Foreclosed Properties Selling at 27% Under True Market Value

According to a new report from RealtyTrac.com, the leading online marketplace for foreclosure properties, 31% of all residential sales in the first quarter of 2010 were foreclosure sales. It also states that these foreclosure sales have witnessed an average sales price discount of 27% compared to those properties that were not in the foreclosure process.

The total number of foreclosure properties on the block in the first quarter of 2010 numbered 232,959 which is a decrease of 14% over the previous quarter and a scale down of about 33% from the peak during the same period in 2009. The average sales prices of distressed properties has seen a decrease of 23 % from 2006 to 2009 while the average discounts on purchases of these properties has increased 27 percent in the first quarter of 2010 from 21 percent in 2006 .

The chief executive officer of RealtyTrac, James J. Saccacio said that first time home buyers as well as investors continued to go after foreclosure properties increasingly. The total number of properties involving foreclosures in 2008 was more than 1.2 million, a 25% increase over the previous year and a mind boggling 2,500% increase from 2005. However, given the record rate of repossessions by lenders in the first half of this year, Saccacio said that it would be interesting to see if there would be any more price deterioration given that the huge amount of inventory of distressed properties.

Foreclosure sales by type in first quarter: – A total of 144,503 bank-owned (REO) properties sold accounted for 19 percent of all sales in the first quarter; down from 13 percent during the previous quarter. A total of 88,456 pre-foreclosure properties sold — in default or scheduled for auction —accounted for nearly 12 percent of all sales in the first quarter, down from 15 percent during the previous quarter.

REOs sold at a higher discount at 34% than pre-foreclosures at 15%. The reason for the larger discounts is that REOs, the homes repossessed from borrowers, usually came on the market in a poor condition wherein the previous owners could not afford to maintain them. The biggest discount on REO sales was in New York at 52 percent while the biggest discount on pre-foreclosure properties was in Rhode Island at 33%. However, as short sales become more common, discounts on pre-foreclosures are also expected to take an upward trend.

Nevada, California, Arizona posted the highest percentage of foreclosure sales in Q1 at 64%, 51% and 50% of all residential property sales respectively. Other states where foreclosure sales accounted for at least one-third of all sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon.

Ohio, Kentucky, Illinois posted highest foreclosure discounts of up to 39% on the average sales prices of properties that were sold. In California, Tennessee, Pennsylvania, DC and New Jersey the discounts was at least 35%.

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