In 2012 short sales sell for almost 30% more than foreclosure home sales, and continue to be a better option for both banks and distressed owners.
Earlier this year we compiled data from MLS for 2011 in five major markets including Boston, Southern California, and Phoenix, which showed selling prices for short sale homes were considerably higher than prices for lender owned homes.
Our latest report from the MLS Property Information Network shows the same story for 2012: in the first six months of this year compared to the first six months of 2011, prices for short sale homes in Massachusetts are still well above the selling prices for foreclosure sales. The average selling price for a foreclosed home was $149,905 compared to $194,838, a difference of 29.97%.
It makes sense for banks to promote short sales for distressed homeowners as an alternative to foreclosure. According to this report, banks are losing an average of $44,478 dollars for every foreclosure compared to what they would have made in doing a short sale.
And it makes sense for distressed homeowners to do a short sale rather than a foreclosure as well. They can buy a home sooner after doing a short sale; the waiting period after a short sale can be as little as 2 years compared to 7 years with a foreclosure. They usually will not be pursued by the banks for the amount owed on the mortgage, which happens with foreclosure. And the impact of the short sale on their credit is typically much less than with a foreclosure.
The report shows there were 2% more short sales this year as well. In the first half of 2011, there were 1,886 short sales in Massachusetts, and this year there were 1,940.
Foreclosures, however, saw a much larger increase. In the same time period in 2011, there were 3,066 foreclosures. That number jumped 13.6% in 2012, with 3,486 foreclosures in the first half of the year. This is great for the market as we want these homes back in the hands of homeowners and not banks. The banks are getting much more aggressive this year in pursuing homeowners who are behind on their mortgage payments and we expect this to continue for the rest of the year.
Distressed homeowners don’t gain anything from allowing their homes to fall into foreclosure. Doing a short sale on a home they can no longer afford allows them to usually have debt forgiven on the amount they owe. And so far this year about 29% of the short sales we have closed received some kind of cash incentive. Having cash at closing to relocate to more affordable housing is a much better option for struggling homeowners than letting the home go into foreclosure. And by doing a short sale they can avoid the devastating emotional, financial, and credit effects of foreclosure as well.