Are Short Sales the Better Deal?


We are often asked this question by new clients looking to buy.  “Are short sales the better deal?”  Like most things in life…it depends.  First of all, are short sales a better deal than what?  Than traditional sales?  Than bank-owned (also known as Real Estate Owned, REO) homes?  Let’s try comparing the price per square foot collected on all three types of sales (traditional, REO, and short sale) over the last year.  Obviously, this is not the only criteria upon which you should base your decision to buy a short sale or not, but it is the most concrete for our purposes here.  Other criteria most buyers should take into account before purchasing a home include location, property condition, seller concessions, contract terms, and the list goes on…

Over the last year, February 15th, 2009 through February 14th, 2010, the average sales price per square foot of a traditional home in the Greater Phoenix Area was $123.27.  For REO’s, it was $67.  For short sales, it was $87.70.  So, over the last year, the average sales price per square foot of short sales has been lower than that of a traditional home, but still not as low as that of an REO (also known as a foreclosure).  My money says, then, that short sales are not the better deal; REO’s still are, and by a considerable 24%!  So, why are so many more of our clients asking to see short sales these days?  The answer, we feel, is three part.

First, short sales are hot right now, like, real hot.  Everyone’s talking about them, and everyone seems to want one.  We don’t feel that is any one person’s fault; it’s just the power of the internet and mass media at work.  Second, in the Greater Phoenix Area, they happen to account for a larger section of the market than REO’s…by almost 300%!  At the time this blog post is being written, there are 5,816 active REO listings, while there are 15,520 active short sale listings.  Out of 41,784 total active listings, we realize that 15,520 is too large of a segment for some people to ignore.  Third, and we feel the most important of the reasons, short sales tend to be in better conditions than REO’s.  This is a generalization, of course.  We have sold bank owned properties that were in move-in, recently remodeled, outstanding condition, but most were not.  Buyers perceive short sales will be in better conditions because they are sometimes still occupied by tenants and/or the owners, and sometimes still furnished and being maintained.  There’s something about a vacant, bank-owned, home that sends some home buyers, especially first-time home buyers, running for the hills.

We’ve said a lot, here, but have we answered the question yet?  Actually, we have intentionally not told you whether short sales are the better deal, because “deal” has a very subjective definition, which only you can really identify.  To some, price is the determining factor, while condition is it for others.  For most, we’ve found that the definition of a “deal” is the combination of a variety of factors (listed above in the first paragraph).  Each listing, whether it is a short sale, REO, or traditional home, is different, and should be treated as such.

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About Doug Hill

Doug Hill is an Associate Broker with Coldwell Banker Residential Brokerage, and founded The Hill Group with his wife, Kirsten in 2003. Combined, they have helped over 1,000+ clients buy and sell homes in the Phoenix Metropolitan Area. Doug holds a Bachelor's Degree in Business Management & Economics, and is a Navy veteran. He is an active member of the Southeast Valley Regional Association of Realtors on their Professional Standards Board, and he and his wife have had the #1 team for Coldwell Banker in Arizona for multiple years in a row. He loves to read, travel, and spend time with his family and friends.
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