When researching real estate comps and scouting neighborhoods for profitable deals, it is wise to consider the total number of foreclosed homes in the area. Unfortunately, foreclosures can lower the surrounding homes’ value by at least 27%, according to a report from MIT (Massachusetts Institute of Technology) economist. By having an increased housing supply in an area and having the banks and lenders needing to unload the foreclosed property, home values are noticeably driven down. InvestorCompsOnline is a excellent tool to find out what the true real estate comparables are for the homes you might be considering.
MIT and Harvard conducted the study by looking at over 1.8 million homes which were sold in Massachusetts in the last 22 years. By studying the data, they were able to deduce that foreclosure (as opposed to a deceased homeowner or declaring bankruptcy) could reduce a surrounding home’s value (even if the owners are far from facing foreclosure.) Death and bankruptcy can lower the value by less than 7%, as opposed to the previously stated 27% that foreclosures cause. Because foreclosures often mean deteriorating and dilapidated conditions, the surrounding homes are affected as well. They make the neighborhood look bad and unkempt.
Also, because foreclosed homes are sold quickly and at a steep discount, this affects the home’s values as well. The home prices of the surrounding homes are taken into consideration when determining its value.
Use your InvestorCompsOnline account to be sure you are accurately accessing the value of your future deals and don’t get caught holding the bag in this foreclosure increased season.