In the last couple of months home owners have been asking what kind of an effect the foreclosures are having on their property values.
Most property values have gone down from last year. Homes owned by banks have lost the most value. It is kind of like buying a brand new watch. I know not many people wear watches but I do. If I bought my watch in the morning and paid, $200 dollars for it at a jewelry store but wanted to sell it in the afternoon on Craig's list or on ebay, it would be very hard to get $200 dollars for it. I might be able to get $125, even if I never opened the box.
The shoppers on both sites don't want to pay full retail and are looking for a bargain. I could take it back to the store and get my money back and the retailer could sell it again for $200.
It is the same with homes. As soon as they become a foreclosure they are worth less money. No one will pay market value for them . . they just won't. I have seen it happen over and over again. The bank owned homes sell for less than homes sold by the traditional seller. Buyers won't buy them until the prices hit bottom.
All homes are affected by the foreclosure market. In some cases there are homes in new developments that are almost identical but one home is a foreclosure and the other is not. If the bank lowers the price for a quick sale it will have an impact. The traditional owner will have a harder time selling. The bank has to lower the price because buyers won't pay as much for a foreclosure.
When people look for homes they go shopping and comparing prices is part of that process. They will notice the low priced foreclosures and it seems to make them unwilling to pay top dollar for any home. Today's buyers are bargain hunters.
When a Realtor or an appraiser looks at the market value of a home we look for three comparable homes that are nearby and have sold in the last year. We generally don't use any homes that were bank owned as comparable homes because that will not give us an accurate market value. Homes that are not bank owned sell for more.
If the home next door is a foreclosure, and it sells for almost nothing that doesn't mean that the value of your home dropped like a rock.
In the neighborhoods that have been hardest hit by the foreclosures the prices seem to have hit bottom and average sale prices are now higher than average list prices.
Vacant homes do have an impact on the value of the homes nearby. While buyers are interested in purchasing bank owned homes they don't seem to interested in having one next door.
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This has become such a hugh issue in my neck of the north woods.. Great Posts.
Good post T, although I’m not sure I completely agree with your comment about not using bank owned homes as comparables because it doesn’t give an accurate market value.
If the market area is saturated with foreclosures then those are comparable properties. Yes St. Paul and Minneapolis have more foreclosures, and when they’re trashed and selling below $25,000 it won’t be comparable to a house on Summit Ave. Many areas I’m appraising (St. Croix Valley & Western Wisconsin) have bank owned homes that are very similar, if not better than homes that aren’t bank owned. The bank will keep lowering the price to get the home off the books, leaving typical sellers to either compete, take it off the market or go into foreclosure themselves.
The $10k REO listing won’t compare to a $125k home on the market, but the $75k REO just might. It’s hard for people selling and refinancing right now – but that is the market we’re in.
Ben – I just did a CMA for a home in Brooklyn center and it was appropriate to use foreclosures for it because almost all of the comps were foreclosures. In most cases it doesn’t work that way but when it does yes we use foreclosures as comps.
The only time it might affect a neighboring property is if that neighbor has to sell a the same time.
Aloha,
Keahi
Yes its affect the value of the house prices negative, because people don’t want to pay more than the market price is. The market price is what the houses sell for in the area. Even when the buyer know very well that the prices they compare whit is foreclosure prices and often those house is not in so perfect condition as a normal house on the market. And of course who many houses are fore sell and who high/low the interest is in the moment.
I remember about ten years ago when these types of homes were going for 50k-60k. It’s a shame that the real estate boom cause all of these to increase to the point where people had to take out huge mortgages with ARM rates and as these rates adjusted many could not afford the payments.
I guess this is the sign of times. Not only are these homes in ST. PAUL, but all over the country we are seeing this.