There are bargains on most types of properties in the Prescott AZ area such as short sales and traditional property sales, but foreclosed properties can present unique value to buyers who are at the right place at the right time and are able to construct the right offer.
Short sales and foreclosed properties are considered distressed sales, as both are the result of the property owner’s inability to pay the monthly loan amount, forcing them to sell or default on the home loan. While both of these types of properties can offer great value, the data shows that buyers in the Prescott area are much more likely to purchase a foreclosed property than a short sale property. Consider the following:
As of February 3, 2009, there were 138 foreclosed properties and 117 short sale properties for sale in the Prescott area MLS. In the last 60 days, 58 foreclosed properties sold and 8 short sale properties sold. Working through the numbers, we see that foreclosed/REO/bank-owned homes sold at over 6 times the rate of the short sales.
Why is there such a disparity?
The quick, non-technical explanation is that most short sales cannot satisfy the lenders’ needs and a foreclosure process is the only practical method a lender has available to recoup any of the loan.
The problem is that processing a short sale is much more complex and often involve agreement by different lenders with conflicting needs. Further, short sales attract many offers, all of which are being considered simultaneously. It is common for buyers who have made offers to wait weeks for an answer. Finally, because short sales attract so many offers, even when the sale goes forward, there are usually many disappointed would-be buyers.
An example of a short sale offer: We represented a client earlier this year on the possible purchase of a short sale home in Kingswood Estates. We previewed the property, our clients made an offer and we waited. We were told that the bank received 4 offers, and they didn’t accept any of them.
A foreclosure, on the other hand, is more straightforward. In this case, the senior trust deed holder (usually the primary lender) forecloses on the property that either relieves them of the property at an auction or gives them sole ownership of the property, clearing out the other equity holders. They can then determine sales criteria and list it for sale. The great deals on foreclosed properties sell quickly and have multiple offers.
Example of the sale of a foreclosed property: We recently represented a buyer on the purchase of a foreclosed property in Diamond Valley.
The buyer was from California and had a friend preview the property for him and he made an offer the same day. The bank received a number of offers and asked the three best ones to provide their best and final offer. We helped our client draft the best offer, and he won the deal. It appraised for much more than the sales price our client paid.
Getting back to the data: The raw data cited above show it is six times easier to purchase a foreclosure than a short sale property.
However, the data is blind to the large rejection rate, and our estimate is that the number of rejected offers or those withdrawn by impatient buyers would reveal that actual success rates are 3% or less. Most (almost all) of the successful buyers give up the quest for a short sale and instead purchase a foreclosed or traditional property.
Another critical problem with some short sales in that its often a short-term project for the listing agent (as most banks have their own REO brokers), and the sales price is a fabrication between the listing agent and the homeowner. Sometimes, it is very low and designed to attract buyers for the agent and not necessarily sell the home, IMHO. The offers that do come in are typically below the fire sale price, so banks are non-plussed when they get these offers…remember they don’t own the property yet and are not in a dealing mode.
In summary, deals can be had on both REO and short sale properties, but buyers usually find more success and less frustration with properties that have already been foreclosed on and are not in the process.
See a post from Tucson: Are Buying Short Sales Really A Good Deal After All?