Short Sale Listing Price Strategy

[ZZGAMAZZ]

Now that short sale listings comprise more than 50% of several recent markets I have encountered in SoCal, it is often necessary to include short sale listings and solds in the SCA, in addition to defining the role and impact of short sales in the market analysis.

Consequently, I need to enhance my understanding of the issue and wonder whether a "typical" institutional short sale listing strategy exists.

I'm not aware of who establishes the list price, the institutional owner or the broker/realtor, and whether it is based upon anticipated market exposure, etc.

I have "assumed" that short sale list prices are below market with the intent to dispose of the properties quickly, yet realtors I interview share that they often steer clients away from these listings because the acceptance process is arduous, yet that scenario seems contrary to the intent.

All things considered, I know absolutely nothing about this issue.

Thanks.

 

[Lloyd Bonafide]

Yes - definitely over 50% of the market in some areas.

The broker along with the owner establish the list price just like any other property. Unfortunately, there is no pattern. Many short sales are listed below market as you see all the time, but some are listed at market. And as you already know some sell at market, but most sell at least a little below market, and some way below.

Some listings don't start out as short sales, but after price reductions they become short sale listings.

With some SS listings, banks have pre-approved a sale price, but with most, the lender(s) don't know about the SS listing until it's already been on the market. Some not until there is an offer.

We are are going to be dealing with this crap for at least the next five years, (maybe forever). m2:

 

[Terrel L. Shields]

It is more work for Realtors and since the price is lower, less commission.

The pricing is inscrutible and anyone who attempts to determine that procedure is on a fool's errand. Even with all the data available (and it is not) you have several issues.

First, Is it a local bank familiar with the market, or a bloodless BoA or StageCoach?

Second, are the regulators (FDIC, et al) on their case to move some property?

Third, is the home in an area where it is difficult to maintain its security? That is, is it isolated from other houses and prone to criminal mischief.

Fourth, what was the balance on the loan?

A small town bank who lent conservatively is far more likely to ask a near market price than a bigger bank, however, that bank, if in trouble with the FDIC, may be forced to rapidly sell the property. In fact, a lot of such properties are purchased at the urging of the bank by some of their better heeled customers and the bank provides favorable financing terms or even non-recourse loans (if it doesn't work out, we won't come back for the difference.)

Intuitively, a small balance means the bank can sell for less and move it quickly.

I am convinced that fannie mae and freddy mac use a dart board to determine price.

As for Realtors. The condo next door to my helper was a repo and sold as the most expensive condo in the development...ever. The buyer had been out of bankruptcy exactly 2 weeks when CW loaned her 100%. She stayed 11 months.

I (we) offered 40% of what she had paid for it. Another Realtor offered $10,000 more. Another broker was going to make an offer on it and was told by the listing Realtor that it was "good as sold" and don't waste your time. He intended to offer 2/3rd what she paid for it. Months later it still hadn't sold and one of the partners in the listing Real Estate Co. went bankrupt. They sold it for what I had offered within a few thousand to a third party who had simply inquired about it and made an offer...

At no time did the Realtor attempt to negoiate with me (thru our broker) nor did they try to contact either of brokers to see if they were still interested...both were. So ultimately, they took a price barely above my low ball first offer, and well under the price offered by two other parties, took over 8 months to do the deal, and apparently the bank didn't know or care that they got much less than they should have for the condo.

I cannot use such sales that are priced by serendipity regardless that they might "look" like a market sale.

 

[Elliott]

Terrel has described short sales well. I'll just add that the realtor sets a price
that will 'sell' the property quickly, then the short sale hits the loan processing/legal
bureaucracy and decisions slow down as if one was an observer traveling at the speed
of light. The 'short' company has to get approval from the lender, which has to get
approval from the FDIC or Fannie. Its always funny to hear Fannie say, "We don't
do repairs" on a new FHA loan." 'Well, then Fannie, this house isn't going to qualify
for an FHA mortgage.'

Realtors tend to have learned to shy away from 'shorts' because they need a buyer
with lots of patience who is willing to wait for a 3+ month closing (and realtors don't
like to wait 3 months to get paid either).

 

[hglenbetts]

Here's what I'm seeing in my market (with my Realtor hat on)...

Listing agent sets a list price, typically above the non distressed market. (after all, the seller owes twice that amount)

The bank does their own BPO, which usually comes in just below the list price.

Since it's common knowledge that the banks are looking for 93% of the BPO value, the buyer's agent writes an offer contingent upon the house appraising at offering price.

When the appraisal (often FHA) comes in well below the 93% of BPO based offer, the contract gets renegotiated to the appraised value and we have a deal. That easy!!

BTW.. Here's the market study that I just conducted yesterday on a market for my newest report.

Non distressed sales = 50% of solds
Short sales = 5.4% @ 92.73% of non distressed medium sold price
REOs = 44.6% @ 79.8% of non distressed sold price

Although the short sales are a large part of the listing mix (40-50%) the agents aren't getting them closed and most are falling into foreclosure.

 

[VegasWayne]

Game theory strategy analysis is a possible method of analyzing short sales. There seem to be dozens of strategies being tried, some successfully, some not. Here are some of the strategies I see being tried:
list low, accept one offer from related party, hope offer accepted
list low, accept multiple offers, hope offer accepted
list near market, hope for offer, hope offer accepted
list high, hope for offer

 

[ZZGAMAZZ]

If the short sale pricing strategy is, indeed, cadywampus, and if short sales comprise a significant portion of the market, should one disclose that "results of the market analysis are relatively meaningless" ???