As a follow-up to the report I co-authored with Jeff Allen from MAAR, below is a comparison of price per finished square foot between lender-mediated sales and traditional sales.
As can be seen by the chart above, there is a substantial price discount on a cost per square foot basis when you look at lender mediated sales. My reasoning for why this is happening is as follows:
Short Sales
- Short sale transactions often take several months to come together, thereby reducing the number of buyers willing to deal with the unsure and lengthy nature of these transactions, which reduces demand and price accordingly.
- A large number of sellers in a short sale position have not had the money to properly update/maintain the property, so there is an issue of diminished condition as well.
- Sometimes listing prices are set artificially low to encourage offers, and even in multiple-offer situations it is rare to see a home sell for much above asking price.
Bank Owned Homes
- Often the condition of these homes is substantially poorer due to their neglect and/or abuse.
- Frozen pipes & water damage are frequently found, causing substantial loss of value of the property.
- The complete “as-is” nature and some of the arduous terms/conditions banks put on the property make it less appealing to purchasers, and worth less accordingly.
- Many of these homes are in poor showing condition… electricity/heat/water off, broken light bulbs, stained carpets, dirty floors/walls, etc.
- These homes compete for a much more limited number of buyers willing to deal with the bank’s terms and the condition of the homes.
From the transactions I’ve participated in, I would most definitely say that the typical short sale receives a higher price per square foot than the bank owned homes, but because of how we have to query for these properties, there is no way to split this data out into “short sale” and “bank owned” categories. So short sales have a higher price per square foot (but still well below “traditional sellers”) and bank owned should have a lower price per square foot than the “lender-mediated” category suggests.
