I constantly get buyer clients asking me about the pros and cons of short sales. In fact, I've received so many questions I created a short sale page on my website and I refer clients to that page. I'm sure I'm not the only realtor who has done that in this market.
I'll tell you that I've had my share of successful short sales, both on the selling and buying side. I've also had my share of short sales that have blown up because 1.) a HELOC demanded a promissory note and the seller refused to sign it OR 2.) a bank wouldn't let go of an unreasonably high BPO. [Side note: If the realtor who did the BPO for my short sale on Desert Cove Rd in Glendale is reading this -- your BPO WAS too high and the house sold for $10,000 less as a REO] Since I have a fairly analytical mind (which can be a curse in a marriage) I decided to see if I could figure out the statistical probabilities of a short sale closing escrow.
My bachelor's degree is in business administration and I did well in quantitative analysis. However, I did not want to create a thesis. I was just seeking a simple way to convey the success rate of short sales to my clients. Here's what I came up with: divide the number of closed short sales in one month by the combined total of the closed short sales plus the canceled short sales. Expressed mathematically:
closed short sales / (closed short sales + cancelled short sales) = % of success
I used only canceled short sales and not those that "expired" or were "temporarily off market." I reasoned that expired short sales could simply be re-listed, were generally caused because the listing realtor lost track of time, and that most of them received an extension. I did not count those that were "temporarily off market" because they would probably end up as either closed or canceled.
Here's my conclusion based on 12 months of statistics from the Arizona Regional Multiple Listing Service: There is a slightly better chance closing a short sale than winning at a roulette table. Remember that roulette has a 50% chance of winning if you play either "odd/even" or "red/black." OK, it really 47% because of the green "0."
The 12 month chart shown below illustrates that an average of 53.7% of short sales close. Read the chart in this manner: "4,150 foreclosures sales (bank owned and short sales combined) occurred in February 2010. 1,438 of those sales were short sales. 1,167 short sales were canceled in February 2010. Therefore, 55.2% of short sales were successfully closed in February 2010." You will also note that the success of short sales has been greater in the last six months than in the first six months of the period.
I can already hear all of the short sale experts across America claiming a much higher success rate. I have a higher success rate too. However, I present these numbers for your information or your humor -- whichever you prefer. Actually, I kind of like the roulette analogy and have already used it twice today. Next time a client asks you if they should consider buying short sales say to them "red or black?"
Home Buyers, Mortgage, Inspectors, Credit
Phoenix Foreclosures - March 2010
Ron Wilczek, Broker/Owner
Metro Phoenix Homes
480-445-9480
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Great title - sometimes that is how I feel.
The statistics you showare somewhat higher than the national average so some of your assumptions may be a bit off. Some agents just let the listing expire when they feel foreclosure is inevitable, some take it off the market when the seller files for bankruptcy or they withdraw the listing when the seller believes the lie that the bank has suddenly pulled a loan mod out of thin air just for them. Interesting post though, thanks!
Love it!!! As a short sale listing agent with quite an ego (lol!) I think your Roulette analogy is the most appropriate comparison yet!
I teach short sales also, and when I do - I always say the short sale is only as good as the listing agent. For those who have gotten pretty savvy, we have a 90% or higher success rate - vs. those who ain't gotta clue, who average 10% or less. So it would be interesting to see a break-down by listing agents......how many agents are in the >50 percentile, vs. how many are <50 percent?
Nevertheless, it's all about rolling the dice....
It was definitely a judgment call on whether or not to use the "expireds" and "temporarily off markets." In February 2010 we had 242 "expireds" and 237 "TOM's." If they were all rolled into the equation the short sale success would have been reduced to from 55% to 47%.
I did a few spot checks and found both categories had listings that came back on the market. I suppose the same thing can be said for the canceled listings. For example, we have a client right now who made an offer on a short sale that was canceled and relisted with another agent.
The agent by agent comparison would be interesting. That would take a task force. :-)
And then there are the shortsale listings that the bank offers them a loan mod. They go off the market for about 6 months and then the sellers finally realize they are paying almost double what they could rent the house for.