For home buyers who want to score the biggest discounts on a distressed property, they better be prepared to start the bidding. Distressed properties with the biggest price discounts are those scheduled for public foreclosure auction, and they are typically homes built between 1950 and 1990 that are now vacant, according to RealtyTrac’s May 2014 Residential & Foreclosure Sales Report. Such properties sold for an average discount of 28 percent below non-distressed sales.
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RealtyTrac analyzed residential property sales transactions for the year ending in March 2014 to pinpoint the types of distressed properties that sell at the largest discounts, comparing factors like foreclosure status, occupancy status, equity, and the year the home was built. The discount was calculated by comparing the average discount (below market value) or premium (above market value) of 24 different distressed property profiles, and then comparing it to properties not in foreclosure that sold during the same time period.
While scheduled auctions offered some of the largest discounts, RealtyTrac also found that the following distressed properties also tended to carry some of the largest price discounts to buyers:
- Homes in default with positive equity: 26% discount
- Homes in default with negative equity that were built in 1950 or before and are now vacant: 26% discount
- Vacant homes with negative equity that are scheduled for foreclosure auction: 25% discount
- Homes scheduled for foreclosure auction: 25% discount
- Bank-owned properties that are vacant: 18% discount
Despite the discount on vacant bank-owned properties, RealtyTrac found that repossessed homes overall tended to sell for a 3 percent premium. Those built in 1950 or before sold at a 7 percent premium, according to the analysis.
The largest discounts on distressed properties were found to vary considerably by state. The following states had some of largest discounts on distressed properties, according to the RealtyTrac analysis:
- New York
Vacant properties with negative equity that are scheduled for foreclosure auction: 38% discount
Vacant properties with negative equity that were built between 1950 and 1990: 34% discount
Vacant properties in default: 34% discount
Vacant properties with negative equity that were built between 1950 and 1990 and are scheduled for foreclosure auction: 29% discount
Properties with positive equity that are scheduled for foreclosure auction: 17% discount