Jim,
I wonder from where did you get the idea that it takes a long time for short sales and REOs to close? I have recently appraised many REOs and short sale properties and as soon as I delivered those appraisal reports, they were listed within a week and they went in to pending and after one or two weeks were closed. I think short sales with right asking prices take shorter time to sell. After all that is why the call them short sale. They sell them short because they want to sell them fast.
Moh a short sale is short for three reasons: 1. the sale price cannot cover the amount owed; 2. the owner does not have enough assets to cover the difference; 3. the bank determines it is in their economic best interest to sell the house as a short sale then to take full possession of it for foreclosure. The reason it takes a long time to close from date of contract to the closing date is because 1. the bank wants to be sure the house is worth what it is selling for and that they aren't falling victim to a scam; 2. the bank wants to analyze the owner's portfolio, bank accounts, 401Ks, cars they can sell, assets they have, and other options to see if the owners can cover the difference without the bank taking a loss; 3. there may be a second lien holder involved where the first lien holder has priority and will gain all of their money, but the secondary lender will lose out, making them apprehensive to agree. They have as much right to reject the short sale as the primary lender. A friend of the family almost sold their house in a short sale, $90,000 under. The bank took 3 months to get back to them and refused the sale saying after investigating what they had and what they need, it was within their ability to rent their house out and then rent a smaller house where they were moving to for less, using the difference to cover the mortgage. That's how detailed they got. The buyer is suing our friends, the REALTOR and anyone else he can - he's a lawyer.
A short sale is not called a short sale because it has a short amount of exposure, or a short time from list date to close date. That would be a quick sale. Talking time from contract to close there is nothing quick about. The appraisal for a short sale under contract typically will not be ordered until the bank approves it. There are agents are now trying to get a price pre-approved by a bank by having an appraisal done up front. But there is still the other paperwork, second opinion appraisals, BPOs, secondary lenders, and asset investigation to be done, so at best the approval process for a particular price is in process when an offer at that price comes in.
Yes, if the short sale or REO is limited to just one neighborhood, you should check other neighborhood similar to your neighborhood but the short sale is not limited to my neighborhood. Plus if the cause of short sale is limited to one neighborhood, then you ought to be very careful to find a neighborhood identical you yours in everything which is very hard and sometime impossible to find.
Actually the opposite might be true. If foreclosures and REOs are limited to just one project there may be something wrong with that project. It could be a sink hole problem (actual problem I dealt with), a contractual problem where the builder sold with a no sale except through the builder clause for X number of years (another actual example), it could be a toxic waste issue (Hey, I'm originally an appraiser from Jersey), it could be one investor bought 50 houses and went belly up (another one I was involved with). If you are in the only neighborhood with foreclosures that's a good sign there is something wrong in that project. If on the other hand foreclosures are common throughout your competitive market area and your project has not had any private sales for what could be an arbitrary reason (luck of the draw) going into other projects would be the right thing to consider.
Sometimes, the cause of short mass short sale is due to special situation of a particular neighborhood, which could be very unique. For example, the builder sold all of those homes with very toxic loans 3 years ago and all the sudden they are all unfolding. Other surrounding neighborhood don’t have such a situation and doing better or get less short sales. Now, if you select a sale from other subdivision to use for the value of home in a subdivision, which is tainted by bad loans, you are valuing for a different location if you believe on the effect of location and neighborhood on the market value.
Exactly my point from above where you argued the opposite. But when you have neighborhoods all around with short sales and foreclosures you don't really have the unique situation you are describing.
By the way, I have already checked the other subdivisions very carefully.
The problem with my subdivision is that it contains attached single family homes. There is only one subdivision within one mile with similar homes. It has only one close sale that I am using it. The other subdivisions are either detached with different designs, association fees and market appeals or condos designated for income poeple. other attached home subdivisions are in the golf course within 1.5 miles distance.
Distance doesn't matter, what matters is where the typical buyer for an attached house in this market will shop for competitive properties. Typically there are always a couple of competitive projects within a 5 or 10 mile radius sharing the same or highly competitive amenities, because single builder PUD projects need competitors to close the first few units. To show outside, competitive sales I have gone miles and miles away. The operative word is "competitive" neighborhoods not "distance". You said you have one private sale in your project from months ago. Do you have REO sales from that same period? If so, did they sell for the same or for less?
I referred to emotion because you mentioned the effect of buyer’s emotion on bank influenced and non-bank influenced sales. I think that is a moot opinion. There is no such an emotional attachment. You are psychoanalyzing the buyer instead of analyzing the market and the sales.
Wrong. The buyers and sellers are the market. I have to read the market (the buyers and sellers) and do my best to see what they are reacting to. It is unavoidable. When you say buyers are "capitalist homebuyers" you are giving your own psychological profile. The question is, Which one is right? If your's is correct than we would never see a measurable difference between a well marketed REO or short sale in average condition when it is compared to an equally marketed non-REO/short sale in similar condition. But the difference is there. You've noticed it and admitted it when you said the REOs and short sales lead the way in a declining market. But when REOs start selling for $125,000 after the non-REO sales were selling for $150,000, the other sales might not drop all the way to $125,000. They might sell for $130,000 or $135,000 or higher. I can pull up development after development that shows that over and over again. And now, like the example I showed in one of my other posts above, I am seeing houses sell considerably higher than what the REOs were selling for.
