Does a Foreclosure Next Door Lower My Property Value?

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Bankrate reports that according to RealtyTrac’s database of foreclosures, lenders foreclose on 1 in every 998 homes across the nation each month. The number is based on statistics available at the time of publication and changes from year to year. Since foreclosures can hurt the value of neighboring homes, nearby foreclosure properties can decrease the value of your home at a time when you want to sell it or apply for a home equity loan.

Amount of Decrease

Property value for a given home generally decreases by at least 1 percent if a house within 250 feet sells in foreclosure, according to the findings of a Massachusetts Institute of Technology study reported in an article on the MSN Real Estate website. Although the actual impact on the values of neighboring homes varies, if there are multiple foreclosures in your neighborhood, your home’s value could decrease by 1 percent for every foreclosed property nearby.

Neighboring Foreclosures

Your home may look less appealing to prospective buyers if you live across the street from or next door to a foreclosure property that has been visibly neglected. In a “New York Times” article, John. P. Harding, a University of Connecticut professor at the Center for Real Estate and Urban Economic Studies, points out that the homes impacted the most by neighboring foreclosures are those that are near enough for potential buyers to notice evidence that a house hasn’t been cared for, such as unkempt lawns or broken windows.

Sale of Foreclosures in Good Condition

Since not all foreclosure homes are in disrepair, properties that are still in good condition can offer buyers good value at their discounted prices. Although the cheaper prices for which foreclosure properties sell vary, in some neighborhoods, the average sale price is 36 percent less than comparable non-foreclosure homes, reports Inman News. Because of the difference in price, a buyer looking for a home in your neighborhood may consider buying a foreclosed home instead.

Comparable Market Value

The value of your home is based in large part on how much it’s worth on the housing market when compared to similar homes in the area. Appraisers and real estate agents look at the listing prices of other homes currently on the market as well as the sold property prices when determining a home's value, notes Using foreclosure properties that sell for less than current market value as comparables can bring down the value of the surrounding homes, according to Amy Downs, a Dallas real estate agent, quoted in an article for MSN Real Estate.