Sunday, October 12, 2008

REOs vs. The Short Sale... Sale Prices

Well... another bumpy ride on Wall Street last week... but then again... that's not news to anyone. Here's what you may not know though, the Real Estate Market may be in the beginning stages of stabilizing.

The Arizona Multiple Listing Service reports that there are over 6,200 residential properties currently in the Sale Pending category. This is about the same number of homes that were in the SOLD category in 2001, 2002 and 2006. Of the 6,200 homes in the Sale Pending category, a little over 2,000 were placed in the Sale Pending category between October 1st and 12th. Of that number over half are distressed property sales and of that number, over 80% are REO sales.

In the $125,000 to $175,000 price range REOs were reduced, from list price to sale price by as much as 24%. The difference between list and sale price for Short Sale transactions is only about 20% (*source ARMLS 10/2008). These statistics encompass all of ARMLS, an area spanning over 200,000 square miles. Nevertheless, the statistics demonstrate two important facts for real estate agents, sellers and buyer. First for the buyer; if the buyer is looking to purchase a Short Sale property, the buyer should be aware that lenders who negotiate Short Sale's for sellers are more inclined to hold out for sales closer to the actual value of the property. Second, these statistics also demonstrate the probable naïveté of the REO asset manager. ARMLS statistics show a growing trend for REO asset managers to accept offers that are far below the list price and even substantially below market value.

Buyers should understand that if he or she makes a purchase of an REO that is below probable market value, their purchase price helps set the value of the neighborhood. Therefore, making such a purchase could be considered a double edged sword; a great buy in terms of cash outlay but perhaps a detriment in terms of perceived value for future buyers of product in that community.

Why is this important? Because it is important for the buyer to know and understand market trends and to nderstand that these swings between list price and actual sale price can vary widely from community to community, city to city and state to state.

Here's an example. In the first 12 days of October 2008, in Surprise or El Mirage Arizona, the difference between list price and sale price for REOs was about 16%. Oddly enough, that was about the same statistic for sales of Short Sale transactions in the same cities. However, in Goodyear, REOs sold for about 13.50% less than the list price while Short Sale transactions closed only 9% less than list price.

It's important for sellers and buyers to seek out licensed REALTORS® who are well schooled in conducting these types of analyses. Making a real estate purchase in today's real estate market can be a huge win or a costly undertaking.

Lori & G-II are licensed REALTORS® with Coldwell Banker Residential Brokerage. They can be reached by cell phone at either 602.574.5674 for Lori or 602.796.5674 for G-II or via eMail at

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