Are short sales really sellable?
Are short sales really sellable?
I had a discussion this morning with my broker and another colleague on the question as to whether short sales are really saleable. We had a lively debate.
Are these really saleable? There are a myriad of reasons why a short sale may never actually close – i.e. the bank wasn’t interested in negotiating or signing off on the offer or even any sale, the appraisal doesn’t support the offered price and there will be no offers at the appraisal value, the clock ran out and the property foreclosed, the lender wanted too many concessions, the process was too long for the buyer to commit to in a declining market, etc. In fact, initial pricing for most short sales is set by the agent and represents an arbitrary price value that they have set to generate a possible offer. Most buyers think that this is the going price when in fact, the price may have no bearing on what may be approved for sale.
Realtors involved in this will typically lower the price more the closer the actual date of foreclosure. The bank often has nothing to do with this. In fact, many banks will not even look at the short sale until a “Short Sale Package” is on their desk.
So, unlike a normal owner-occupant transaction or foreclosure transaction, the parties involved are not at the table (figuratively speaking) at the initial engagement.
Now, the answer to this is that short sales are saleable generally speaking. However, the percentage that are selling is actually much lower than other properties out there given the inherent difficulties involved in these transactions.
One of the comments from the discussion was that there is a large percentage of these that will never sell and so they skew the market in terms of true inventory on the market. If you subtracted those that wouldn’t sell, your overall inventory would be down significantly and so show that the local real estate market is actually doing much better than people believe. The counter is that for every unsuccessful short sale property there is, there will likely be a successful foreclosure property that hits the market at some point in the future.
Do the short sales damage other sellers in the market? My belief is they do. Short sales represent a low price for properties and so will affect pricing and valuations for properties around them. As such, if a high percentage never close but nonetheless show up on the market when another seller is on the market, that seller will be forced to take that short sale into consideration and discount their property appropriately. If the short sale never closes, then the seller will have been impacted adversely.
Short sales can represent great deals if they are successful. However, the process is invariably likely to take a long time to actual close of escrow, a buyer may be beat out by another buyer’s offer late in the process, and the financial institution that has to approve the deal may never do so. All of this conspires to ask the question as to whether short sales are worth the risk and pain.
They also conspire to ask the question as to whether Realtors that handle them could effect their sales in a manner that is more sensitive and respectful to the disappointment that is likely to come out of it for those buyers who are unsuccessful in their reasonable bid to buy a given short sale property.
David - www.LortiHomesArizona.com
Date: Wednesday, July, 16th 2008 @ 11:36:31 AMViews: 1026
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