RealtyTrac: Bank Owned Homes Selling at 30 Percent Discount

According to a press release issued by RealtyTrac, bank owned homes in the Phoenix real estate market are selling at a near 30 percent discount to traditional home sales.

While the numbers look good on paper, something doesn’t seem quite right. Work through this one with me …

Let’s assume a lender puts a home up for sale at prevailing market value. That market value is an amalgam of foreclosures, short sales and traditional sales – this isn’t a stratified market. If the lender puts a home on the market at market value, maybe 1 percent of those homes are being sold at 30 percent of list price – been a couple of months since I ran these numbers in the MLS but the average sales-t0-list price remains around the 90 percent mark and few homes drop toward 70% of market value.

Forgetting list price and looking strictly at market value, given most bank owned homes are selling within 90 percent of list price, if a home does sell at 30 percent of list price it’s usually because it’s too damaged to sell at regular market rate.

One more step …

If foreclosures are selling at 30 percent less than traditional sales, those foreclosure sales then become the comps for the area. Unless the traditional sales are cash deals, these properties are going to have to appraise for at least the agreed upon sales price which logic dictates would be 30 percent above the comps being created by the foreclosures.

Appraisers don’t generally sort sold properties into foreclosures, short sales, traditional sales; there may be adjustments for condition as warranted but a traditional sale isn’t going to be appraised only using other traditional sales as comparables. Which means they can’t possible appraise when foreclosures – the dominant class in the market – are selling at such deep discounts.

It’s not that I doubt RealtyTrac’s numbers but something doesn’t quite make sense. If a lowly real estate agent can drive trucks through the holes in the report, maybe there really is a disconnect.

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

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