How does it affect neighbors if there was a foreclosure on their street?
Well – this question must be nagging the minds of home owners, given the present scenario obtaining all over the country. Years back the word “foreclosure” was not heard of by many. Now that more than 2 million homes are lying in any one of the three stages of foreclosures – pre-foreclosure period; actual foreclosure by public auction and repossessed properties after foreclosure auction, not getting the minimum bid – the home prices, as a whole, have fallen down considerably in the US real estate market.
So the real estate market has dramatically changed to become a buyers market, where home buyers have abundance of properties to consider – as much as 11 housing properties vying for it when one is needed – due to lot of foreclosure properties listed in the area for distress sale. The selling prices quoted in the listings are virtually a fraction of their real value, had they been sold in the secondary homes’ market.
As such it must be understood, that if you are a home owner proposing to market your housing property, you will not be able to get the asking price now, in line with the current market trends. Stepping into the shoes of the home buyer, you can visualize the situation more clearly. When there are hundreds of homes available, which are similar to yours with regard to footage, model, year of construction and amenities, at nearly 60% of the price that the seller is asking for, would you be willing to buy it?
The point is the foreclosure crisis has severely affected the home values, in new homes as well as secondary homes. With this background, let us analyze how it affects the neighbors, if there was a foreclosure on their street.
In some neighborhoods, it is still there that a house is sold quietly by the mortgage lender to a prospective buyer for the market value, without much publicity. It is only in the case of judicial foreclosures routed through the Court, or in the case of REPO housing properties owned by Banks, a large sign board is placed in front of the property concerned, in a prominent place as “Foreclosure Sale”. In both the cases, due to the longevity of the legal procedures in the first and the time taken for resale by the Bank’s systematic approach in the second, the property gets forsaken, without proper maintenance.
Weeds and bushes grow densely, lawns go not mowed for months and the buildings get dilapidation as an eye-sore. Naturally the pathetic sight of the property creates an uncomfortable feeling for other residents of the street. But strictly speaking one house in a street like this can not have much an impact over the market value of other houses in that street.
That said, appraisal of home value, according to professionals in the field, is based on three aspects. The cost factor – evaluation of cost of the building by calculation of the value to build it with the materials used and the land cost; Income factor in respect of multi-family residences for capitalization value; and market value by comparing the sale value of similar properties in the neighborhood.
In fact authorities, who are preparing the comparable value of the subject property for assessing the market value, take into consideration only the “arms length” transactions. That is property sold by a normal home seller and bought by a willing buyer, without any pressure on either side.
If only a lot of foreclosure properties emanate from the neighborhood, consistently for over a period of say six months, then certainly the median price of the foreclosure properties will be the basis for arriving at the average market value of the property concerned. So any home owner could not help such a situation and has to face the facts.
