There is no end of good arguments in favor of short sales, but do the numbers show that they work? Is there enough likelihood that a short sale will close to justify going that route instead of having the homeowner sit and wait for foreclosure?
We are already convinced, but let’s look at some numbers, and you be the judge.
On the low end, there is a number that without any context would discourage short sales. That number is a 20 percent closure rate. A Bank of America vice president used that number last week at the bank’s Housing Summit, saying that only one in five short sales submitted to them ends up closing.
Sounds pretty bleak, right? Well, now for the context. That number does not take into account short sales that are submitted for a second or third time. The first attempt may fail, for reasons we’ll get into in a minute, but later attempts are more likely to be successful.
We monitor the world of short sales very closely, and our numbers show that the success rate runs 40 to 50 percent. That’s at least double the Bank of America VP’s numbers, because it does take into account subsequent short sale attempts that end up as successful sales.
Before we get into one more important set of numbers, let’s first look at the reasons that both these numbers we’ve talked about so far – 20 percent and 40-50 percent – aren’t any higher than they are. The reasons come down to unrealistic pricing of the short sale house and ineffective negotiations with the lender’s short sales personnel.
Both of these stem from the fact that too many agents working short sales lack the experience with them. The short sale is a very different subset of home sales, and doing them well requires a lot of experience, plus the expertise that comes from consistent exposure and seeing what works and what doesn’t. This is particularly true when it comes to interaction and negotiation with the lender, and we can tell you from what we’ve observed that this is probably an ever bigger sale-killer than poor pricing.
Now for that final set of numbers. Does an 80 to 90 percent close rate sound like a better performance? With at least four out of five deals closing, that makes the short sale sound downright attractive. That is the close rate that our agency has been able to maintain for the last couple of years, which is a testament to the power of experience and the lessons that focusing on short sales can teach.
We can understand why an agent would walk away – no, probably run away – from a short sale if it had 4-1 odds against it. Our numbers show it doesn’t have to be that way, and bringing in specialists turns those numbers around, making the odds of success 4-1 in the homeowner’s favor.