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Distressed Properties Impact the Value of YOUR Home

There are times in our lives when we have it better than many of our family, our friends and our neighbors. We try to help in any way we can. Yet, to some degree, we are relieved that we are not impacted by their challenges. Many people look at the heartache in the current housing crisis this way. People we know are struggling to pay their mortgages and some are even losing their homes to foreclosure. We may reach out with a helping hand but we are relieved that our house is not being impacted.  

I want to let you know the value of your house IS BEING IMPACTED! The housing crisis has tentacles that are far-reaching and affecting values of homes in almost every neighborhood in the country. Let me explain.

Distressed properties (foreclosures and short sales) impact the values of surrounding homes in two major ways:

1. They increase housing inventory

The concept of supply and demand applies to the value of any item in the world. The greater demand, the higher the price. The more supply, the lower the price. As more and more distressed properties enter the supply of homes available, the more prices will soften. The Miami Herald reported yesterday that foreclosures throughout the country are predicted to surge:

Real estate experts predicted this week that 3.5 million homes nationally will go into foreclosure this year as risky adjustable-rate mortgages written in 2005 reset and unemployment continues.

That’s up from 2.8 million homeowners who faced foreclosure in 2009, and sets a pace that isn’t likely to plateau until late 2011, said RealtyTrac Senior Vice President Rick Sharga.

2. They lower average sale prices

Distressed properties are sold at a discount. Studies have shown that a ‘short sale’ will sell at 86.9% of a non-distressed sale in that area. A foreclosure will sell at 57.3% of a non-distressed sale. The higher percentage of homes sold at a discount, the lower the average home price in that area.

Let’s look at the following chart to clarify this point:

We can see that the ‘mix’ of properties sold has a dramatic effect on the average sales price of homes in a community. Appraisers are infact using distressed properties as comparables when establishing value on a neighboring non-distressed home sale. Those neighboring  foreclosures and short sales do impact your value.

What does this mean to you?

If you are thinking of selling, put the home up for sale now. You want to beat the flood of foreclosures predicted to come to market later this year.

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