Foreclosure Discount Increases

Kara  Johnson
Written by
Kara Johnson
Read Time: 2 minutes

Buyers of foreclosed homes obtained their biggest discounts in nearly five years during the third quarter of the year, shaving nearly one-third off the price of comparable residential properties.

Homes in some stage of the foreclosure price sold at an average discount of 32 percent during the quarter, their biggest markdown since late 2005, according to figures released today by RealtyTrac. That's up from a 26 percent discount in the second quarter and 29 percent one year ago.

The figure includes properties in default and scheduled for auction, as well as those repossessed by banks (REOs, or real-estate owned). REO properties sold at an average discount of nearly 41, up from 34 percent previously.

Sales fall in proportion to rest of housing market

Foreclosure sales made up about 25 percent of all home sales, about the same as in the previous quarter, although total sales declined sharply along with the slowdown of the housing market in general following the end of the homebuyer tax credit. REOs made up about 15 percent of the total, with properties in default or scheduled for auction making up about 10 percent.

Total foreclosure sales of all types fell by 25 percent during the quarter, to just under 189,000 homes. The average sales price was just under $170,000, compared to nearly $250,000 for non-foreclosed homes.

Robo-signing controversy could chill demand

"The foreclosure-processing controversy, which was brought to light at the very end of the third quarter, could chill demand even further - particularly for foreclosure properties," said James Saccacio, RealtyTrac CEO. "A quick but responsible resolution to that issue would be ideal to help the market continue to properly clear out foreclosure inventory and get distressed properties into the hands of qualified buyers and investors who will likely add value to those properties and the neighborhoods they are in."

Nevada had the highest percentage of foreclosure sales, making up 54 percent of all residential real estate transactions, followed by Arizona at 47 percent and California at 40 percent. The California ratio has declined markedly over the past year, down from 52 percent of all sales in the third quarter of 2009.

Ohio, Kentucky and Tennessee had the highest discounts on properties in foreclosure, ranging from 42-45 percent. REOs in Ohio and Kentucky sold at an average discount of 51 percent, while in Tennessee their average discount was 43 percent. Other states with overall foreclosure discounts in excess of 40 percent were Illinois, New Jersey, Michigan, Pennsylvania and Georgia.

Like what you're reading? Subscribe to our top stories.

No spam. We take your privacy seriously.

Follow us on Twitter and Facebook.