When pricing a home for sale and looking at neighborhood comps, do homes in foreclosure factor in?

Asked by MAM, 63031 Fri Apr 18, 2008

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Don Tepper, Agent, Burke, VA
Fri Apr 18, 2008
Homes in foreclosure do factor in when pricing a home for sale. Rob's correct, of course, that condition does count, and some houses in foreclosure are in poor condition. And the comment about the absoption rate is good.

Consider, though: Take a neighborhood with 4 similar houses for sale. One is in foreclosure. They're priced at $400,000, $410,000, $412,500, $417,000....and $330,000 (the one in foreclosure). Which one do you think is going to get the most traffic? And I can hear buyers saying, "Well, yes, the one at $400,000 is nicer. But not $70,000 nicer. Now, if that $400,000 house could come down to $360,000, I'd probably go with the nicer house. Mr./Ms. Realtor: Do you think they'll consider an offer at $360,000?"

When you're looking at absoprtion rate, you really are hoping (in this case) that the absorption outruns the foreclosures. I know of certain neighborhoods in which the only houses for sale--and there are a lot of them--are foreclosures. One condo complex where 3 bedrooms/2 baths had sold for up to $300,000 are now selling for $200,000 or less today. The people not in financial trouble can't afford to put their condos on the market; why bother listing one at $260,000 when there are dozens below $200,000?

Hope that helps.
1 vote
Tina Montgom…, Agent, Indianapolis, IN
Fri Apr 18, 2008
Well MAM, it really depends on the condition of the foreclosure(s) and the number of foreclosures in your neighborhood or area. In many cases, foreclosures do bring down surrounding home values. However, if you are really only talking about one foreclosure in the neighborhood, it may not affect you as much as a neighborhood that has 5 or 6 foreclosures.

With the media hype about the sluggish real estate market, buyers are being very critical of pricing and stagging. It is highly recommended that you stage your home as though it were a builder's model and that your price takes your current competition into account, not just sold comparables.

It may be a good idea to have your agent run an absorption rate analysis for you to see exactly how you fit in the market. The aborption rate analysis will show you exactly how many homes in your price range are selling per month. If three a month are selling, you know that your home but be in the top 3 that month. Sounds simple enough, right? Where it becomes difficult is when you have 20, 30 or more homes on the market within your price range. Many times, your home is more likely to sell if you were to lower the price. You may be able to better compete with a lower price range...and lower price ranges usually sees a higher rate of sales.

Even in our market where 20% of our sales are foreclosures, many of the homes that are in showcase condition and competively priced, still see multiple offers. If you are in a "buyer's market" like most of the country, it is not time to test the market with price. It is time to price it right and get it sold!
1 vote
Pete Elsner, Agent, Kirkwood, MO
Sun Feb 22, 2009
Only if you are comparing apples to apples. Meaning that the home in foreclosure is comparable to one retail home that is for sale. Now if there are more than one foreclosure on the street, that will effect the value of the rest of the homes.
Web Reference:  http://www.PeteElsner.com
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Dale Weir, Agent, Chesterfield, MO
Sat Apr 19, 2008
The foreclosures bring down the overall neighborhood values, pure and simple. At the same time, most foreclosures are in very poor shape - if you can't afford the mortgage, you can't afford preventative maintenance, real repairs or anything else and often they have been stripped of anything that can be sold from light fixtures to dishwashers and appliances (including the furnace, a/c and water heater) and I've even seen the toilet and sinks gone in some - on the other hand, I've walked into some that looked like a rehabber walked out the day before and left them in perfect condition with all brand new appliances that had never been used. The other thing to keep in mind is that the bank wants their money out of them so the bank is going to work to get as high a price as possible, they aren't going to give the homes away. Most buyers look at foreclosures but unless they have lots of time (banks are famous for taking their time to give you an answer about whether you got the bid or not) and you are willing to accept the home as is and risk that there are other liens that you know nothing about that come with the home, most buyers end up going for the home that isn't a foreclosure, but they will use the foreclosure to try and get the price on the other homes down further - it's leverage plus the news media tells them they can. In St Louis, it's not as big a factor as it is on the coasts. The Realtors here will consider it, but will place a greater weight on the true comparables.

The Realtors will consider the foreclosure, but not
Web Reference:  http://www.yourstlhome.com
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