Residential home prices may get a boost from an unlikely source: a pickup in short sales, which occur after default, but before a foreclosure auction.
There has been a "dramatic shift" in the willingness of servicers to sell a property for less than the mortgage balance to avoid foreclosing, according to Ron Peltier, chairman and chief executive officer of HomeServices of America Inc., the second-biggest U.S. residential brokerage.
Short sales typically change hands at a discount of about 20% to homes not in financial distress, compared with a 40% price cut for bank-owned homes, according to figures compiled by RealtyTrac. (Short sales jumped 19% in the second quarter from the prior three months while foreclosure sales were flat, RealtyTrac said.)
"Banks have become much more supportive of short sales," Peltier said in a Bloomberg News report recently.
"That's better for the lenders, who have smaller losses on a short sale, and it's going to be better for homeowners, who won't have as much psychological distress as a foreclosure,” said Peltier, whose Minneapolis-based firm is owned by Berkshire Hathaway Inc.
Distressed sales brokered by HomeServices used to be 60% foreclosures and 40% short sales, but now that ratio has flipped, said the CEO.