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October 6th, 2009 9:51 AM by David W. Welch
Short sales undeniably make up a considerable portion of our market here in Orlando. They account for about 5,500 of our 16,000 active listings and about 4,400 of our 8,700 pending contracts. They only accounted for about 450 of our 2,100 closed sales last month, and that was a big increase over August's 350. I believe this might be the start of a trend. The Fed is continuing to purchase mortgage backed securities through the first quarter of 2010 but at a slower pace. When this practice ends, banks I believe will be forced to begin addressing short sales seriously. Right now though only about 10% of the pending short sales are closing each month. This made me start thinking about what it would take to make a business out of short sales.
Let's assume you want to make $100,000 per year selling short sales, and also assume a commission split with the broker of 50%. That means you have to generate $200,000 in commissions selling short sale listings. Assume for this example you only work short sales from the listing side. This would require selling $8 million in real estate with a commission of 5% split with another broker. The average selling price of the short sales in our market in Orlando is about $160,000, so you would need to sell 50 homes. Let's just call that four houses per month. With only about 10% of the short sales closing in any given month, you would need to have 40 pending sales to see four closed. If you look at the market averages, you would need to carry about 90 listings to have 40 pending. If you have a one year listing agreement, then you will probably lose about seven listings a month between expireds and foreclosures. You will need to replace the four that close. Typically about 1/3 of deals fall apart, so you are likely to lose some of those listings. If you lose half of the deals that don't close that adds another six new listings you need to replace your inventory. By my count, you need to list 17 homes a month to keep up the pace.
You will definitely need at least a couple of assistants to help with this kind of volume. There goes the profit margin. Of course with that kind of listing inventory, you should be able to keep a couple of buyer's agents very busy. That should help with the profitability of your business.
Best of luck.
Orlando Real Estate, David Welch Real Estate Optimist