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Foreclosure, REO, and Market Sales in Residential Real Estate

Peter Chinloy (), William Hardin () and Zhonghua Wu ()
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Peter Chinloy: American University
William Hardin: Florida International University
Zhonghua Wu: Florida International University

The Journal of Real Estate Finance and Economics, 2017, vol. 54, issue 2, 188-215

Abstract: Abstract Assessment of lender and third-party bidder acquired properties at foreclosure auction is provided. Properties acquired at foreclosure auction by third-party bidders transact at a discount to lender dispositions of real estate owned (REO) properties. The discount reflects a reduction in costs associated with lender owned (REO) dispositions and uncertainty faced by third-party bidders. Moreover, there is a ranking in transaction prices among initial purchases by third-party bidders at foreclosure auction, REO sales, non-distressed property sales and the subsequent sales of third-party bidder acquired properties. Third-party bidder auction prices are below REO sale prices, which are below non-distressed property sale prices, which are below the subsequent sale prices of third-party bidder acquired properties. The price spacing by cohort is logical, intuitive and economically justified in a market with rational participants. Implications are also apparent for the measurement of price changes, net sale proceeds and returns to residential real estate.

Keywords: Online; auctions; REO; foreclosure; real estate transactions (search for similar items in EconPapers)
JEL-codes: G14 R33 (search for similar items in EconPapers)
Date: 2017
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The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

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Handle: RePEc:kap:jrefec:v:54:y:2017:i:2:d:10.1007_s11146-015-9544-x