Home Blog Real Estate News

Short Sale Could be the Next REO as Short Sale Process Gets Easier

Tracy Royce
2 min read
Short Sale Could be the Next REO as Short Sale Process Gets Easier

What is a short sale?

Although at this point it might go without saying, a short sale as it relates to housing is when the owner owes more than the property is worth. The short sale process entails negotiating with the current lenders to have them accept an offer from a new Buyer to purchase the property, and settle the borrowers (sellers) loans for less than what was owed with the new buyers funds. Sounds fairly easy, right?

Check out this video where I’ll give you a brief introduction to short sales:

Ask any agent or buyer in the last several years how easy it was to get a short sale through. They’re known to be clunky, take far too long, fall to pieces when an agent isn’t versed in the short sale process, and deal with the probability the investor overseeing the loan can deny an otherwise sensible offer. The lack of understanding of how they work and potential legal pitfalls for agents has led to much confusion, frustration, and even refusals (from buyers and agents) to work with short sales. This in itself is a pity since they offer, and continue to offer not only a solution in the marketplace, but opportunities for investors.

As with any complicated structures, it takes time to work out the kinks. There are recent statistics that paint a more optimistic picture of short sales getting done, in a more efficient manner, and getting the short sale process to be more fluid.

  • Short sales were up by 22 percent in the third quarter of 2012, and accounted for 65 percent of pre-foreclosure sales in the same quarter, according to RealtyTrac.
  • Between March 1st and September 30th of 2012, lenders were able to provide approximately $13 million in debt relief just from short sales.
  • In 2012, foreclosure sales steadily outnumbered REO sales; in the third quarter, 98,000 homes in foreclosure were sold, compared to 95,000 bank owned homes that were sold in the same period. Sales of REOS (bank owned inventory) were down 20% from the 2011.
  • Meanwhile, foreclosures (including short sales) made up 19% of all home sales, which was the same % as it was in 2011.

This is on a national level, and of course some areas that didn’t see a rampant growth spurt aren’t going to feel the effects of inequity quite as bad. So, your area might not see many short sales happening.

Short Sales Process is Getting Easier

But for markets like Arizona and other hard hit areas, short sales are still a healthy chunk of the market. For instance, here in Phoenix-metro, distressed sales are still approximately 40% of the monthly sales, with short sales claiming 70% of the distressed sales, or 27% of everything that is closing every month.

As well, many lenders have been able to shorten the entire process to just 60 days or less, which is down tremendously from the 6 months or longer it has previously taken to get through the short sale process to close.

But, things have changed and the agents that are still doing them tend to have a little better grasp, coupled with the fact banks are starting to get them processed much faster, some in as little as 60 days or less.

So if you’re tired of chasing REO’s or competing against ubiquitous buyer groups at trustees sales/auctions, why not go against the grain and try to create equity and get deals by buying a short sale?

What do you think?
Data Source: Realtytrac.com
Photo: josima1

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.