Why it's Cheaper to Buy Short Sales than REOs

Tracy, I am not sure I follow, a quick abstract will take care of the undisclosed leins and a good title agent (like Cogent) can do it very quickly and for very little (less than $300.00) plus when it does close, we alreay have the abstract, so the title committment is easy and abstracts are good for usually up to 90 days. The other however is your logic makes sense except when the property is in a declining market. Right now, on a national basis inventories are bloated and probably going to get worse. As it it stands if no home were added to the current inventories, it would take 13.5  months to move them. Obviously, a bank or lender is not going to hang on to a property that long, but the more invntory, the lower the price, and the bigger the loses. Banks are desparate to raise capital for their ratios to remain in line with Federal requirements, otherwise the risk being tkaen over by the FDIC. So it is a conundrum for the banks and lenders. The losses are in the 40 to 60 cens on the dollar range and they do not want to be in the real estate business. It is not part of their footprint.

The good news for you is that it does create opportunities to help with financing and with this arsenal of info, you can negitiate the short sale faster. I would imagine the bank does not lose as much money and is not forced to go through the loss mitigation process if they get it off the books faster. Therfore the short sale is a better option.

Thanks

Bo

Tracey, Great blog.  I think sometimes that when the 1st trust deed holder forecloses the 2nd goes bye bye and has no recourse, right?  Then the 1st can sell for less after foreclosure!!!!   Hey, I tagged you for the Christmas MeMe, if you have not received it yet....go to my blog and see!!!

I was the foreclosure king in my office for the longest time. It seemed that every buyer that walked in looking for a foreclosure asked for me! I thought I had found my niche.....Then the Short Sale started to become popular....Both have benefits and drawbacks. With all the great info you've posted Tracy, I've learned more about short sales from you than I have anywhere else! Brains - Beauty - Short Sales! What a woman!

Good Post Tracy, I'm just curious to your ratio of closing on the short sells? Around 40%? Because of the wait, do most people usually find something else before the deal is done? And yep lenders aren't crazy about them either that I've seen.

Hello Tracy,

I'm impressed with the information and very glad I found your blog.  I have supported buying REO's but your information gives me a chance to rethink my opinion.  I'm looking forward to becoming more attuned to short sales and to reading your posts.

Thanks

I enjoyed your post on Short Sales, and I greatly agree with your opinions.  In my experience as a Short Sale Specialist, I can only disagree with one point - the one about liens.  In my own blog, I talk about how I avoid that situation myself by getting the title cleared days before closing.  My post is about the last minute scramble one of my sellers (yes, the seller, not the buyer) had to run around to get a money order to clear a lien and getting the letter from the lienholder to clear it at closing.  The lien is the responsibility of the seller. 

Liens are also a problem for the much advertised tax sales too.  In that case the seller, the true owner of the debt, is long gone and the lien is owned by the property so that the buyer has to clear it.  And they are almost always found at the last minute at the closing table.

Another point you did not make is that a Short Sale property is often in better condition than an REO/Foreclosure.  When a homeowner is foreclosed, they often depart in anger and damage the place on the way out.  A Short Seller has the incentive to keep the property in good condition.

But your point on the financial advantage is the key one here.  The buyer usually gets the property for a lower price (and in better condition) than they would a few months later buying it after it has been foreclosed and all the foreclosure costs are wrapped into the price.

Adriana

Tracy, your posts are very informative and helpful. I keep checking back to get as much info as possible. Keep it up.

The other thing is that there's often less competition for short sales than REOs because fewer people want to wait on a short sale.

Tracy - That was a great list! I am with you on the sale of short sales! We have one closing next Monday - it has been going since August, but it is indeed a wonderful savings!

Good post and I second one of the other repliers that a short sale is also usually in better shape than a REO:)

Tracy - What do you do in incidences where the seller abandons the property instead of continuing to live there? It is a very emotional time for the sellers, and they often look out for that much needed security for their family to have a place to live. Not wanting to get kicked out at the last minute and not have a secure place to live, they often abandon it instead.

Since the listing agent is not an asset manager, there are no funds available to winterize the property, change locks, mow the yard, clean the gutters, pay the utilities, etc. I am wondering how you or your team handles this?

Tracy,  You made many great points, so I decided to follow your blog.  So much good information here.  I will refer back and look forward to your next blog.

Good Morning Tracy- This is an excellent post and I am going to reblog it.  2009 will have to be a year of changing my attitudes about short sales.  You are ahead of many in this field.  Best wishes for continued success in 2009.