February 27th, 2009 by Michael Oliver

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In my own experience of handling short sales on the listing side and speaking with an appraiser I have come to the conclusion that I’m not sure buying a short sale really saves a buyer much at all after it’s all said and done. There are a couple reasons behind this and not all short sales are the same some buyers do get really great deals and this is all hypothetical meaning every single short sale is much different. But here are the findings that both myself and an appraiser spoke about the subject with deemed as more then likely the “deal” most buyers get on a short sale home:

1) Banks negotiate much harder on the short sale then on a foreclosure they already own. The reason being is they actually don’t “own” the home yet, and maybe the seller decides or comes up with a plan to keep the home from being foreclosed upon thus saving the bank losses. I have personally noticed this on short sale listings of mine banks many times would stick to an outrageous (high) number to allow a short sale to go through hoping to put pressure on the seller to figure out a way to either make the short sale work. (IE: Taking a loan from the bank and paying on a portion of the losses the bank is taking on the sale.) Or to let the seller know that the short sale option was not going to go through and if the seller didn’t want to be foreclosed upon they needed to do something significant to save the home as the short sale price was not going to garner a sale on their home.

2) The short sales in general are in better shape and also have more upgrades then other homes, which made them more appealing to buyers. The more buyers that are interested in a home the higher the sale price will be.

3) From the time most buyers place an initial offer to the time the bank reviews it, counters it, and the buyer actually agrees to the sale price and closes can be 3-6 months. In the meantime (at least in Tucson AZ) the market is still in decline. The price that the buyer thought was a steal 5 months ago when they were actively in the market and made the offer is now “so-so” at best and the buyers don’t notice that because they have been sitting on that one house trying to make a deal on it. If the bank does come back and approve the sale look out because more then likely there only doing so because the actual market has changed quite a bit over the past couple months and that price is a good price to the bank. Not the buyer.

4) Buyers like the idea of buying a “distress home” but still want a home in great condition and with upgrades. The short sale listing fits that bill so it unknowingly puts the buyer in the thought process of “I am going to get a deal” and with the time lag and the negotiation abilities of the banks they end up accepting prices that are not really a “deal” at all but more or less the actual market price at the time.

So it kind of works like this on the scale of where the best real estate deals lie from top (less likely of a deal) to bottom most promise for striking a good deal.

-Buying from an individual seller

-Buying a short sale

-Buying a foreclosure in good shape

-Buying a foreclosure that is in horrible shape

-Buying a foreclosure that is only able to be purchased in cash since it is such bad condition no buyer can get a mortgage or home insurance on the property.

Now obviously when you buy a home that needs a lot of work the skill in determining if it’s a good deal is being able to evaluate exactly how much work is needed and adding that to the total invested in the home vs. what other homes that are in like quality sell for. That’s much, much easier said then done and there is a tremendous amount of risk in buying a home you though only $25k was needed for renovations and ending up spending $50k on the “unforeseen”.