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Do Short Sales Save Lenders Money?

By Collateral Analytics |

Occupancy and attitude can make a difference.

Michael Sklarz PH. D. / Patrick Callison, CRA

Short sales are a better alternative to foreclosure and REOs because they save legal and administrative costs necessary to foreclose; get someone out of a home; and then sell it, often after some repairs. But do they also result in a higher price? Most brokers suggest that occupied homes will sell at higher prices than empty homes, especially if they are nicely furnished. Occupied homes are also more likely to be better maintained, with grass trimmed, plants watered, swimming pools filled with clear water and broken windows repaired. Short sales are also likely to avoid the kind of destruction and desecration of properties committed by resentful subprime borrowers. Our initial thought was that short sales would not be as deeply discounted as REOs. Knowing in advance that, even if short sales observed the same kind of discount as REOs, most lenders would be ahead on transaction and carrying costs and most borrowers would feel more in control of their destiny, we decided to examine a host of metro markets and compare the various prices.

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