According to a new study released by Realty Trac, banks stand to lose significantly less if they can negotiate a short sale on a property than if they repossess and resell the property. In fact, the upper end of the “discount” on the property if sold via short sale is a full 3% lower than the lower end of the discount on REO property sales, with short sale properties tending to sell at 13- to 27 percent discount and REO properties averaging a 30- to 50 percent discount[1].
Possibly thanks to these numbers, bank-owned property sales are diminishing, with areas in Florida posting as few as 16.8 percent of all sales as REO sales. At the same time, short sales are climbing as banks streamline the process and become more active in encouraging the short sale process in order to save money. Many experts believe that these new numbers will help short sale flippers determine exactly how much money and time they can afford to sink in a deal, which could bring more short sale investors into markets where these types of numbers hold firm. This essentially creates a “playbook” for short sale investors, which some parties believe is a great opportunity and others find to be patently “unfair.”
Do you think that this new emphasis on short sales will help speed the market’s return to equilibrium, or do you think this is another artificial implement that will hurt more than help?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.heraldtribune.com/article/20100630/ARTICLE/6301018/2055/NEWS?p=2&tc=pg
Thanks again Bryan, it pays to stay on top of what is working and
why or why not. Since we are headed for a double-dip recession.
(can only pray its not worse than that) it is advantageous to know
what the facts really are. Thanks again.
I cant agree with this. Between MI payoff and government subsidizing using OUR TAX money, I believe in many cases the lender makes more money than if they modify a loan. Think of the potential profit of having CASH NOW plus in some cases after factoring the BILLIONS given to lenders by the Gov, they come out ahead of what the original debt was. This opposed to just making the servicing/interest from the rest of the loan? Shadow Inventory is being and will be held to slowly sell off and profit.
I am a Nashville Tennessee real estate broker who specializes in distressed real estate (primarily short sales). I keep hearing how lenders are streamlining the short sale process, responding faster, more motivated to approve a short sale then foreclose, etc. Unfortunately, I am just not seeing that in my market. There are more short sales, but there are many more short sale listings. Bank of America has gone virtual with their short sale submissions through the Equator system. Despite that it still takes 45-60 days to get an answer on value/price. While that is better then a few months ago, it is still worse than 1-2 years ago. Even with the slightly faster response times the banks repeatedly overvalue the properties and demand near market, market or even over market prices. Bank of America and Chase (JPMorganChase) are particularly bad with respect to valuations. I think that all the inflated tax credit sales (fools gold) have inflated the banks’ expectations and until those sales age the banks will demand too much. I do believe that in 6-12 months short sales will increase significantly in Middle Tennessee as a result of the banks lowering their price demands based on the lower post-tax credit sale prices.