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Is there really a stigma against short sales?

It's perfectly understandable how real estate investors, homeowners and even prospective homeowners might be slightly hesitant to read the latest news reports discussing the real estate market. After all, the 2008 recession ushered in several years of record foreclosures and plunging property values.

Fortunately, it appears as if these parties can safely pick up their newspapers and log onto the Internet, as the news concerning the real estate market here in the U.S. has been largely positive over the last few months.

For example, a recently released report from the real estate firm RealtyTrac shows that home sales and home prices are both up. In particular, the report shows that the number of short sales -- sales where the bank agrees to accept less than what is owed on the mortgage -- made up 14 percent of all sales last month, a 6 percent increase from the same time last year.

However, many experts are now wondering why the number of short sales isn't actually higher. In other words, why aren't more investors choosing to purchase short sales?

This is a particularly good question when you consider that short sales are good for the seller who gets to unload a property they can no longer afford, good for the buyer who can secure a property that is likely in better shape than a foreclosure at a fair price, and good for the bank who can clear the property from their books with altogether less hassle.

Interestingly, a group of researchers at the University of Southern Mississippi and Florida International University conducted a study of 5,000 home sales in Boca Raton and determined those properties listed as "not short sales" were purchased anywhere from 10-15 percent faster than non-distressed homes.

They theorize that it likely has something to do with a stigma against short sales.

"The short sale process has longer marketing times and lower probabilities of a transaction than properties that are not being marketed as short sales, the study shows. All of these are costly and certainly lead to a slowdown in market clearing," said one of the study's authors. "This, in turn, leads to greater residential real estate market uncertainty and a slower recovery."

In the meantime, experts are urging real estate investors and home buyers to take advantage of what could prove to be a great opportunity.

Please visit our website to learn more about residential real estate transactions and short sales.

Source: Wall Street Journal Market Watch, "Short sale stigma helps home buyers," Quentin Fottrell," July 26, 2013

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