The Subsequent Market Value of Former REO Properties

Abstract

In this study, we find the subsequent price for a property initially sold as a real estate owned (REO) property occurs at market prices. The subsequent price to the REO purchaser is related to indicators that the property has been remodeled, renovated, or updated. This suggests that the difference between the price received by servicers/lenders that foreclose and sell a REO property, and the price received by subsequent property owners that sell is in large part due to timely improvements made postforeclosure. Lenders are not selling REO properties at irrational prices, but rather at prices that reflect the condition of the properties. IntroductionActivity in the residential housing markets is a significant component of the broader national economy; and in recent years has been a significant determinant of commercial banks' and other financial institutions' economic performance. While the real estate owned (REO) 1 discount and the spillover effect have been analyzed in the past, there is little existing evidence related to the pricing of foreclosed properties in the market subsequent to the REO sale. Given the reach of the current foreclosure crisis, the ability of former REO properties to recover value in subsequent transactions will be a significant determinant of eventual housing market recovery. In this article, we provide empirical analysis of the loss to financial institutions and the subsequent returns to buyers of REO properties.

Seeking Alpha in the Housing Market

“…7 It is generally accepted that sales on an all-cash basis occur at discounted prices, although estimates of the magnitude of the discount vary across studies. SeeRutherford et al (2017) for work on this topic including foreclosure/REO sales.3 See article titled "Zillow Intends to Buy and Flip Homes" by Laura Kusisto and Rolfe Winkler, at Wall Street Journal on April 12, 2018, available from https:// www. wsj.…”

The impact of real estate agents’ expertise on house prices and TOM

“…As to the third explanation, greater expertise can reduce their clients' search costs and both selling and listing agents should be compensated accordingly. While prior studies have also found price increases associated with selling agents, we are not aware of an explanation for the result in the literature (e.g., Rutherford & Yavaş, 2012;Rutherford et al, 2017). Disentangling the underlying rationales is beyond the scope of our study and data; however, we suspect that investigation of the price impact attributable to selling agents may be a fruitful future research project.…”

“…This notion is supported by the other studies that model the license period of listing agents. Two papers that include the license period as control variables for both listing and selling agents are Rutherford and Yavaş (2012) and Rutherford et al (2017). They find a decrease in prices for inexperienced selling agents and an increase for veterans of approximately 1% for each.…”

How Multiple Creditors, Market Liquidity and Homeowner Participation Affect Foreclosure Discounts

“…Furthermore, a study by LaCour-Little and Yang (2021) conőrms this discount by identifying excess returns in certain market conditions. Although most of these studies suggest more than 20% discount in foreclosure, their őndings can have an upward bias due to physical conditions and marketing time, according to other studies (T M Clauretie and Daneshvary, 2009;Harding, Rosenblatt, and Yao, 2012;J. Rutherford, R. C. Rutherford, Strom, et al, 2016).…”