This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Foreclosures are Selling at Above-Market Prices

BOSTON (TheStreet) — Many Americans assume that homes facing foreclosure sell for deep discounts, but a detailed analysis of some 4 million recent sales shows that certain kinds of distressed properties actually fetch as much as 19% above market value on average.

"It's definitely counterintuitive," says Daren Blomquist of market watcher RealtyTrac, which conducted the study.

RealtyTrac looked at what millions of distressed and non-distressed homes sold for during the 12 months ended March 31 and compared that with each property's estimated market value based on location, lot size and other characteristics.

The firm also broke down the distressed-property market into 24 subcategories using such factors as a home's age and how far along it was in the foreclosure process at the time of sale.

Read More: 5 Key Housing Markets to Watch in 2014

RealtyTrac found that while distressed properties in general offer around a 14% discount off fair-market value, different subcategories perform very differently.

For instance, abandoned properties scheduled for foreclosure auction, built between 1950 and 1990 and worth less than the homeowner's unpaid mortgage balance average 28% below market value.

By contrast, the typical "bank-owned" property - a home where the lender has already completed the foreclosure process and put the place up for sale - actually sell for 3% above market value.

Two classes of distressed homes do even better than that.

Homes worth less than the seller's unpaid mortgage but not yet officially in foreclosure sell for 19% average premiums, while bank-owned homes build before 1951 typically fetch 7% above market value.

Blomquist attributes the higher-than-expected prices to competition among house-hunters for the best distressed parcels as the housing sector slowly recovers.

"I think it's a reflection of a market that's become so starved for inventory that some categories of distressed properties are seeing multiple offers and competitive bidding," he says. "That's pushing prices up."

The expert says the lesson for professional investors and home-buying consumers is that not all distressed properties sell for rock-bottom prices any more.

Read More: Hungry Housing Investors Turn to Heartland

"You really want to narrow down your search to just those subcategories that offer the best discounts," he says.

Market segments that RealtyTrac found offer the best deals include:

  • Residences that are abandoned, already in foreclosure and built before 1951 (26% average discount)
  • Homes that are in the foreclosure process, but whose current owners owe less than the property's market value (26% typical discount)
  • Properties that are abandoned and scheduled for foreclosure auction (25% average discount)
  • Homes that are bank-owned and vacant - i.e., the previous owner or tenant has either moved voluntarily or been evicted (18% typical discount)

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,042.90 -28.32 -0.17%
S&P 500 1,972.29 -5.51 -0.28%
NASDAQ 4,493.39 -12.4620 -0.28%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs