MLS data holds a wealth of information that can provide explanations, support or negate assumptions by quantifying real estate transactions that fit certain criteria. Here is a look at MLS data in Fremont, CA which aims to gain a better perspective of short sales that become foreclosures. Specifically, this is an attempt to answer and put numbers to the following questions:
- What percentage of sold REOs were previously listed as short sales?
- What is the sold price of REOs vs. their list price when they were short sales?
- How long were the short sales listed before they were pulled out of MLS?
To set the base of this analysis, the following MLS data were pulled:
- All in all, there were 93 REOs sold since the beginning of 2011 to date, i.e., recorded sold as of the date of this study, 3/25/11. Of these, 18 (19%) were previously listed as short sales. It should also be noted that most of these short sales were with offers at some point in the listing period.
- The chart below illustrates the price positions of the 18 properties when they were short sales vs when they became REOs.
REOs sell 3.5% lower than the short sale price potential of these same properties 6 months prior to foreclosure.
The listing period of short sales, on average, is 152 days, or roughly, 5 months. This is different from Days on Market, which does not count the time that the property is on Pending status. Short sale listings with offers are typically changed to Pending status throughout the time that the offer is submitted to the lender for approval. Needless to say, the “waiting period” accounts for the bulk of a short sale’s cycle.
The above results indicate that, on average, a foreclosed property could have sold for nearly $12,000 higher if the prior short sale was successful. [Note: This is based on Fremont data, and may be different in your specific area.] This is missed opportunity. But consider, too, that foreclosing a property involves expenses, such as, attorney’s fees, preservation and maintenance costs, etc.
How many times does it happen that a failed short sale becomes bank-owned? Is it worth foreclosing if there is a short sale just waiting for an approval? And how long is the approval process, and could this account for the fallout of short sales – oh, this is opening a whole new can of worms…