surprise).  Especially here is south Florida.

Jan 26, 2011 05:59 AM
Kate Reilly Lund
RE/MAX Diamond, Realtors - Edison, NJ

Good information, John. There is always another side of the story.

I of course would rather sell an REO for the bank than to sell a Short Sale for the client trying to work with the bank,

Katie the Real Estate Lady


Jan 26, 2011 07:34 AM