Premium
Foreclosure Discount: Definition and Dynamic Patterns
Author(s) -
Zhou Hanqing,
Yuan Yuan,
Lako Christopher,
Sklarz Michael,
McKinney Charles
Publication year - 2015
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12089
Subject(s) - foreclosure , real estate , economics , value (mathematics) , discounting , monetary economics , microeconomics , financial economics , econometrics , finance , computer science , machine learning
The lack of a consistent definition of foreclosure discount gives rise to discount rates that vary from nonexistent to sizeable across locations and time. We define the foreclosure discount as the discount of the real estate owned (REO) sale price relative to a normal‐sale estimated market value. With a dataset of 1.34 million REO sale transactions, across 16 CBSAs between 2000 and 2012, we find three noteworthy empirical findings. First, a high REO sale concentration in a market increases the foreclosure discount. Second, foreclosure discount is negatively related to recent house‐price appreciation. Third, the often reported high foreclosure discount for lower value properties is likely due to property condition.