Sales price of Short Sales vs. REOs
This is an excellent article about the general overview of how short sales are reaching into the mainstream of the real estate industry.
The article, however, leaves a false impression that the REO listings are receiving more money because they close at 99% compared to 91% for short sales. However, there are plausible explanations for the differences in those two closing ratios.
1. Short Sales generally have to start off at market price and require systematic price reductions which must be justified to the lenders for them to agree to the sale. Because buyers want deals but the lenders want to start with market price, price reductions are inevitably built in to the process. Whereas in a REO, the bank and its accountants have pre-determined their bottom-line net price, which is typically below market rate. Because they are dealing with bottom-line net prices, the banks will rarely agree to accept prices that are far off their list price, if at all. By contrast, there is a bit more latitude in negotiating price in a short sale.
2. In addition to having to start off at market price, comparable short sales generally list at a higher price point because owners typically live there and take better care of their homes where their family still resides; compare that to an REO where the owners often destroy many components of the house during the eviction process. Short sales show better so are also more popular because they are closer to move-in condition that REOs.
So despite the impression that short sale properties receive less money, the reality is that short sale properties, sell at higher price points for comparable properties, yet close at a lower ratio relative to list/sold price because of the lenders demands to list at or near market price.
Do your due diligence in hiring a listing agent – ask for performance data
As consumers of a particular type of service, you have the right to and should do your own due diligence before hiring someone to sell your home. I, like most consumers, am a firm believer in getting the most for my money. That is why I advocate that home sellers ask the relevant questions which get to the heart of the matter. Don’t be shy.
Ask performance related questions, you are not imposing or digging too deeply if you inquire about data to support an agent’s assertions, especially if they are claiming to be experts or are other wise claiming to be better than their competition. The details of their marketing plan and what they are going to do to bring a tremendous amount of buyers through the door, or to have your house listed on all the different real estate related websites with videos and nice music, etc…, and how they are going to stage your home to make sure it looks the best that it possibly can becomes secondary to the two most important questions for most sellers: how quick and for how much?
Don’t get me wrong, it is important to understand how your property will be marketed and what amount of resources of the commission being paid will be applied towards the marketing efforts of your home. After all, you want to see where your commission money is going. However, from my own experience at listing presentations, for most sellers, those types of details become far less important than those two simple questions.
If a Realtor cannot answer those two questions for you, then there is something wrong. Trust me when I tell you that any Realtor worth their weight in salt knows or should know these performance data. These numbers are tracked by the MLS and are referred to as DOM (days on market) and percentage to list price. Because this data can measure our efficacy, many of us use these numbers in our marketing material aimed at home sellers. And as it is also the end of the year, many of us are reviewing our performance numbers anyway. To give you an example, my numbers are 34 days and 102%. This means on average my listing takes 34 days before a house is taken off market and it will bring in 2% over the list price.
Finding a good Realtor to sell your home should be an interactive experience with the sellers asking relevant questions as a part of their due diligence as much as the Realtor’s claims about how they can sell your home better than their competitor. If they do not provide data, ask for them. The decision to engage should not be based solely on receiving pretty post cards or receiving nice little writing pads with the Realtor’s pretty mug staring back at you; it should be all about how they can bring value to your transaction.
