Drop in Home Prices Blamed on Foreclosure Sales

by on Finance Foreclosures

Some studies showed that areas that see an increased in foreclosure sales experienced a 1 percent drop in home market values. Most often the drop in home market prices is due to a buyer’s perception of the neighborhood, which may ultimately lead to his refusal to reside in the area.

A previous owner’s neglect of the foreclosed property also contributes to the decrease in home prices. A home in need of repair and a deteriorating surrounding may influence other homeowners in the neighborhood to also sell their properties as they deem the area not fit to live in.

One disadvantage of buying a foreclosed property is that it is sold as-is, hence, buyers do not have the guarantee of getting a good deal.

The value of a property is appraised in three ways:

  • Cost – includes value of home and land
  • Income – for comparing multiple units with capitalization rates as basis
  • Market value – use to compare the property to at least three comparable sales within the neighborhood.

Yuke and Associates appraiser, Derek Yuke prefers arm-length deals when making an appraisal. Arm-length transactions involve a sale of a property at market value by a willing homeowner and buying of the said property by a willing individual, with neither of them under duress.

Meanwhile, foreclosure sales can also affect homeowners’ associations. A distressed sale within a neighborhood means that the homeowner failed to pay his property’s prorata share of dues in the homeowners’ associations.

To recover funds lost due to delinquent payments, homeowners’ associations are forced to increase their dues. Even if homeowners’ associations are authorized to foreclose a property if dues are not paid by its owner, most of them do not have the means or funds to do it.

Sometimes, associations forego the option to foreclose when the property’s mortgage is higher than its market value.

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