Foreclosures Sell at 27% Discount. Distress Focused in Few States

by devteam May 27th, 2011 | Share

Foreclosed properties continued to impact thernhome sales market during the first quarter of 2011rnaccording to a report released Thursday by RealtyTrac.  </p

Sales of bank-owned homes or those in somernstate of foreclosure represented 28 percent of all residential sales in the first quarter of 2011, up modestly from 27 percent of all sales in the fourth quarter of 2010 and the highest percentage of distressed sales since the first quarter of 2010, when 29 percent of all sales were foreclosed properties. </p

While foreclosed properties were more prevalent in the first quarter as a percentage of total home sales, they declined from a sheer numbers perspective. A total of 158,434 properties wererneither sold out of bank inventories (REO), at auction, or while in some stagernof default through a short or other sale. rnThis was 16 percent fewer than in the fourth quarter of 2010 and 36 percentrnbelow the number one year earlier.</p

The average price of distressed home sales wasrn$168,321, 1.89 percent below the previous quarter and 1.46 percent under prices one year earlier. One statistic that speaks well to the term “distressed property” is the 27 percent price difference foreclosed inventory and non-foreclosed homes.  That figure was however unchanged from the fourth quarter of 2010 and up 1 percentagernpoint from the first quarter of 2010.   </p

James J.rnSaccacio, chief executive officer of the Irvine California based firm said, “While foreclosure sales continue to account for an unusuallyrnhigh percentage of all residential home sales, sales volume is well off thernpeak we saw in the first quarter of 2009, when nearly 350,000 foreclosurernproperties sold to third parties” While this is probably helping to keep homernprices relatively stable, it is also delaying the housing recovery. At thernfirst quarter foreclosure sales pace, it would take exactly three years tornclear the current inventory of 1.9 million properties already on the banks’rnbooks, or in foreclosure.”</p

Sales can occur in two-phases of the foreclosure process. </p<ol

  • Pre-Foreclosure Auction or Short Sale: if the borrower does notrncatch up on their payments the lender will file a notice of sale (the lenderrnintends to sell the property). This notice is published in local paper andrncontains information pertaining to the date, time and subject property address.</li
  • Real EstaternOwned or REO properties : “REO” stands for “real estate owned” andrntypically refers to the inventory of real estate that banks and mortgagerncompanies have foreclosed on and subsequently purchased through the foreclosurernauction if there was no offer higher than the minimum bid.</li</ol

    Pre-foreclosure sales totaled 51,291,rndown nearly 26 percent from the previous quarter and 45 percent lower from Q1 2010. Thisrnrepresented nearly 9 percent of all sales, down from 10 percent in the fourthrnquarter and 11 percent in the first quarter of 2010.rnPre-foreclosure sales, which are often short sales, sold for an averagerndiscount of 9 percent, down from an average discount of 13 percent in thernfourth quarter and an average discount of 14 percent in the first quarter ofrn2010. </p

    REO accounted for 107,143 of sales in the first quarter, down 11 percent from the fourth quarter and nearlyrn30 percent year-over-year.  REO salesrnaccounted for almost 19 percent of all sales in the first quarter, up from 17rnpercent in the previous quarter and 18 percent in the first quarter of 2010.  Bank-owned real estate sold for an averagerndiscount of 35 percent, unchanged from the previous period but up from 33rnpercent a year earlier. </p

    Bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 176 days prior to the sale, while properties that sold in the earlier stages of foreclosure in the first quarter were in foreclosure an average of 228 days before selling.</p

    Once again the three states with the highest rate of foreclosures had the highestrnpercentage of foreclosure sales.  Suchrnsales accounted for 53 percent of sales in Nevada and 45 percent in both California,rnand Arizona.  The average discounts fromrnmarket sales were 18 percent in Nevada, 34 percent in California and 25 percentrnin Arizona.</p

    Other states where foreclosure salesrnaccounted for at least one-quarter of all sales were Idaho (33 percent),rnFlorida (32 percent), Michigan (32 percent), Oregon (32 percent), Virginia (30rnpercent), Colorado (30 percent), Illinois (29 percent), Georgia (27 percent)rnand Ohio (25 percent).  </p

    States registering the highestrndiscounts for properties in foreclosure were Ohio (41 percent), Illinois (41rnpercent), and Kentucky (39 percent). rnMaryland, Tennessee, Wisconsin, Delaware, Pennsylvania, and Louisianarnall had discounts of over 35 percent.

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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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