A distressed sale is property that has been foreclosed upon, is in short sale, or has had the deed legally transferred due to the owners inability to pay the mortgage.
Foreclosure is an actual proceeding in which the financer of a mortgage (mortgagee) seeks to regain property because the borrower has defaulted on payments. The action usually culminates in an auction that satisfies the loan. If the auction does not produce a bid that will satisfy the mortgage, the mortgagee may take possession of the property and (will normally) put it on the public market. So, when people talk about a “foreclosure”, they are usually referring to a corporate owned property that has already been auctioned on the courthouse steps.
A “short sale” is when an owner is selling his property for less than he owes with the approval of the mortgagee. While this sounds like a good fix for some, there are indebtedness, tax, and credit implications to the seller.
Until recently, our area multiple listing system (MRIS) did not require agents to differentiate our listings by type of sale. Now we have to note if the sale is a foreclosure or short sale.
I ran the listings for 2009 with the keywords foreclosure or short sale in the Locust Grove zip code. Here’s the scoop:
The keyword foreclosure returns 81 listings; 10 active, 7 under contract, and 64 that have sold. The average sale price is $162,113.
Short sale returns 61 listings. There are 32 active, 19 under contract, and 10 that have actually made it to settlement. The average sale price – $149,389.
Why do so many “foreclosures” sell than short sales? Foreclosures are being sold by asset management companies. They are entities, not humans. There is no emotion. They will list the house at a reasonable price to sell that asset.
Short sales involve humans – the seller, who is in a tough spot and needs to sell but who hasn’t been educated by his listing agent on the process; the buyer, who needs housing within a timeframe and expects to move into the house before ________(pick whatever date) because his buyers’ agent didn’t educate him on the process; the listing agent who takes a listing and prices it lower than the mortgagee will consider because the agent is not educated on the process. Do you see the pattern?
Education is key. Make sure your agent is educated in the process. And email me if you want to find out the statistics for your neighborhood or to recommend a good listing or buyers’ agent. I’d be more than happy to help you out.