Short Sales Gaining Popularity
US home prices may get a boost from an unlikely source: a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold.Â There has been a â€œdramatic shiftâ€ in banksâ€™ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of Home Services of America Inc.Â The short sales typically change hands at a discount of about 20% to homes not in financial distress, compared with a 40% price cut for bank-owned homes, according to Realty Trac Inc. Short sales jumped 19% in the second quarter from the prior three months while foreclosure sales were flat, the data seller said.Â â€œBanks have become much more supportive of short sales,â€ said Peltier, whose Minneapolis-based company is a unit of Warren Buffettâ€™s Berkshire Hathaway Inc. â€œThatâ€™s better for the lenders, who have smaller losses on a short sale, and itâ€™s going to be better for homeowners, who wonâ€™t have as much psychological distress as a foreclosure.â€
Distressed sales brokered by Home Services used to be 60% foreclosures and 40% short sales, Peltier said in an interview. Now, that ratio has flipped, according to the CEO.Â â€œThereâ€™s a huge backlog of homes in default that the banks want to get rid of,â€ said Thomas Popik, research director for Campbell Surveys in Washington. â€œThey donâ€™t want to be homeowners.â€Â Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo- signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, according to Realty Trac.Â Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors.