Are Short Sales Worth It?…The Zombies of the Real Estate Market
March 4, 2009 by Kristin LaVanway · 6 Comments
Short sales are the most misunderstand real estate transaction out there. A short sale, or “pre-foreclosure” sale occurs when the Seller is selling the home for less than what is owed to the bank, or banks, if there is a second mortgage on the property. The transaction can only take place if the bank (or banks) approve the sale, and believe me, this makes for a very difficult transaction that can stretch out for many, many months. With the growing number of homeowners in financial distress, it is no surprise that the number of short sales on the market has increased dramatically. There is even a cottage industry of companies to support homeowners and realtors through these very difficult transactions and to help buyers take advantage of these “great bargains”.
But are short sales actually selling?
No, they aren’t.
Here are some staggering statistics from the month of February 2009 from the Arizona Regional Multiple Listing Service that serves the greater Phoenix Metro area:
In Gilbert, a mid-range suburb, 39 short sale transactions closed representing 16% of all closed transactions while 646 short sales were on the market representing 34% of the inventory.
In Scottsdale, a more upscale suburb, 27 short sale transactions closed representing 14% of all closed transactions while 473 short sales were on the market representing 12% of the inventory.
In Queen Creek an outlying suburb hit hard by the real estate downturn, 49 short sale transactions closed representing 16% of all closed transactions while 669 short sales were on the market representing 45% of the inventory.
And in Phoenix itself, 89 short sale transactions closed representing a dismal 6% of all closed transactions while 2040 short sales were on the market representing 22% of the inventory.
So what IS selling? Bank-owned properties. In Gilbert, 51% of all transaction closed were REO’s (Real Estate Owned). In Queen Creek, that number climbs to 70%. And in Phoenix, a whopping 80% of all transactions closed in February were bank-owned properties.
So if a large percentage the inventory are short sale listings, and not very many are selling, what’s happening to them?
Most short sales sit on the market like zombies, the undead, caught between the netherworld of owner-owned and bank-owned, just waiting until the banks take them into their folds. They lure you in with tantalizingly low prices, then suck the life out of you as you wait for the bank to respond. They bloat the market with their zombie stature, posing as real listings, but in reality, most of these properties will never be sold as short sales.
The jig is up for these former darlings of the “get-rich-quick” set who touted the huge savings one could realize by buying a short sale property. And truly, they can be a bargain for those lucky buyers who can get one to close. And a relief to the Seller who is trying to keep a foreclosure off of his credit record. And even a win for the banks that do not have to spend the big dollars to foreclose on the house and maintain is it as an REO. But most deals just don’t close. Somehow, it just seems evil…
The “why” is hard to say, but I can tell you from my own experience as a listing agent and buyer’s agent working with short sales, the banks have made the process almost impossible. From beginning to end, it almost feels as if the banks will do anything to prevent that short sale deal from closing. Granted, some banks do better than others, but in general, it is a tortuous process that often leads the Sellers to cry out – “Just foreclose…I don’t care any more!” and the Buyers to decide to just rent for while. As a result, realtors avoid short sales at any cost. Even if the property has a “bank-approved” price, a great deal of patience and communication is required by all parties to survive one of these deals. There are just too many other properties out there to subject you and your clients to this kind of torture with such a low chance for success, so Realtors usually say “Next” when they see a short sale listing.
So, I offer you this advice if you are interested in selling or buying a short sale right now…visit your local video store and rent the movie “The Night of the Living Dead”. Study it carefully for some tips on dealing with zombies. Take up yoga, and be sure to take your vitamins…and be sure to work with an agent who understands short sales and will be honest and up front about the process. You will need all the help you can get…Be careful out there!
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I am a Realtor in Gilbert, AZ, working with clients throughout the Phoenix Metro area. I am lucky to love what I do and appreciate the difference I can make in people's lives.
In a previous life, I was a rocket scientist - really! - but decided to step away from corporate America to be a Mom to my four boys. Found it hard to do bake sales, so I ran a small independent programming business instead.
Flash forward...I am now a single mom and I face many, many challenges everyday. I am living through the hardships that many are facing in this economy. These experiences have motivated me to help other people in my shoes.
I have teamed up with Dean Ouellette to form the East Valley Team - the best darn team in the Valley. Check out our site at http://www.EastValleyTeam.com. I spend way too much time on YouTube - check ou tmy channel at http://www.youtube.com/klavanway
I hope you don’t mind if I save your post for future reference. I have been lurking on a few real estate blogs lately and that’s the most thoughtful and accurate analysis of the situation that I have read to date. Thanks.
I’d be more optimistic if the global economy was doing fine and we are free and clear of a recession, but that is far from the case. If you look at historical pricing you’ll find there is the occasional boom followed by years of flat price growth or slight price decreases.
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