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Niche Markets: Short Sales Still Active, but the Clock May be Ticking

Specialized short sale brokers continue to pursue this niche market trend for good reason. More than 11 million homes were at a negative equity position at the end of this year’s first quarter, according to a May 11 press release issued by RealtyTrac. This figure is slightly up from the end of last year’s second quarter when there were 10.8 million negative equity homes in the U.S., according to a Sept. 12 press release issued by CoreLogic.

Those figures might appear to paint a windfall of upward-trending inventory for brokers to pursue.

However, while large amounts of distressed properties do exist now, actual sales of these properties are on the decline.

RealtyTrac reports that foreclosure-related sales peaked at 45 percent of all residential real estate sales the first quarter of 2009, a figure that decreased to 25 percent in 2012 and 21 percent this year. Non-foreclosure short sales in the first quarter were down 36 percent when compared to the same period last year.

That’s not to say you should avoid pursuit of short sale business; rather, it now makes sense more sense than ever to educate yourself about the short negative equity trend before doing so. Start by heeding the following characteristics that many experienced short sale specialists already know:

You must be a Short Sale Expert:

In addition to a variety of laws that could dramatically affect a seller’s tax returns, there is also a small army of professionals who may be part of any single transaction that are new to you. These include: specialized lawyers, multiple mortgage holders, secondary lien holders, highly-opportunistic investor-based buyers and more. All will expect you to understand their interests as a condition of closing a deal. The NAR offers one of many Short Sale Certification programs to educate agents on distressed property brokerage practices.

Longer Time on Market:

It takes a lot longer to sell a distressed property than one in a positive equity position. RealtyTrac estimates pre-foreclosure sales took 382 days to complete in this year’s first quarter. That’s up from 306 days the previous year. An NAR report for the month of July indicated that 85 days is the median time all properties remain on the market before sale.

Highly-Concerned Sellers:

Distressed property sellers are often more emotionally-charged than normal sellers due to financial pressures caused by a negative home equity position. Are you well-equipped to not just function as a seller’s agent, but also as pseudo-psychological counsel to your clients who may be forced into a personal bankruptcy or a lower standard of living when they buy (or rent) their next home?

Focus on High-Volume Sales Needed:

Realize that the large amount of short sale inventory is what makes a focus on this niche profitable, because you will need several deals going at once to earn a living. If home prices continue to rise, inventory will shrink and competition for remaining listings will become more-fierce. So even if you are looking to just dabble in the short sale space, know that it may become increasingly harder to find business if housing prices continue to climb.

The good news for short sale specialists is there will always be a need for their services. If you are just getting started, though, it will take time to learn your craft and build a presence; thus, it might make sense to diversify your focus to address other opportunities in your market. After all, the last thing you want is to find there is little or no short-sale market left to serve by the time you master the skills needed to do so effectively.

Do you have experience in recently addressing the short sale market within the last six months? Please share your thoughts and let us know how things are going in your market.