Arunod Kumar, Home Seller in Santa Fe, NM

How does the foreclosures in the neighborhood effect the existing hosing market in the same neighborhood with respect to the pricing.?

Asked by Arunod Kumar, Santa Fe, NM Thu Aug 8, 2013

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To expand on Aaron's commentary in his second point, there is a bit of a "drag" on the market when doing a comparative market analysis - as a broker, for a buyer client. Buyers are potentially shopping the WHOLE market, so they are seeing "bargains" alongside regular sales, and may begin to think that way. Also, some distressed properties are in very good shape, physically, and this amplifies the effect in the marketplace - a buyer is really weighing this whole picture and questioning higher prices, especially if unaware of the status of the home. When advising sellers on setting price, if there is a significant number of foreclosure homes that are comparable in the particular market, and we see that homes have been selling at lower prices, we may include one in our analysis to help demonstrate that market reality. However, if there are plenty of non-distressed properties to compare, both recently sold and currently active, those homes will be the reference points for the analysis.
0 votes Thank Flag Link Thu Aug 8, 2013
There are 2 ways foreclosures may affect the value of other homes in the neighborhood. The first is the look of the property, or "curb appeal". Many run down or abandoned homes sometimes scare away potential buyers and make the area look less presentable. The second way is through appraisals. While most appraisers do not place the same weight on a bank-owned or foreclosed homes value, distressed property sales can still be used as comps for a home, most likely bringing in a lower comparable value for the area.

Aaron Borrego
Logic Real Estate
Search Santa Fe MLS at
0 votes Thank Flag Link Thu Aug 8, 2013

It depends how many foreclosures there are in the area. If the area is overwhelmed with foreclosures, then it can have a negative impact.

Syan Real Estate
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0 votes Thank Flag Link Thu Aug 8, 2013
The foreclosures themselves have little affect other than the homes might look unkempt and unsightly since the owners are probably not doing anything to maintain them. Appraisers don't look at home that go through a foreclosure auction as a comparable.

What hurts the market is after the foreclosure is over and the bank now owns it and sells it as a bank owned home (also known as a REO). The bank will often sell it at a lower price to make it sell quickly and since it was probably not well cared for, before it went to foreclosure, that also reduces the sales price. This is what affects the market because an appraiser will look at these homes that did sell.
0 votes Thank Flag Link Thu Aug 8, 2013
It depends on the quantity of foreclosures. If it is just one among many homes, then the effect will not be felt that much. Basically once the home sells, that will be a comp when it comes to appraising or valuing other homes. Foreclosures do tend to sell for less because the bank has no personal emotional attachment to the home, but they can also be in worse condition than the normal owner occupied home.

Is it just one home in your instance?
0 votes Thank Flag Link Thu Aug 8, 2013
Andy: yes this is just one home. Two doors down.Selling for 183,000..It has been kept well. Ownwed by a lady she is a manager of Smith's food store in town. Might have lost her high paying job and does not want to accept a low paying employment.
Flag Fri Aug 9, 2013
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