Foreclosures and Short Sales

In the real estate business these are words that have crept into our everyday conversations. For Realtors each is a very difficult transaction because of the parties involved; for buyers it is the opportunity to buy a property at a discounted price; for sellers it is a nightmare.

Every month I prepare a report on the sales activity in three towns - Wilmette, Winnetka and Evanston. I look at inventory, price trends and ratios to gauge the health of each market and the trends my clients need to be aware of. Last month I was stunned to see the impact of sales transactions on the Evanston market. Examining closed transactions I found that there was a 29% swing to the negative when these foreclosures and short sales were included.

The average sold price for Evanston in March was over $530,000 without foreclosures and short sales; that number drops to just over $375,000 when they are included. Perhaps more disturbing was that 50% of the 20 transactions for single family detached homes last month were one of these two classes. The trouble with these statistics is that they hide a stronger performance in the month for all other properties. Average sold price was up; average list price was down (that's actually good); inventory showed a minor increase as did Days on Market (the time it take to sell a home.) Short sales and foreclosures have much more negative metrics and represent the efforts of lenders to get out of bad loans. These are very different transactions and we (real estate professionals) need to treat them appropriately.

My concern is that we will see more of these distressed transactions in the coming months. That is inevitable. We need to be account for these sales when we assign prices to new listings, provide guidance to our buyers when they offers, and when we attempt to gauge market trends. The picture will be much more negative if we don't properly categorize them. And that will hurt us even more in the long term.

DS