Foreclosure Discount: Definition and Dynamic Patterns

36 Pages Posted: 4 Aug 2015

See all articles by Hanqing Zhou

Hanqing Zhou

Federal Home Loan Mortgage Corporation (FHLMC)

Yuan Yuan

Federal Home Loan Mortgage Corporation (FHLMC)

Christopher Lako

University of California, Berkeley - Haas School of Business

Michael Sklarz

Collateral Analytics

Charles McKinney

Federal Home Loan Mortgage Corporation (FHLMC)

Multiple version iconThere are 2 versions of this paper

Date Written: Fall 2015

Abstract

The lack of a consistent definition of foreclosure discount gives rise to discount rates that vary from nonexistent to sizeable across locations and time. We define the foreclosure discount as the discount of the real estate owned (REO) sale price relative to a normal‐sale estimated market value. With a dataset of 1.34 million REO sale transactions, across 16 CBSAs between 2000 and 2012, we find three noteworthy empirical findings. First, a high REO sale concentration in a market increases the foreclosure discount. Second, foreclosure discount is negatively related to recent house‐price appreciation. Third, the often reported high foreclosure discount for lower value properties is likely due to property condition.

Suggested Citation

Zhou, Hanqing and Yuan, Yuan and Lako, Christopher and Sklarz, Michael and McKinney, Charles, Foreclosure Discount: Definition and Dynamic Patterns (Fall 2015). Real Estate Economics, Vol. 43, Issue 3, pp. 683-718, 2015. Available at SSRN: https://ssrn.com/abstract=2639434 or http://dx.doi.org/10.1111/1540-6229.12089

Hanqing Zhou (Contact Author)

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

Yuan Yuan

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

Christopher Lako

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Michael Sklarz

Collateral Analytics ( email )

United States

Charles McKinney

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Road
McLean, VA 22101
United States

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