Sunday, November 23, 2008

Does a Short Sale Count as a Comp?

In the comments section of Pricing Problems , Anonymous says:

"Retard, the one listed for 300,000 is a short sale. You can't compare the two."

Wow. I haven't heard that tired argument for quite some time. I thought that misguided thinking gave up the ghost in 2007.

There is some debate about this topic, no doubt. And every situation is different. In a normal market, one isolated distressed sale should not be considered a comp for an entire area. Doing so would be foolish.

But you also need to remember this is not a normal market.

In fact, foreclosures now account for 40% of all LA County sales. Are you arguing those distressed sales shouldn't "count" as comps?

Anonymous (if that is your real name), please enlighten us. I'm genuinely curious as to how you convinced yourself short sales, which are only approved when banks determine market value has been met (or did you think they just arbitrarily threw darts?), should be completely ignored as comparable sales.


  1. It is the sellers who do not want to include short sales in the comps.
    Us retard buyers (the ones with the CASH) however do.

  2. Just because a short sale price is lower doesn't mean the bank is going to settle for that low price. Buyers most likely would be competing for that top bid only to put the price above what its listed for. I don't see how you compare regular listings with short sale listings...these are not apples to apples. Closing on a short sale could take months, whereas closing on a regular sale could take 21 days. There are definitely some restrictions in that respect. Yes, in a perfect world, where you have all the time in the universe to decide, I'm sure you can go through the trouble of waiting for the bank to decide on your winning bid. In the meantime, the other regular comp that you might have wanted has been swallowed up.

    The only time they become comparable is when they close escrow. Then, the retard buyers would never know which was a short sale and which was a regular sale. But until then, these "comps" are not really that...

  3. Anonymous #1,

    Right. And buyers and sellers each have a vested interest in supporting their respective positions.

    So who can settle this dispute?

    The markets can.

    And since distressed sales are indisputably affecting the prices of "non-distressed" home prices, it appears as if the buyers are winning.

  4. Anonymous #2,

    They may not be apples to apples, but I would argue that NOTHING is apples to apples. Some REOs are trashed, some "normal" properties have outdated appliances, some foreclosures face the ocean, some buildings have a higher HOA, some detached homes have you not compare them because of those factors?

    The point is you have to compare an individual property to all kinds of factors when determining market value. And you especially have to compare distressed property prices because they DOMINATE HALF THE MARKET!

    To simply dismiss short sales as irrelevant to pricing is a mistake in this environment.

    Short sales, foreclosures and assorted distressed sales—although not direct comps—do have a DIRECT impact on prices of "normal" properties. By virtue of that fact alone, distressed listings have to be considered when determining market value.

    No doubt, short sales and foreclosures are priced lower for a reason. As you pointed out, they are a collossal pain in the ass. For that reason, it would be foolish to walk into an open house and demand they drop their price to match the neighboring short sale’s asking immediately.

    But for people to pretend the short sale simply doesn’t exist is laughable.

    Freaked out sellers want to believe their place is special. They want to look down their nose at distressed sales and proclaim, “Those properties aren’t in the same league as mine. You can’t compare them, my home is above all that.”

    These are the same people, who in their desperate attempt to convince themselves the market crashing around them won’t affect the price of their “special” home, assert homes sold because of divorce don’t count. Or, “Nope, that guy’s job was relocated—doesn’t count.”

    Well of course it fucking “counts.”

    It doesn’t matter if it was a probate sale and the widow was moved into a nursing home in La Jolla and the family members flew in from Sheboygan to sell the house quickly and settle all affairs so they can relocate to Barbados and harvest bananas and live like the Swiss Family Robinson in motherfucking coconut trees. Nobody gives a fuck!

    You made a very important distinction: it becomes a "true" comp when it sells. I totally agree.

    Once that sale closes, the only people who care about that it-doesn't-count-because-of-whatever bullshit are desperate sellers trying to justify their greedtarded asking prices. Period.

    Maybe the original anonymous poster had a problem with me comparing "listed" short sales instead of "closed" short sales. I get that.

    But the point was--and still is--that if a short sale can't sell at $300,000 (and there are outside factors that can delay a sale like slow-moving banks), what are the chances of a property in the same building getting $80,000 more? Sorry, the pain-in-the-ass factor is worth a discount, but not 80 grand.

    Lastly, short sales aren’t conducted in a vacuum. The fact that short sale asking prices can be bid up means the market is freely dictating market value. Whatever it sells for, that's what people are willing to pay for a condo that size, in that neighborhood, with those amenities.

    And as I pointed out before, banks don’t agree to a sale price unless they are convinced true market value is at hand.

    Especially as distressed sales become a larger share of the market, I believe sellers who dismiss or try to ignore these closed sales are doomed to rot on the market forever.

    Thanks for the insightful comments

  5. Generally, comps became irrelevant. Comp is one of the favorite word of Used House Salesman (formerly called Realtor), but serious mortgage lenders don't give the rat's ass about comps anymore. So short sales count or not, there is no difference. Those (mostly) serious lenders don't want to burn in hell again. If the loan amount is higher than the predicted value of real estate, no loan, unless the brave borrower comes up with the "change". Actually it's pretty funny. Lenders became the enemies of Used House Salesmen.


  6. L_Thek,

    "Lenders became the enemies of Used House Salesmen."

    Ha! That's exactly right. I think it's hard to escape that lenders are largely dictating the market right now. And you're right; because their actions directly impact the prices of ALL properties--distressed or not--they are gradually rendering realtors' old methods obsolete.

    Just like many have predicted, it's back to fundamentals like debt ratios, incomes and rents.