Lately, through my preforeclosure marketing efforts, I’ve come across a lot of short sales.  A lot.  While I’m sure most of you have heard a ton about short sales, and how profitable they are, and can be, I’d like to take a more “real world” look at shorts sales, and what I see going on in the foreclosure marketplace today.

I believe that there is still plenty of money to be made in foreclosures and short sales but in today’s environment, with the subprime meltdown, a successful investor needs to find retail buyers who are what I call “cash rich, credit poor”.

These tenant buyers can make things a real windfall for your foreclosure business, if you have a nice buyers list and people looking for homes.

As far as the preforeclosure and short sale market goes right now, I see a huge game of chicken being played between lenders and investors. To wit:

Ivan Investor finds property about to go into foreclosure. Makes short sale offer to the bank. Ivan knows that his market is a slow one, makes very low offer to the lender.

Lender hires BPO agent to get a “value” on this property. BPO agent, thinking that he’ll get the REO listing, makes value higher than what most sellers will pay for it, going off comps that won’t work in Ivan’s slow market.  The BPO agent is thinking that if the value is high, the lender will reject Ivan’s low offer, and opt to list the property with him after taking it back after the auction.  The lender, who is out of state, is making his decision based largely on the BPO number that is coming back to him.

Lender looks at BPO, tells Ivan “your offer is way too low, we’ll foreclosure, take our chances, and sell REO“.

REO agent now sits on a property that is NEVER going to sell at that value, but he doesn’t really care, since he gets a listing and it’s more exposure for him to grow his own business.

What happens?  Well the property sits and doesn’t sell.  The lender’s cost begin to mount: taxes, insurance, maintenance, upkeep, heating and cooling in summer and winter.  Not mention, it’s a non-performing asset that is still on the books.  A bad loan that is just getting worse.

I firmly believe that after about 12-18 more months of this, and lenders having a TON of REO properties on their books, they’re going to start giving away amazing short sale discounts.

For now, however, as an investor, you must stay patient on those short sales, because you might just be better off buying the property back REO!

To any BPO agents out there: I’m not trying to make you guys out to be bad, but unfortunately, just like any other business, a few bad apples are spoiling the bunch.  BPO agents need to realistically look at what the property is going to sell for given the CURRENT market conditions, not try to get the highest number possible, like many of the over aggressive appraisers that got this market where it is today with outrageous refinance appraisals 2-3 years ago.

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