Short Sale or REO???

Prices continue to drop...interest rates continue to drop...people claim it is a buyers market. How come it takes SO long to get people into all of these homes?

Snapshot:

* a huge percent of the homes are the market are short sales or REOs (also known as lender owned, bank owned)
* a huge number of people can afford homes
* as long as rates stay low the buyers will remain
* as long as there is still toxic debt out there the prices will remain low (pardon me for believing that the government is ridiculous for thinking a bailout will work, oh, yeah...if it does...we will be back at the governments door in 3 years asking for a new bailout 3 times the size AND still owe for this one - was that pessimistic enough????)

(Back to the topic at hand)

Bank Owned homes:

1. Usually get answer in 24-48 hours
2. Usually has mutliple offers
3. Usually counters with "highest and best"
4. Usually can close in 30-45 days

Short Sales:

1. Usually takes 1-2 months to get an answer
2. Usually has multiple offers
3. Usually counters at market value
4. Usually does not close escrow (becomes a bank owned home) - a few months ago the stats were 4% short sales closed escrow

The last piece of information is that short sales have a HORRIBLE reputation. I speak with hundreds of people thinking about buying homes every month. Most of the time they have no idea what a short sale is (except some people think that the escrow is going to be fast - i.e. short). All they know is that short sales are evil.

Bank owned homes do not have nearly the same bad reputation...although, maybe they should. In Corona, CA, where I live and practice real estate the trend is such. Most bank owned homes sell for 2-10% over list price. They sell for this amount regardless of what the comps say. A comp is a comparable home sold in approximately the same time frame. However, short sales languish on the market because; banks do not know how to handle the huge influx in homes, the listing agent doesn't know how to process short sales, etc.

Take these two homes for example...

1447 Pinewood Dr, Corona, CA 92881

List Price - $399,000
Sold Price - $392,000
Price/Sq Ft - $120.43
Beds - 5
Baths - 4
Sq. Ft - 3,255
Lot Size - 7,405
DOM - 17

282 Mount Vernon Way, Corona, CA 92881

List Price - $399,000
Sold Price - $400,000
Price/Sq Ft - $147.11
Beds - 4
Baths - 3
Sq Ft - 2,719
Lot Size - 10,018
DOM - 98

Remember that banks set the price of bank owned homes. They set the prices low and hope that people will blindly bid against each other. They are banking on the fact that the buyers will not look at the comparable properties in the neighborhood and will only look at the current situation. Which looks like this, "we have received multiple offers, we need your highest and best". Therefore, people are willing to bid more than the property is worth (sounds a little like what happened in '05 & '06).

On the other hand short sales are starving for qualified buyers. They received multiple offers when the home comes on the market, but most of those buyers end up buying a bank owned home before the bank can approve the short sale. Often, the last offer standing (if there is one) gets the home. We saw this in the illustration above - people over paid for an older, smaller home. The Pinewood property is definitely the better home to purchase.

Eight months ago I would have told my buyers, "steer clear of short sales". However, today - the data seems to say that short sales are the better buy!