Foreclosures are known to impact sales of nearby homes for sale, but I wondered if that spreads across all price points. Would the sale of a home for $1 or $2 million-plus be affected by the foreclosure of another upscale or luxury home nearby?
Do homeowners who want to put a house on the market or who have a nearby listing have to hurry up and close because there’s a foreclosure looming?
Above, Huntington Beach homes in Edwards Hill and Huntington Harbour that have foreclosure auctions pending. Click on photos to enlarge.
There also have been foreclosures in gated communities here, including The Boardwalk and Ocean Colony, with homes a few doors down or around the corner on the market as regular sales. And I’m just writing about Huntington Beach properties as an example, because the scene is similar in various parts of Orange County and elsewhere.
I asked an Orange County real estate appraiser, Dean P. Zibas, to weigh in.
Zibas, 48, has been appraising all kinds of property, including pricey homes in Huntington Harbour and Newport Beach, for more than 18 years. He says:
“The foreclosed-upon house does influence the other property. But it is only one of several factors, so its influence may or may not be great.
“In the law of supply and demand, the added similar property provides more supply on the market and yes, does put downward pressure on prices/values. In most tract neighborhoods these days, one added property doesn’t really affect values much, and most neighborhoods are experiencing stable price/value trends even with the added supply being put in the marketplace by foreclosures. But in the specific case you mention it might have more impact, as a small gated community of luxury homes might be kind of a niche market whereby even adding one new property on the market can be significant. “Let me state it a different way. In your case, if there’s sufficient buyer demand and/or the properties are fairly different from each other, having the foreclosure property added as a listing wouldn’t affect things much for the subject property. But if they’re fairly similar and/or buyer demand isn’t strong, then both properties might be fighting over the same small pool of buyers, and we know competition often leads to lower prices. “So, in answer to your question, the owner of the home not in foreclosure would certainly want to sell before another similar home goes on the market, but if buyer demand is sufficient then it wouldn’t necessarily result in a price drop. “I should note that sometimes foreclosures sell for less due to being as-is purchases without transfer-disclosure statements, and that needs to be taken into consideration. So sometimes a foreclosure may sell for X% below a standard sale and that doesn’t necessarily drag down prices. It’s more of a supply and demand issue.”
Do you agree with Zibas’ assessment? Disagree? Have you been affected by a foreclosure in your neighborhood? Share in the comments!