Your question contains two parts: Are bank owned properties clearly identified? How do REOâ€™s and short sales impact comparables?
Our MLS identifies bank owned as a category of ownership. Buyers may take note of this and buyer agents may point this out as it noted on the active listing for sale.
When pulling comps, how many Realtors and how many public members take note of these details when evaluating sold properties and formulating pricing opinions? A thorough Realtor will take the time, and be astute enough to differentiate a distressed sale. This is an important consideration for both buyers and seller when choosing their representatives. If one were to simply pull 3 bdr/2 bth 2 car garage solds from a database, we might find wider swings in the sold prices reported.
The definition of market value in the amount a buyer would pay a seller, if both were reasonably informed, neither were under duress or pressure, it was an armâ€™s length transaction, the property had been exposed to the market for a reasonable expanse and time period, and atypical financing did not influence the purchase/sale price.
Do short sales meet the definition of market value? Thereâ€™s no doubt that the overall averages will be suppressed as a result. But what about individual sales transactions?
A strong negotiator for a seller, will be well prepared to discuss the comps and help a buyer (through their buyer agent) understand which comps are relevant for the property being discussed. A seller will benefit well from hiring an agent who is detailed and capable of using facts and documentation to support their negotiations. A strong buyer agent will be well prepared to discuss the averages and how the overall market performance impacts value of individual properties.
Not all pre-foreclosures or foreclosure sales are discounts. The allure of big savings draws pools of buyers who think they are harnessing a deal. In jest, I had a seller say he wanted to market his property as a â€œpre-foreclosure fire saleâ€ and raise the price 30K. He said she thought he would sell faster and for more money. It was said in jest, but his observation of the market was that â€˜perceived savingsâ€™ would draw buyers, even with a higher price than his current ask. (No, the seller did not really raise his price, or misrepresent his property. He was simply discussing buyer misconceptions.)
Now, more than ever, a buyer or seller can benefit from the strengths, skills and knowledge of their chosen agent. Distress sales impact sold prices and the right solds must be used as comps. Not all bank or foreclosure sales are distress sales, so those comps must be carefully chosen. Choose skilled agents who can choose comps wisely and justify why those chosen.
Mary E. Diaz, Associate Broker
Great answers....I was goolging for this info and came across your post.
Check this post out of a blog I read daily:
Pretty amazing stuff happening with shortsales...
Does your buyer broker always specify a fee that must be paid to you as broker? Does it specifically state that if the co-op is less than that fee, the buyer will pay you the difference. Maybe it should say that when working with short sales.
Since BAREIS MLS thinks the expense is too high for a new status, perhaps the way is to allow the agents to show it as Active, but mandatory a comment saying that that there are offers presented already. Although I am not sure who is going to police that, the same people who reported now I guess.
I have seen agent who priced the short sale property artificially low so it can get into contract, keep the status as active so they can try to get multiple offer to drive up the price. To me, this confuses the new buyers and can backfire. Like Jackie said, depresses the property value if the tactic does not work and can cause the property to sit on the market for a long time if the lender disagrees with the especially low priced offer.
Jackie, I totally concur!! Problem is we have Realtors/Licensees slamming prices of "Short-Sale" properties so they'll generate offers. When they do that the damage all those around them who are not in such dire straights!
As a seller, we want to show the status when the offer(s) are being reviewed by the lender because we never know if the lender is going to reject the offer, then we are back on square one and at the same time, the house is not being shown for an extensive period of time because the status of 'contingent show' basically take the house off the 'active' status.
However, as a buyer who made the offer, we don't want the seller to continue accepting offers while we put in our good faith deposit, are being a good buyer, just sit and wait while others bring more offers in. We want the status to show as 'contingent show'
I wonder if there can be a compromise where BAREIS (or other MLS) can create a new status just for this situation. Since we now have new codes such as 'REO' 'Short Sale' on BAREIS as a required field, why can't we have a Contingent - Pending Lender Approval. This allows the agent to select their '24 hour watch' (BAREIS term) to include both Active and the new Contingent-Pending Lender Approval status and are fully aware that this house has an offer currently being reviewed by the lender.
For extraordinary times, we use extraordinary measure (or really not, just a new code). As fast as CAR came out with the short sale addendum and BAREIS came out with the short sale / REO check box, I think they can do this pretty easily. .
Question for Michael - I thought REO property is treated pretty much the same as regular sales except for this is a bank owned instead of individual owned. Am I wrong? If so, what's the difference?
Some agents just have the Buyer present and NOT have the offer signed by the Seller but submit it to the lender therefore getting around the "Continue-to-show" issues as they reason no offer has been "accepted"! However, agents get ticked off at this and call the MLS and complain and the MLS reports a violation!! And when you report it as a "Continue to show" the agent who presened think they have a deal!!
The Bay Area Multiple Listing Service recently added a few fields to the Sale Condition. We now can and are required to choose among HAP, In Foreclosure, NOD, Offer As Is, REO, Short Sale, VA Repo, Other and None.
Disclose, disclose, disclose. It is advised that agents use the same judgment handling short sale as we advise our clients. Unfortunately, it does have an effect on the price of the houses (comps), but with that information, you can at least try to explain away.
Also, as short sale, foreclosure and NOD requires special handling and can take forever to get final approval, the buyers who are into this need to be very well prepared mentally to do it. So, the more you disclose the better. For us, we can not represent investors in NOD situation.. Commission with the selling agent is also a big issue, they need to be informed.
Some buyers also think they are getting a great deal upon seeing short sale/reo (whether it's true or not), it might encourage them to take a special look at a property even though the journey could be longer.
So, yes, I would rather know this is the situation going in than not.
The Miscellaneous category is not a category available in our quick search, and so we have to create a custom search to search for those indicators, but at least it's possible for the listing to be entered with this duly noted. I'm not sure how compliant that is. Like I'm sure your MLS is, our MLS has some pretty poor data quality.