The Sarasota Short Sale
Last month I had an offer on one of my Sarasota listings that came in at about 80% of asking. Now, I don’t blame buyers for coming in with low offers on listed properties. It’s just the nature of what a buyer will do in today’s market. What struck me as unusual was this buyer insisted I knew about a recent short sale closing in the same neighborhood. There were other non short sale closings that were more recent which certainly would support a better offer. It got me to thinking, what is the typical discount a buyer should expect when buying a foreclosure or short sale? How much longer does a buyer wait for a short sale approval and what are the chances of a short sale being approved?
Short sales can typically have a lot of deferred maintenance and in many cases there is a long wait for the Sellers bank to come back with an answer. According to the Sarasota MLS statistics, there are 221 short sale single family homes between $100,000 and $300,000 that are under contract. Correspondingly, there are 38 foreclosures and 161 “normal” sales. Closed sales for the same categories of the past year are 395 short sales, 228 foreclosures sold, and 908 “normal” sales for a total of 1,531 total sales.
What I always find interesting is the percentage of inventory that are short sales under contract and just how few close. In this case, 53% of the under contract listings are short sales and they only represent 26% of the total sales looking 12 months back. “Normal” sales only represent 38% of the pending inventory yet all are almost 60% of the total sales. Many times we hear quotes from sources stating under-contract listings are up. Historically, before short sales came on to the scene, under-contract listings were a good indication of future closings. While the Sarasota real estate market has shown steady and consistent sales by unit increases since 2007, short sales tend to skew reports of future activity. Interpreting the short sale under contract listings vs. closed sales also indicates that many short sales just don’t happen.
The average “normal” sale is selling for $107.20 per square foot which will represent 93% of the asking price, is 1,722 square feet, takes an average 103 days for a contract and 37 days to close. A foreclosure sells for $88.67 per square foot, will sell for 99% of the asking, is 1,928 square feet, takes 55 days to go under contract, and will close in an additional 41 days. The short sale typically sells for $88.10 per square foot, will sell for 94% of asking, is 1,835 square feet, will take 160 days to go under contract, and here’s the big difference, it takes 117 days more to close for total of 277 days from contract to closing.
That economics’ of selling a home is like any other product. It’s the balance between buyers and sellers. Short sales, like foreclosure properties are sold “as-is” and generally you are entitled to an inspection but the chances of getting any repair work done is small. Often times they are not very well taken care of, may have the appliances removed, and in some extreme cases items like air conditioners can be missing. Unlike foreclosures, a short sale process does not begin in many cases until a contract is written. While some banks have improved their process many have not. To any buyer, a home purchase needs to make good economic sense and there is also an emotional component. The long wait time for a short sale further reduces the number of available buyers or demand for the short sale vs. a “normal” sale. Foreclosures sell for about the same cost per square foot as a short sale but they can close and 30 days. In many cases the bank under prices the home and will have many offers over the asking price to consider. This is in large part the reason why an average foreclosure sells for 99% of asking. And let’s face it, a home with foreclosure written on it screams “this is a deal” to buyers in the market.
Broad statistics sometimes do not do justice since every home is different. A short sale will typically sell at a 22% discount to a “normal” sale based on an average purchase price. Part of the discount includes the poor condition, the fact you will be buying “as-is”, and you will have to be patient while you wait for the Sellers bank to give you a positive answer. According to the statistics, you will need to be prepared to wait eight months for a less than 50% probability the bank will approve your deal.
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There are short sales out there that can be bought in a shorter time. With our experience and local knowledge, we can help find these short sale properties that may sell faster than the average. We are just a phone call away.
Sarasota Real Estate Group