Sacramento Short Sales
In a recent post, we looked at the number of short sales, real estate owned (or “REOs” — bank repos), and properties with a foreclosure pending were listed in the MLS. Today I want to focus on two of those categories, short sales and REOs, and see how the sales numbers hold up to the inventory numbers, and how those numbers have changed over time. We’ll also try to explain why short sales seem to get sold less often (percentage-wise) than REOs, even though the amount they’re discounted is quite comparable.
Throughout 2005, short sales and REOs made up a fairly insignificant portion of the total residential sales reported in the MLS for Sacramento County. Indeed, only twenty-four such sales were reported in the MLS for all of 2005. Short sales accounted for .05% of the total sales volume in the first half of 2005, and .03% in the second half, while REOs accounted for .06% and .07% during the same period. In other words, added together, both categories barely managed to break the one tenth of one percent mark (i.e., about one in 1000 sales).
In 2006, the numbers of short sales and foreclosures rose steadily. During the first half of 2006, .35% of sales were REOs, and .10% of sales were short sales. During the second half, the percentages were 1.33% and .60% for REOs and short sales, respectively. So by the end of 2006 we were up to almost 2% for both categories.
In 2007, the numbers increased even more dramatically. So far for 2007, 5.15% of the homes sold are REOs, while 2.52% of the homes sold are short sales. In other words, foreclosure sales of one sort or another make up almost eight per cent of all MLS sales.
Of course, that’s less than the roughly fifteen per cent that we have in inventory. As we saw in our February article, short sales make up the largest portion of the inventory for all “foreclosure” categories. Here’s that chart again:
So REOs sell at more than double the rate of short sales, yet the discounts on these homes are quite similar. For 2007 year to date in Sacramento County, I found that REOs discounted at an average of 11.06% from non-foreclosure properties, while short sales are discounted an average of 11.09%.
Why the discrepancy? There are several possible reasons, but in my opinion the most important reason is that most Realtors® don’t like to do short sales. Selling a short sale means the lender has to approve the transaction, which means that the transaction takes longer, has more decision makers involved, and requires more effort than a traditional sale. Moreover, lenders will frequently cut the commission offered in the MLS when finally faced with an offer, and the amount of such a cut cannot be determined in advance. The upshot is that — from an agent’s point of view — short sales mean more work over a longer period of time, and less pay.
There may be other reasons why REOs tend to sell better than short sales. For example, REOs by definition are pretty much always vacant, and vacant properties are definitely easier to show. I believe they’re typically easier to sell as well, since the buyer doesn’t have to first mentally remove the seller’s furniture before mentally adding their own. On the other hand, it may also be that we’re looking at the wrong end of the pipeline, and perhaps it’s simply the case that more recently, more and more short sales have been available. In fact, since short sales are in an earlier stage of the foreclosure process, when we start to see relatively more REOs it may mean that the worst of the foreclosure period is behind us.
Remember, short sales and REOs are discounted an average of about 11% from other properties, so if you’re interested in finding out what short sales or REOs are available, just drop my team an email and ask for a list — or feel free to give me a call directly at (530) 672-9160. Just let us know which areas you’re interested in and we’ll get you the information you need.
