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Foreclosure discount grows: RealtyTrac

Foreclosure sales continue to hold down prices nationwide, even though filings have declined.

The latest numbers from RealtyTrac (www.realtytrac.com) show that foreclosed homes accounted for nearly 26 percent of all U.S. residential home sales last year. Typical prices for such distressed properties were 28 percent below the average sales price of properties not in the foreclosure process, the highest level on record. The average discount was 27 percent in 2009 and 22 percent in 2008.

To understand why this is important imagine that a neighborhood has 1,000 homes and that three of the last 10 sales were foreclosures. Buyers looking at the comps will see that recent sales have included properties at huge discount, so why should they make bids at premium prices?

The result is that the fair market value of all homes in the neighborhood decline. That’s not only bad for homeowners, it also means that the local tax base declines and — along with it — local services.

“Foreclosure sales in the fourth quarter faced the twin headwinds of the expired homebuyer tax credit — which began to stifle sales volume during the third quarter — and the foreclosure documentation controversy, which hit in the fourth quarter and temporarily froze sales of foreclosures from several major lenders,” said James J. Saccacio, chief executive officer of RealtyTrac. “Given those factors, it’s not surprising that in the fourth quarter foreclosure sales volume hit its lowest level since the first quarter of 2008.

“Still, foreclosures continue to represent a substantial percentage of all U.S. residential sales and continue to sell at an average sales price that is significantly below the average sales price of properties not in foreclosure — the result of a bloated supply of foreclosures and weak demand from homebuyers,” Saccacio continued. “The catch-22 for 2011 is that while accelerating foreclosure sales will help clear the oversupply of distressed properties and return balance to the market in the long run, in the short term a high percentage of foreclosure sales will continue to weigh down home prices.”

RealtyTrac also reports the following:

Foreclosure sales by type

A total of 512,886 bank-owned (REO) properties sold to third parties in 2010 — down nearly 32 percent from 2009 — at an average discount of 36 percent, up from an average discount of 33 percent in 2009. REO sales accounted for 16 percent of all sales in 2010, down from nearly 18 percent of all sales in 2009 but still higher than the 13 percent of all sales they accounted for in 2008.

In the fourth quarter, a total of 95,683 REO properties sold to third parties, down 17 percent from the third quarter and down 43 percent from the fourth quarter of 2009. Fourth quarter REO sales accounted for nearly 17 percent of all sales during the quarter at an average discount of nearly 37 percent.


A total of 318,688 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in 2010, down nearly 30 percent from 2009. Pre-foreclosure properties in 2010 sold at an average discount of 15 percent, down from an average discount of nearly 17 percent in 2009. Pre-foreclosure sales accounted for nearly 10 percent of all sales in 2010, down from nearly 11 percent of all sales in 2009 and virtually the same percentage of sales as in 2008.

In the fourth quarter, a total of 53,620 pre-foreclosure properties sold to third parties, down 29 percent from the previous quarter and down 49 percent from the fourth quarter of 2009. Fourth quarter pre-foreclosure sales accounted for nearly 10 percent of all sales during the quarter at an average discount of nearly 13 percent.

Nevada, Arizona, California post highest percentage of foreclosure sales in 2010

Foreclosure sales accounted for 57 percent of all residential sales in Nevada in 2010, the highest percentage of any state, but still down from a peak of 67 percent of all sales in 2009. Fourth quarter foreclosure sales accounted for nearly 59 percent of all sales in the state, up from nearly 54 percent in the third quarter.

Arizona foreclosure sales accounted for 49 percent of all sales in 2010, the second highest of any state but down from a peak of 54 percent in 2009. Fourth quarter foreclosure sales accounted for 55 percent of all sales in the state, up from 46 percent in the third quarter.

California foreclosure sales accounted for 44 percent of all sales in 2010, the third highest of any state but also down from a peak of 57 percent in 2009. Fourth quarter foreclosure sales in California accounted for 45 percent of all sales, up from 40 percent in the third quarter.

Other states where foreclosure sales accounted for at least one-quarter of all sales in 2010 were Florida (36 percent), Michigan (33 percent), Georgia (29 percent), Idaho (28 percent), Oregon (28 percent), Illinois (26 percent), Virginia (25 percent), and Colorado (25 percent).

10 states post foreclosure discounts of more than 35 percent in 2010

Ohio foreclosures sold for an average discount of nearly 43 percent in 2010, down from an average discount of nearly 47 percent in 2009, but still the highest of any state. Kentucky foreclosures sold for an average discount of more than 40 percent in 2010, the second highest of any state and up from nearly 38 percent in 2009.

Eight other states posted average foreclosure sale discounts of 35 percent or more in 2010: Tennessee, California, Pennsylvania, Illinois, New Jersey, Michigan, Georgia and Wisconsin.

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