Mar 26, 2008

Short Sales and REOs: Interpreting List Price in MLS

I have seen a strategy change in the last few months that Buyers need to understand.

Agents who are listing Short Sale properties and REOs (bank owned, foreclosed upon properties) are listing the sale prices for their homes BELOW fair market value.

How does it work?

A practical example:

A home in Roseville is listed in our local MLS at $425,000. The listing agent immediately gets 10 offers on the home. He / she collects the offers and submits them to the bank who has title on the home. The bank counters everyone's offers and says "come back to us with your highest and best price".

By the time it is all said and done, this house had 3 offers between $450,000 - $465,000, and the final closing price really has nothing to do with the initial list price.

Yesterday.... another example in Folsom:

A newer house was listed at $330,000. I had a Buyer who wanted to make an offer, so I called the listing agent. She was following the same strategy. She already had several offers in front of the bank - all higher than list price - as a result of the "list low, counter offer everyone" practice.

As a result, this house will probably close between $345,000 - $360,000.

What does this mean?

BE CAREFUL when searching the MLS details for "bargains". Do not get your hopes up and emotions involved. Those homes that are in Short Sale status or REO are likely being listed at lower prices than the actual transaction will close.

I am keeping a short list of agents who are using this strategy, and advising my Buyer clients when I see this happening.

Remember - agents who list REO (bank owned) property get measured on how quickly the "move" a home. So? They do what they think is necessary to attract a zillion offers immediately.

- Jim

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