According to statistics released by the National Association of Realtors, approximately one-third of all homes sold in the months of May, June and July were short sale transactions or foreclosure sales. The NAR is further clouding the picture by its recent decision to count unapproved short sale contracts as “pending sales.” The vast majority of short sale transactions – better than three of four – never close.

For the short sale investor, it’s important to have a clear, accurate picture of the real estate market, since that’s the only way to construct a valid short sale offer. The picture for the short sale investor changes quite a bit when the number of area foreclosures is factored in; foreclosures tend to reduce home prices in an area. Factoring out pending short sales gives a truer picture of the potential for reselling a short sale investment home at a later date.

Each market will have its own variables, but when you’re trying to establish a value for a property, your task is made more difficult if one-third of your potential comps come to market with an impaired value or represent sales transactions that will likely not close at the offer price.

Given that short sales can take months to close, the valuation question becomes more pertinent if housing values in the area continue to slide between the time you make your offer and the time the sale closes. If you do plan to purchase in an area where housing prices are still falling at a predictable rate, you must factor this into your purchase offer. If the homeowner’s lender is unresponsive over a period of months, the smart short sale investor will have the property revalued by a qualified appraiser to verify that the original short sale offer is still in line with prevailing market values.

Photo Credit: Casey Serin, via Flickr