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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Shadow Inventory
There are many terms that an average homebuyer or real estate investor may not be aware of. When you are looking to buy a new property, you generally go through the properties that are listed for sale.
However, what if there are properties that are not yet up for sale and are going to be on the market for sale in near future?
One such term that not many are aware of is shadow inventory in real estate. In this post, we will learn what is shadow inventory in detail.
What Is Shadow Inventory In Real Estate?
Shadow inventory is a term commonly used to describe real estate-owned (REO) properties that are either in process of foreclosure or help by the bank yet to be put on the market for sale.
The “shadow” portion of this term is used because banks and lenders often foreclose houses and keep them out of the market for several years.
As a result, potential buyers would not be able to buy these properties as they are not listed for sale in the market.
The banks and the lenders do this to generate new interest and higher selling prices when these properties are listed for sale.
This type of inventory is difficult to access. But according to the National Association of Realtors, as of 2019, bank-owned properties have been waiting at least four years to be listed on the market.
What Are The Effects Of Shadow Inventory On the Real Estate Market?
Though this term is not well known in the real estate industry, its impact on the market and the stakeholders could be substantial.
Below are a few basic effects on the market related to this type of inventory:
The Impact On the Real Estate Market
This type of real estate inventory can reflect the state of the real estate market. When homeowners decide not to sell a property, it could mean that the housing market is not doing well.
After all, they are anticipating getting the maximum price for their property. If you choose to hold on to your home and not list it for sale, means that the market is slow. The seller may decide to sell the property once the market starts to recover.
When the market is slow, many homeowners and lenders hold their properties increasing the shadow real estate inventory.
On the other hand, if the market is strong, the potential home sellers will list maximum properties lowering the shadow inventory as they would get the maximum sales price for their properties.
Impact Of Banks And Lenders Holding Real Estate Inventory
Banks often hope to sell foreclosed houses at a profit. But they don’t always hold the sales of these properties just for gaining profit. In many cases, there are too many houses to be put up for sale.
If they list all of them in the market for sale, the housing market may eventually change its course. This is good for buyers but bad for banks and other home sellers.
Sometimes banks try to sell some of these bank-owned property pools back to defaulted owners, and investors, or rent the home to release some of their piled-up real estate inventory.
Of course, the experience of investors in these pools is not always favorable they might be stuck with immovable real estate inventory.
This might release some of the bank’s real estate inventory but the investors are left with the fallout.
What Are The Benefits Of Shadow Inventory For Real Estate Investors?
Real estate investors can also take advantage of the presence of shadow real estate inventory. Investors who deal in REO units at smaller banks and credit unions can sometimes buy properties in shadow inventory before they even know they’re on the market.
If an investor has a good relationship with a real estate agent from a major bank or a property manager, they can get easy access to information on this to-be-sold real estate inventory.
As an investor, you can negotiate the price of these properties based on the current market and make a profit by selling them in a better housing market.
Conclusion
For potential real estate investors, a high shadow inventory could mean better investment opportunities.
However, if this real estate inventory is significantly higher or lower, it might hurt the housing market.
If you are looking to buy a property from shadow inventory, get in touch with your trusted real estate agent to find out if they have something in store for you.
