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Will We See a Flood of Short Sales in 2021?

Anson Young
3 min read
Will We See a Flood of Short Sales in 2021?

If you asked me in 2018 or 2019 where I thought the market was going, I’d give pretty much the same answer: “Unless World War 3 breaks out or something totally crazy happens, it’s looking good!”

Oh, man. I should have kept my mouth shut. Nobody saw a global pandemic coming, and while the real estate market has largely remained steady, the entire fallout from March to December hasn’t even started in many respects. We will likely be halfway through 2021 before we really start seeing the consequences of this crazy year.

One thing I didn’t expect 2020 to bring back up: the possibility of short sales. In light of years of steady appreciation, I still feel that we are a long way off from seeing a flood of short sales. But let’s find out what other real estate agents are saying thanks to a poll from RealEstateBees.com.

Related: Where Is the Housing Market Headed in 2021? Top 10 Predictions From an Economic Expert

What Is a Short Sale?

If you don’t know what a short sale is, I’ll sum it up quickly. A homeowner who owes more than their house is worth needs permission from the bank in order to sell, as the bank must approve taking a loss on the mortgage before closing. So, if Sally owes $140,000 on her home, but the prices have dropped and the home is now worth $100,000, Sally would need to convince her bank to take a $40,000 loss before she can sell.

These days, agents and short sale negotiators/facilitators handle the paperwork and negotiations with the bank to get the short sale approved.

Will We See More Short Sales in the Near Future?

The big question in the aforementioned Real Estate Bees survey was: “Do you think in the potential recession we will see a similar influx of short sales to the one caused by the recession of 2008?”

Related: Housing Markets Post-COVID: Which Ones Win? Which Lose?

Of the licensed agents polled, they were pretty much in line with my thoughts, with 15.1% saying they don’t think a recession is coming and 56.6% saying the number of short sales will be lower than in 2008. While some kind of downturn is inevitable due to the impact of the pandemic on unemployment, rent, and mortgage payments, homeowners have a ton of options before the market turns so bad that short sales are required.

I’m with the 56%-ers on this one. If there are short sales, there will be a fraction of those we saw in 2008-2011.

I really liked another question in this survey, asking how agents would prepare differently for short sales this time around. This was a good introspective question that I hope got my agent friends to think about how the market could shift and if they are at all prepared. Almost 3 in 10 (28.8%) said they would incorporate a streamlined short sale process into their existing business and 28.9% said they already are prepared for short sales in their business model. Among respondents, 26.9% will continue to do what they already are doing and don’t believe there will be nearly as many short sales as the last downturn.

Opportunities in Recession Times

The last thing I’ll cover brings me right back to 2007 when I first heard about short sales and started processing them for an agent I worked for. I became so good, so quickly that other agents in the office were handing me short sale leads and asking me to process them. I’d only been licensed for a few months. That truly was the Wild West.

Related: 5 Ways the Next Recession Can Make You Rich

Survey responses to this question were surprising since nobody knew what short sales were way back when I got my license. It seems like agents still feel like their competition doesn’t have a clue. The question posed to agents by Real Estate Bees was: “What is the most important benefit of closing short sales as a Realtor?”

My favorite answer (40.4%) is that they are an easy opportunity to get more business as the competition does not know how to close them. Beneficial to investors, 21.1% said that it’s easier to find a buyer for short sales since investor demand for distressed properties is high. I agree with both of those!

The Bottom Line

In conclusion, per Real Estate Bees’ data and agent-respondent comments, it seems that agents are both better prepared for this round of short sales and really don’t see short sales flooding the market like they did in 2008. Unlike my dreadful prediction of where the market is headed, I’ll appeal to the majority of my colleagues on this one and completely agree.

Will we see short sales? Absolutely. Will it further drag the market down? Not likely!

For more on Realtors’ sentiments surrounding short sales, read the full survey on RealEstateBees.com.

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What predictions do you have surrounding short sales and the next recession?

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