How do nearby foreclosures affect your property value?

You're one of the lucky ones... You've been able to pay your mortgage since the bubble burst, but some of your neighbors may not be so lucky.  Considering that nearly 25% of the homes for sale right now are foreclosures, odds are that there's one near your house. So, will this affect you if you go to sell your own house anytime soon? Yes!

Unfortunately, having a foreclosed house near yours can -- and probably will -- negatively affect your property value.  However, just how much of an effect it will have depends on the average home price and income level in your neighborhood. But, there's also more to it than that.  For example, the number of foreclosed houses near yours also matters. For example, if only one house in a fairly stable neighborhood is a foreclosure, it won't affect your property value as much as if there are six or seven houses near yours that the bank has seized. Also, higher-income neighborhoods tend to have fewer foreclosures simply because the owners of those houses tend to qualify more easily and have more means to make regular payments towards their loan.   Remember, many of the foreclosed homes we're seeing now are the result of the high-risk, subprime loans that banks gave to people with questionable or bad credit back before the bubble burst.

So how does all of this affect you?
If someone is looking to buy a house in your neighborhood, they may opt for the foreclosure -- simply because it will be priced much cheaper than yours.Or, if the previous owner moved out after the bank seized the home, and no one has kept up the curb appeal, tall grass, weeds, and boarded-up windows can be an eyesore for potential buyers who may be otherwise interested in YOUR home.

There's some good news in all of this, though...
Many times, in higher income neighborhoods, the home is foreclosed and then resold at market value without the neighbors ever even knowing that a foreclosure occurred. That's what it's important to talk to a real estate agent to see if the time is right to sell your home, or if you should wait until after the foreclosures near your property have sold.

So, just how much will nearby foreclosures affect your property's value?
It's hard to put an exact number or percentage on how much a foreclosure can hurt your property value. When appraisers are trying to determine the fair market value of your property, part of the equation includes comparing it to a handful of surrounding properties. However, many appraisers say they try to avoid including foreclosures in that sampling because they can bring down the market value of your property. Studies show that in some states, like Florida, for example, nearly 40% of all houses on the market are distressed property sales.   

How can you combat the problem?
The best way to convince potential buyers that they should purchase your home, and not the foreclosed one down the street, is to focus on the positives. With your home, you can better control closing dates than the bank can (because banks typically don't operate very quickly).  Plus, you can guarantee than your house is in move-in-immediately condition.

If you use these among your selling points, you won't have to worry TOO much about being dragged down by that foreclosure across the street!