Will foreclosures bring my home value down?

This is kind of a trick question, but the answer is yes and no. Let me tell you why. If there is heavy foreclosure activity in your market area and the homes are as nice as yours, then yes, there is a high probability that buyers will consider the bank owned homes right along with your home.

If the bank owned homes are lower in price, but offering similar quality and condition, then the market will pull the value of your home down when you are selling your home. You will simply not be able to sell your home, as your price will not be competitive to similar homes in your market area.

What about when you are refinancing.

In this case the appraiser is required to use homes sales that are not bank owned, unless the market is driven by bank owned homes and basically there are no other homes to select. This would mean that the value of your home will be based on other homes in your area that are not bank owned. So in this case, the foreclosed homes will not drive the value of your home downward when it comes to refinancing, unless that is all that is available in your market area, which is highly unlikely.

Last week, I completed an appraisal that was bank owned. This home was a manufactured home. The home was listed for $220,000 and manufactured homes in this area were listed and sold for around $170,000 to $180,000. The bank required that I did not use any bank owned homes when determining the value of the subject. I did not use bank owned properties, at the request of the bank. I searched for other homes in the area that are like the subject and are bank owned just to determine the price difference between bank owned homes and non-bank owned homes.

In this case, the value was $20,000 less for bank owned homes in this area. There is always a range of data and comparable sales in any market area. If the bank owned homes have not been cared for and there are other homes to select in your market area, foreclosures may not affect the value of your home when refinancing, but in some cases, it is inevitable, that foreclosures will create competition for your market and drive the price of your home downward.

So, in a nut shell

If you are selling your home, look at all of the homes in the market area and you may even want to go through a few of them. This will give you a good idea of what homes look like and if they smell and if they are being discounted for a reason. This will give you the information you need to price your home so that it will sell.

If you are refinancing, there’s not much you can do. Most appraisers will not use bank owned homes to compare to your, because they may not be considered an arm’s length transaction. This means that the value will be determined using other sales other than the bank owned homes. This may help you on your appraisal, but make no mistake about it if you plan on selling, you will have to consider all sales in the market, regardless of whether they are bank owned. What you are really looking at is the condition of the home. If the bank owned homes are in just as good as condition and they are willing to work with buyers, they will be competing with your home.