As we have discussed before, Short Sales are on the rise as a better alternative to Foreclosure. Definitely a better deal for the Distressed Homeowner and the lender. What about the Buyer?
Realty Trac’s Foreclosure & Short Sales Report for the fourth quarter of 2012 which covers over 900 metro areas in the United States shows that Denver is not in the list of top metro areas for the best deals in either category. This is good news for our local real estate market on our way to recovery, but maybe not so much for investors looking for the best deals out there.
A recent article by the Realty Trac staff shows the 15 metro areas they found to be the best buys in the two categories. Santa Barbara, CA topped the list of Short Sale Best Buys with an increase in short sales of 52%, an average price of $283,825, and average amount short of ($178,201), and at the bottom was Detroit, MI, with an average price of $97,233. At the top of the 15 Best Markets for Buying Bank Owned Foreclosure properties was Cleveland, OH, with a 141% change in REO sales, average sale price of $57,782, and 56% discount off Non-Distressed sales, while #15 was Sarasota, Fl, with a 19 percent change, and average price of $127,181.
In our own Denver, CO metro area there were 9,072 residential properties sold in the fourth quarter of 2012. Short Sales made up 8% of the total at 724, while 8.3% were Bank Owned foreclosures, 762 of the total properties sold. The average sale price for Bank REO’s was $210,347, a 35.5% discount from Non-Distressed properties, and Short Sales sold for an average of $224,543, a 31.2% savings. The average days on market for a Bank Owned property was 77, while Short Sales were 159. This statistic reveals the additional time it takes for a short sale transaction to be approved by the lender.
Of course there are other factors to be considered in the purchase of a distressed property. Bank owned properties in almost every case have sat empty for some length of time. Some for a year or more. This allows for more chance of pipes bursting from winter freezes, along with a myriad of other potential damage to the property, including vandalism. A much higher percentage of foreclosed properties have been stripped or damaged by the previous homeowners, angry at their circumstances and having to leave their home under duress. Short sales in most cases have been occupied by the homeowner until closing. While there may be some deferred maintenance due to financial constraints, most homeowners have a certain pride of ownership and are grateful for the more dignified approach of selling their own home with the blessing of their lender in a short sale transaction to avoid foreclosure. These homes are likely to be in better shape once acquired at closing, requiring less of an investment for repairs.
No one is to say which is the better choice for a particular buyer, but it is good to consider all that is involved in the acquisition of a distressed property beyond just the price. The good news is there are opportunities for many buyers with different objectives.