The latest report from the National Association of Realtors® (NAR) highlights what many observers have been emphasizing for years: Short sales are better than foreclosures for many reasons, not least because they help shore up neighborhood home values.
In its April, 2012 Confidence Index Report, NAR shows again the stark difference in discounts between short sales and REO sales: Foreclosures sold for an average 21% below market value, while short sales were only 14% under market.
Not surprisingly, that disparity grows as property condition declines:
Short sales in “above average” condition were discounted 13.7%, as opposed to 14.9% for REO’s—not much of a spread. But properties in “average” condition showed a six-point difference (REO: 18.3%, SS: 13.0%) The contrast deepens with “Below average” homes: (REO: 22.4%, SS: 14.0%), and is dramatic at the bottom one percent: (REO: 48.0%, SS: 13.0%).
Obviously, “below average” means something different for REO’s as compared with short sales.
The reasons for this trend are obvious: In a short sale, the property transfers from one private owner to another, without a banking institution having to take title and re-sell the house. Typically, short sale homes remain occupied during the process, and thus are more likely to be maintained. The new owners have every incentive to continue that standard, whether they intend to occupy or lease their new acquisitions.
By contrast, REO’s present problems for everyone: After the agonizing foreclosure process—which stretches for years in some cases—the banks must market the properties, which takes more time. Meanwhile the homes typically lie unoccupied and unmaintained. When they finally sell, it’s at a deep discount. The foreclosed homeowners lose, the banks lose—and the neighbors lose, as they watch their neighborhood values plunge. The new buyers may pick up a great deal, but will often face daunting rehabilitation challenges.
What about the agents? Most agents would choose an REO sale over a short sale, hands-down. But have you noticed? Short sales are getting easier. Timelines are shrinking, technology is making the process more efficient.
Since the bust of 2006-2007, the housing market has only seemed to get worse with each passing month. Now, things may be getting better.
Who’da thought it?