MYTH BUSTED! Short sales do NOT sell for more than foreclosures. Episode #186

Todd: Hello! Welcome to Todd Miller TV. I’m here with Oana and we’re talking about short sales and this huge myth, that short sales sell for a ton of money compared to an REO. So Oana, let me ask you this, you’re a buyer, and there are 2 houses side by side and let’s just say they’re both worth $200,000. They’re identical houses, they’re exactly that same, the lot’s the same, the house’s the same, the condition’s the same, they’re both vacant.
Oana: Okay.

Todd: And one is an REO that you could buy and close in 3 days, and one is a short sale that you might have to wait 6 to 9 months. Which do you think a buyer’s willing to pay more for a short sale that they have to wait for a longer period of time? Or more for an REO that they could just live in for a month?
Oana: Buyer’s want certainty, so they’re going to want to buy a property that they can close on in a time/in a reasonable time frame in a predictable kind of way. The thin about shortsales is that they’re unpredictable, you don’t know number 1: If you’re ever going to close on them.
Todd: Right.
Oana: Because you don’t know if that shortsale’s ever gonna be approved. Or 2: You don’t know when even if it is an approved shortsale when you’re going to close on it. You could be closing on in you know, 30 days, 60 days, 90 days, 6 months, who knows?
Todd: Okay, so all of the things being equal, if you had 2 houses side by side, what would insanti buy as a person to make an offer on the shortsale listing that’s exactly like the REO Listing? Knowing they have to wait 6 months and maybe not get it? What do you think an agent’s or the seller’s insanti buys? Do you think they’re priced below market value to get someone to make an offer on it?
Oana: Absolutely! A lot of times, what happens is the sellers will price the property below market value if it’s a shortsale to attract offers, because if you’re attracting offers then you’re in a much better position to stole the foreclosure process by the borrower’s lender and then hopefully stay in the home longer. Especially keeping in mind that a lot of times the borrowers are not making any payments.
Todd: So, logically, all other things is being equal.
Oana: Yes!
Todd: An REO property and a shortsale property side by side. The REO would sell for more than the shortsale would.
Oana: The REO will sell for more and it will sell faster.
Todd: Okay! Now, let’s talk about why the numbers say differently. Okay, now let’s say somebody comes to you and they wanna do a shortsale, are you gonna be able to charge the seller 10% on the listing?
Oana: No!
Todd: Okay, are you gonna be able to charge them an extra commission fes, transaction fees, or things like that?
Oana: No!
Todd: Okay, so you’re probably gonna get stuck getting the commission cut or changed to 5% by the bank maybe. And you’ll get half of that so you make it 2.5% right?
Oana: Right! Plus we have other cost on our side because we have to pay a negotiator to negotiate the shortsale a lot of times. Because in a shortsale, a lot of times you’re dealing with properties with the foreclosure process has begun. So then you’re dealing with legal actions, so a lot of times, there has been an attorney involved to advice the borrower as to the legal ratifications and proceedings with the shortsale, and particularly when you’re dealing at the very end with the shortsale approval letter having that borrower understand the ratifications of the shortsale approval.
Todd: Okay, so let’s say the average real estate agent out there, a client comes to them with their $500,000 house and says “I want you to do a shortsale on it”. Do you think that agent has a problem doing the shortsale?
Oana: It depends on the situation. They’re all unique.
Todd: Commission wise. Do you think that agent’s gonna have an issue with?
Oana: No!
Todd: doing what he should have?
Oana: No! There should be enough money in the deal to get it done.
Todd: Okay! Is it as the same amount of work as doing a $50,000 shortsale?
Oana: It is!
Todd: Okay! So now, a person goes to somebody with their $50,000 condo and say “I want you to help me do this shortsale” to the average agent. What do you think the average agent says?
Oana: Most agents are not gonna take shortsales under $100,000.
Todd: Okay! So, do you get any REOs that are under $100,000?
Oana: Yes!
Todd: Okay so, do you think that the reason the numbers are skewed is because agents are willing to take on a shortsale that is a higher price range, but they’re not willing to take a $50,000 shortsale?
Oana: Right!
Todd: So, when you look over the REO sell, they sell down here, the shortsale sell up here, but it’s/they’re not comparing like properties. Do you kind of agree with that?
Oana: That’s true!
Todd: So, agents are willing to take the houses before they get foreclosed and do a shortsale on higher end property, they let all the lower end ones, they just tell the people “Let it be foreclosed, no one wants to do the work on that, there’s no money in that for us” and they just let those be foreclosed. Those get assigned as REOs.
Oana: Right! The other issue with the lower priced ones, is that they’re actually harder to negotiate because you’re dealing with a lower priced point, it’s a lot harder to argue that the people can’t afford to make the payment.
Todd: Okay. So, can you see now, so what happened now is the numbers came out. They just took the average price for shortsale, and the average price for an REO and went “Oh, shortsales are more” which actually if you think about it, it defies conventional wisdom. ‘Cause conventional wisdom says: You have to discount the house to make someone wait 6 or 9 months to get a sale approved while they’re sitting around with uncertainty, and when we look in the MLS for the most part, most shortsales, a lot of times we throw them out because the listing price is just way below market value and they’re just trying to insanti buy us people to make offer. So, I just sort of wanted to talk through that with you and Logic it out and just so you know, I didn’t prefer with anything, we sat down and she’s “what are we talking about?” I just started asking her questions, you can kinda get a feel for this Myth. If you are shortselling your house, and the house next door that’s exactly the same, you will not get more money than the house next door that’s a regular sale or a foreclosure. It’s a myth. It’s playing with numbers, they’re unfair comparisons, and they’re nationally quoted. It’s the stupidest thing in the world! You will not make, you will not sell for more in a shortsale. Every real estate agents know that shortsales is more of a distress sale than an REO, that they’re harder to get offers on them, all the agents wanna make offers on REO properties or Equity sale properties with their buyers, and shortsales are just what’s left when there’s nothing else that meets the criteria I think.
Oana: I agree.
Todd: And I think you would agree with that.
Oana: Yeah. Human nature is all about certainty.
Todd: Right!
Oana: And shortsale is all about uncertainty.
Todd: Right! Perfect! Well thank you very much!
Oana: You’re welcome!
Todd: Well, I hope we distall that net net for you, I hope it made sense for you. Because that is the truth, they don’t sell for more. I just thought I would point that out. That is the update, and hope to see you on another video. Thanks!