Foreclosures Produce Lowest House Sales Prices

Cambridge, MA, July 27, 2010--A foreclosure reduces the value of a house by 27%, according to a study by an MIT economist and researchers at Harvard University.

MIT economist Parag Pathak and Harvard researchers John Y. Campbell and Stefano Giglio conclude that a foreclosure puts a much bigger dent in a home’s value, compared to a forced sale as part of bankruptcy or the death of the owner.

A forced sale as a result of the owner’s death chips only 5-7% off the price of the home, and a bankruptcy filing drops the home value by an average 3%, the researchers found.

A foreclosed home in a neighborhood, which can often become a blight on the community, drops the value of all homes within 250 feet by 1%, on average.