Thursday, May 26, 2011

Bloomberg Offers Data on Discount for Distressed Property Purchases

To read the article, click here.

While the article claims a 27% discount on distressed properties (short sale, foreclosure or REO), I believe the data is misdirected. Yes, the average price of distressed property is 27% less than that of normal sales. Yet, this doesn't mean that purchasers pay 27% below the appraised price of the unit and get an outstanding deal. It's misleading.

Instead, all the data means is that the average cost that people pay for distressed property vs. normal property is 27% less. This may result from the fact that less expensive properties are more likely to be distressed. A correlation that I do not have data for, but believe through my anecdotal evidence seen in practice. What the article wrongfully suggests to the lay reader is that two neighboring houses are sold and the distressed one is sold at a huge discount. Simply not the case.

What we see in our active foreclosure / short sale practice is that there are only very slight discounts on purchasing distressed properties. The reason is simple: Banks get appraisals (or brokers price opinions) and know the value of the property.

To be clear, banks don't just give away distressed property.

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