A M. Appraisals Blog

How do foreclosures affect the value of your home?
April 27th, 2011 9:09 PM

You spent a lot of money fixing up your home, and realize that maybe you won't get every dollar back in value, but hopefully it will at least add some value, right? And then you find out that just down the road, one of the nicer homes in your subdivision just went into foreclosure. What does this mean for your property?

Well, there are several factors to take into consideration:

1. Sales Price

2. Quality & Condition

3. Number of similar sales in the area

For instance, just because a property goes into foreclosure, that does not necessarily mean that the bank is going to give it away. It could still sell for close to or at market price. If this is the case, then you have nothing to fear with regards to your property losing value from a low comp.

But what if the property does sell for an extremely low price? Perhaps it was due to it being a foreclosure, but could there have been other factors as well? Was the home in poor condition? Was it trashed by the previous owners? If so, this can be adjusted for on an appraisal in comparison to your home in good condition. Also, is the home physically similar to your property? Or does it have less heated area, not as many bathrooms, not as many upgraded finishes? If so, these differences can be adjusted for as well. Either way, the quality and condition of the home could be as much or more of a factor than the fact that the home sold in foreclosure.

Also, how many similar sales have there been in your subdivision? If there have been many similar sales that have sold as market sales, then these could easily be used as comparables on an appraisal, and there would be no need to use the foreclosed sales. If there are not enough market sales, then an adjustment could be made entitled "Conditions of Sale", where foreclosed sales could be adjusted for to bring them more in line with market sales in the area.

Although there is no perfect answer, the above techniques attempt to account for the differences between market sales and foreclosed sales. In this way, it is possible that recent foreclosures in your subdivision may have a very minimal (if none at all) affect on the overall value of your property.


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Posted by Ashley Martin on April 27th, 2011 9:09 PMPost a Comment

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