I always new that foreclosures depressed neighborhood prices but I came across a study that showed the actual impact in dollars. As agents we all know that 1, 2 or 3 foreclosures in a subdivison has a definite effect but how many of us ever sat down with their calculator and figured out how much? Well, this study done by the Regional Economic Applications Laboratory (REAL) at the University of Illinois did just that.
This study looked at 5 years (2008-2012) to determine the impact foreclosures were having on neighboring properties. The research was able to put a dollar figure to having a foreclosed property in close proximity to a property. The REAL study found in areas with foreclosures, prices for non-distressed properties could decline by thousands of dollars.
- Foreclosures 'contaminated' neighborhoods by dampening home prices. Distressed properties have a higher incidence of being poorly maintained or vacant, factors which detract from the neighborhood's overall appearance. Additionally, areas with high incidences of foreclosures create a surge of property on the market, a factor which can further weaken prices.
- Having one to two foreclosed properties within a tenth of a mile of a home can reduce its price by $6,535, based on a home worth $150,000. (See Figure 1: 0-0.1 mile nearby)
- Additional foreclosures in close proximity to a home further reduce the price, although not at as steep a rate. In a particularly hard hit area with more than 10 nearby foreclosures, each foreclosure reduced property values by $2,246 accumulating to a total discount of $28,000 according to REAL. (See Figure 1 and Figure 2: 0-0.1 mile nearby)
Since we've dealt with this on a daily basis over the past years I can't remember anyone actually giving the dollar impact on surrounding home values. But I would have to agree that the more foreclosures in a subdivision can have a significant impact on the surrounding homeowners.
The financial impact having nothing to do with how a home is maintained, it's distinct upgrades, etc. just a free-fall of prices based on other bank owned 'contaminants' in your area.
Source: Illinois Assoc of Realtors, REAL Univ of IL