recently analyzed residential sales over the year that ended in March to
determine what drives discounts in the market value or premiums in the sales
price for distressed properties. They
looked at four factors, foreclosure status, occupancy, equity, and property age,
using them to construct 24 different distressed property profiles. Each profile
was compared to a control group of properties not in foreclosure that sold in
the same time frame.
might be expected, the properties that sold at the largest discounts, an
average of 28 percent, were vacant, had negative equity, and were older (but
not the oldest), built between 1950 and 1990.
What is surprising is that some property profiles sold at a premium.
properties overall went for an average of 3 percent above market value while
bank-owned properties that were built prior to 1950 brought 6 percent more than
the control group. The largest premium
was paid for properties that had negative equity but were neither in
foreclosure or foreclosed. Those
properties sold at a 19 percent premium. (Note: in the chart below, negative numbers indicate above-market-value sales prices).
profiles tied for the second largest discount, 26 percent. One profile was properties that were in
default with positive equity; the other was properties in default with negative
equity, vacant, and built before 1950. Discounts
of 25 percent were the average for two other profiles; vacant properties with
negative equity that were scheduled for foreclosure auction and vacant
properties scheduled for foreclosure auction.
REO has a whole sold at a premium some sub-categories of bank-owned homes were
discounted. Those that were confirmed
vacant - without the former homeowner or tenant still living there - sold at an
18 percent discount below the non-distressed control, and bank-owned properties
that sold after 1990 and between 1950 and 1990 also sold at slight discounts.
analysis also found the property profiles with the biggest discounts - and the
discounts available - varied significantly by state. For example in California
the largest discounts were for properties scheduled for auction that had
positive equity - 17 percent discount, while in Florida it was also houses
scheduled for auction but with negative equity, vacant, and built between 1950
and 1990. Those had an average discount
of 29 percent. Properties in default, vacant, with negative
equity, and built between 1950 and 1990 that received the largest discount in
Ohio, 34 percent, while that same discount in Michigan went to properties that
were merely in default and vacant.
we don't have access to the raw data that formed this analysis it would seem
that vacancy was the most prominent common denominator among properties that
received the largest discounts prior to foreclosure. Foreclosure status appears to be the driver
post foreclosure as REO properties on the whole sold at a small premium and
those properties tend to be vacant.