Foreclosure Discount: Definition and Dynamic Patterns

Hanqing Zhou, Yuan Yuan, Christopher Lako, Michael Sklarz and Charles McKinney

Real Estate Economics, 2015, vol. 43, issue 3, 683-718

Abstract: type="main">

The lack of a consistent definition of foreclosure discount gives rise to discount rates that vary from nonexistent to sizeable across locations and time. We define the foreclosure discount as the discount of the real estate owned (REO) sale price relative to a normal-sale estimated market value. With a dataset of 1.34 million REO sale transactions, across 16 CBSAs between 2000 and 2012, we find three noteworthy empirical findings. First, a high REO sale concentration in a market increases the foreclosure discount. Second, foreclosure discount is negatively related to recent house-price appreciation. Third, the often reported high foreclosure discount for lower value properties is likely due to property condition.

Date: 2015
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