How Foreclosures Affect Home Values

Chances are that you or someone you know has been affected by foreclosure; even in something as miniscule as depreciating property values. Foreclosures do not just affect the family losing a home; they affect neighborhoods and families for a long time to follow in a variety of ways. Knowing exactly what a foreclosure does to your home value, however, isn’t just as straightforward as the drastically reduced sales price.

-Appraisal Values

Most foreclosures are sold for prices well under market values. Since bank appraised values are directly derived from recently sold properties, the lower the sales price of a foreclosure, the more your home loses value. This is a nightmare for sellers in a high-rate foreclosure market, as they typically lose tens of thousands of dollars on their anticipated sales price.

-Vacant Property

Vacant properties are attractive to squatters and other less-than-reputable people. In fact, vandals often target foreclosures, stealing appliances and other items from vacant properties, increasing the crime rate in almost every neighborhood. Moreover, since foreclosures are always empty, without someone to maintain the property yards and interiors are often left unkempt. Vacant properties undergoing damage or contributing to increased neighborhood crime rates, devalue surrounding properties, substantially.

-The More the Damage, the More the Devaluation

In many instances, homeowners are distraught at the possibility of losing a home, and sometimes intentionally damage the property before moving out. The more the owner defaces his home, the lower the sales price the bank offers, due to the damage, and the more severely adjacent properties are devalued as a result.

-Neighborhood Appeal

Foreclosures hurt the overall appeal of a neighborhood. Real estate has always been primarily centered on finding homes in excellent locations and neighborhoods; as a result, neighborhoods desirable to live in support higher overall property values. During times when foreclosure rates rise, property values for other homes in the neighborhood decrease, decreasing overall attractiveness for that neighborhood; ultimately stalling retail property sales for long durations.


In foreclosure turbulent markets, many real estate investors see untapped opportunity. In these cases, some investors will swoop in, buy a foreclosure at a significantly reduced cost and then convert that property into a rental. Statistically, renters do not have as much pride of ownership in a property as a homeowner might, and indigent care and maintenance of a property from a renter contributes to lost property value, even after a foreclosure sale is final.

Foreclosure has become the new “F” word in real estate, for more reasons than just the initial impact to the foreclosed homeowner. This makes foreclosure prevention a paramount importance for homeowners in neighborhoods everywhere. Having the tools to avoid neighborhood property value depreciation keeps neighborhoods attractive and popular, and assists neighbors in danger of losing their homes.