Foreclosure % Linked to Deeper REO Discounts

An annual study by First American Real Estate Solutions finds that markets with a high rate of foreclosure sales also have deeper sales discounts when foreclosed property is sold.The study compares the relationship between foreclosures as a percentage of total sales and the size of the discount buyers typically receive when purchasing foreclosed properties. In Orange County, Calif., foreclosure sales accounted for 0.5% of total sales, and the buyer typically paid a median discount of 3.8%. Whereas in Baltimore, foreclosures made up 8.9% of total sales and the median discount was 20%. First American said the study shows a strong tendency toward increased foreclosure prevalence and deeper discounting for properties in the lower home-price tiers. "Discounts tend to be deeper in markets where foreclosures comprise 8% or more of all sales, regardless of geographic location or market type," said Christopher Cagan, director of research and analytics at First American Real Estate Solutions.