Foreclosure,REO, and Market Sales in Residential Real Estate |
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| Authors: | Peter Chinloy III" target="_blank">William HardinIII Zhonghua Wu |
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| Institution: | 1.Department of Finance and Real Estate, 229 Kogod School of Business,American University,Washington,USA;2.Hollo School of Real Estate, College of Business Administration,Florida International University,Miami,USA |
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| Abstract: | Assessment of lender and third-party bidder acquired properties at foreclosure auction is provided. Properties acquired at foreclosure auction by third-party bidders transact at a discount to lender dispositions of real estate owned (REO) properties. The discount reflects a reduction in costs associated with lender owned (REO) dispositions and uncertainty faced by third-party bidders. Moreover, there is a ranking in transaction prices among initial purchases by third-party bidders at foreclosure auction, REO sales, non-distressed property sales and the subsequent sales of third-party bidder acquired properties. Third-party bidder auction prices are below REO sale prices, which are below non-distressed property sale prices, which are below the subsequent sale prices of third-party bidder acquired properties. The price spacing by cohort is logical, intuitive and economically justified in a market with rational participants. Implications are also apparent for the measurement of price changes, net sale proceeds and returns to residential real estate. |
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