Properties in Foreclosure Typically Sell for 26% Less Than Non-Distressed Homes

Builders with any REOs in their communities better brace themselves for difficult appraisals: bank-owned properties went for an average of 35% less than non-foreclosure sales.

“One year ago, it was 65%,” Daren Blomquist, RealtyTrac’s director of marketing communications, told BUILDER Thursday, after the Irvine, Calif.-based data firm released its 2010 second-quarter statistics for foreclosure sales. According to the firm, more than 248,000 distressed properties (in default, scheduled for auction, or real-estate-owned) were sold in April, May, and June of this year.

While those figures represent nearly a 5% increase in total numbers compared to the previous quarter, RealtyTrac executives said that non-distressed sales grew even more during that period. They attributed that growth to the federal housing tax credit, which required a signed contract by April 30, 2010. Overall, foreclosure sales were 24% of all residential sales in 2010’s second quarter.

That level of volume continues to exert downward pressure on pricing. According to RealtyTrac data, foreclosure sales sold for an average of 26% less than their counterparts that were not in foreclosures. Builders with any REOs in their communities better brace themselves for difficult appraisals: bank-owned properties went for an average of 35% less than non-foreclosure sales. Short sales, which are being actively encouraged by the Obama administration, posted an average discount of 13% compared to non-distressed transactions.

Note: A foreclosure sale is a transaction on a home in any stage of the foreclosure process, while a pre-foreclosure sale is typically a short sale.

Transaction Type Average Price Discount
Foreclosure Sale 26%
REO Sale 35%
Pre-Foreclosure Sale 13%

But RealtyTrac’s Blomquist said that his company does not expect to see a much-dreaded (and much-discussed) double-dip in home values as a result of these pricing trends. “Foreclosures continue to have a dampening effect on home prices, but we don’t expect a double dip,” he said. “While REOs have been increasing, there is no evidence that there is going to be this tidal wave that will hit and crater home prices again. It’s more like a dripping faucet” that will keep home values from any significant appreciation.

Of course, in some states, that drippy faucet feels more like a constantly flooding basement. Nevada, which was mentioned earlier, has the highest percentage of foreclosure sales in the country, with 56% of all residential transactions involving a property in some state of foreclosure. Other foreclosure crisis zones are dealing with similar situations, with foreclosure sale rates of 47% for Arizona and 43% for California, which rank second and third after Nevada on that metric.

By:
Alison Rice
Builder 2010