Foreclosed homes drop sharply in value, study finds
A foreclosure reduces the value of a house by an average of 27 percent, according to MIT and Harvard researchers who examined 1.8 million home sales in Massachusetts from 1987 to 2009.
In a statement, MIT economist Parag Pathak, one of the authors of the study, said: “It’s not surprising that there is a discount due to foreclosure. But it is surprising that it’s so large.”
Pathak worked with two Harvard researchers, John Y. Campbell and Stefano Giglio, on a study titled, “Forced Sales and House Prices.”
When a house is sold after the death of an owner, the study found, the price drops 5 to 7 percent on average. When an owner declares bankruptcy, the value sinks 3 percent.
Foreclosed homes often fall into disrepair and depress the values of the homes around them. The study's authors estimated that the value of a home drops by 1 percent, on average, if it is within roughly 250 feet of a foreclosed home.
To read more about the study, please click here.