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.
