lets say in Mr Rogers neighborhood, the homes are nice the area is nice and homes have been selling at $xxx. then a few homes get foreclosed, and those homes are bought at 20% less than the others. does this kill your chances of reselling property in this neighborhood at maximum value in terms of the comps be brought down by the foreclosures, or is this taken into consideration. Ultimatley I think a home is only worth what someone is willing to pay. I hope someone can help clear this up.
thank you all for your great input
Well, we’re dealing with “what if’s” so it’s hard to peg the numbers to it.
What is selling for “$xxx” See, the sales prices actually make a difference. A $100K average sale neighborhood might be affected more than a $1million sale neighborhood.
What is “a few” homes? In a subdivision of 100 properties, 10 foreclosed houses is nothing (unless they’re all on the market at the same time, RARE). 50 foreclosed houses is a potential problem.
But generally speaking, no a foreclosed property (or two) doesn’t hurt the resale value of the properties in the neighborhood. Foreclosed properties are treated as ‘distressed sales’ which means that appraisers should not use them as comps because the sale was not open to normal market conditions.
Foreclosures only become a problem when the foreclosure sales start outdoing the normal market sales. At that point, appraisers are forced to use those sales as comps (no others available) which begins to lower the FMV of like properties.
Thank you!! the are I am looking at is 150k area. from what I have seen there have been 4 properties that have been foreclosures, and this is a large area.
I agree with Raj. I sold one of my investors an REO for $65K about 4 months ago. I just relisted it for $99K, and it’s under contract. This was not a rehab–it was a HabiJax built in 2000. They didn’t need to do anything to it–it was just underpriced due to foreclosure.
For my comps, I used seller-sold like-kind properties, not REO. I would also argue this point with an appraiser should it come up.
When an appraisal is done the conditions of the sale should be taken into consideration. A foreclosure would certainly be a relavent condition of sale.
I agree with Raj, you will run into problems if most sales in a neighborhood are REO properties. Unfortunately, in my area I am seeing this with many new neighborhoods. Buyers are getting way more house than they can actually afford and a year or two later it’s foreclosed. But since it’s a new neighborhood, in a 6 month period, there may only be a few sales and most (if not all) are REOs.