For homeowners at risk of foreclosure, the increasing number of short sales comes as a sign that lenders may be opening up the options. However, market analysts are concerned that the growing number of short sales could have devastating effects on the market for years to come.
Short sales are becoming more popular among both homeowners in distress and lenders. With the chance to avoid credit damage for the homeowners and minimize loss for the lender, short sales have jumped by 120 percent since last year. However, short sales aren’t likely to contribute to a slowly recovering market as once anticipated.
Real estate experts are no longer the big advocates of short sales as they once were a few months ago, but the reason why has little to do with the short sales themselves. The biggest issue is the already saturated market with bank owned properties, namely foreclosures. With so many foreclosures sitting on the market, banks are finding it increasingly difficult to off-load them because more buyers are interested in short sales.
Although a short sale may require a longer purchase process the risks of damaged properties or contract restrictions are far less than a foreclosure, something that is attracting more buyers and leaving the distressed foreclosure sitting for long periods of time. The longer a foreclosure sits on the market, the less attractive it becomes to buyers, the higher the risk of negative effects on the neighborhood and the more likely the lender is to suffer from major losses.