It is no secret that the popularity of Valley foreclosed properties is highest amongst Realtors and buyers. Especially when compared to short sales, foreclosed homes for sale on the market are often more compelling and preferred by many buyers.
However, anecdotally, I am beginning to wonder if some short sales represent a better value than many foreclosed properties currently on the market and should again garner more attention. Let me explain.
Common Knowledge About Short Sales
There was a time when the concept of a short sale was a relatively new concept to the market. As such, home buyers in the Phoenix area, and many Realtors for that matter, weren’t familiar with what a short sale was and how the process worked to buy a short sale property.
However, over time, many buyers and Realtors got burned as they learned how the purchase process was executed and experienced firsthand how frustrating a short sale can be for a buyer. Many buyers that submitted offers for properties and who were told that their offers were the strongest later found their offers beaten out weeks later. Why? Because many Realtors kept shopping the property even though they had one, two, or even more offers on the property. And with their seller’s permission, they would disclose the key terms of your offer to the next Realtor so that that Realtor would submit an offer that was even higher.
Though this process has been finally changed by the local ARMLS board, buyers rightly understand that the short sale process can still be frustrating, slow, not without potential disappointment (though you may have an agreement with the actual owner of the property, the bank or banks may not approve a deal), that the listed price is not necessarily the actual sales price, and that a short sale is definitely not for buyers who are time-sensitive. As a result, buyers have migrated to foreclosed homes and normal owner transactions instead for their next home purchase.
Listing Agents May Have to Be More Aggressive with Short Sales
Because of the competition posed by foreclosures and sense of urgency with regard to short sales to beat the Trustee’s Sale date (when the property actually closes), many Realtors may feel compelled to lower the list price for short sale properties to more effectively compete against foreclosed homes. Basically, it’s like offering a ’frustration premium.” In other words, the price is lowered to entice buyers to go for the home despite the difficulties and uncertainties associated with the short sale.
Are Short Sales Qualitatively Becoming More Compelling?
Because of these factors and based on some recent property searches I performed, I wonder if short sales are now presenting a stronger and better value proposition for home buyers who aren’t time sensitive.
Broadly and statistically speaking, the per square foot pricing for short sales versus foreclosed homes is lower for foreclosed properties. So, the quantitative analysis favors foreclosures. However, it’s the qualitative aspect that is more thought provoking.
Many foreclosures are simply in very bad condition having suffered damage and neglect. It is not unusual to see a home where appliances, fixtures, and even cabinetry and other items have been removed by the previous owner. In addition, carpeting may be destroyed and the interior may be in desperate need of repair and repainting. Because of this, these properties must be priced lower to attract buyers.
Short sales, in my opinion, are less likely to have this circumstance as the owner possibly still lives in the home or at least understands that the removal of attached property makes the property nearly impossible to sell as a short sale. Many homeowners simply have no other choice but to sell but still maintain a level of pride and care in the home.
Excluding the Short Sales May Be Short Sighted
Knowing full well the frustrations for buyers and myself when it comes to purchasing a short sale property, it may be time for buyers who are flexible in respect to when they need to purchase a home to reconsider short sales as viable home options. Assuming the deal goes through, a buyer may find that a particular short sale home is a much better fit and worth the added hassle, uncertainty and risk.
After all, a few months of uncertainty and frustration to get the right home for the buyer is better than years spent in one that isn’t the right home.
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