Our Realtor is telling Us our house won't sell for what it is worth because of foreclosures??

[Liz Rogers]

Hey BPers! My husband and I have a house in VA and we live in Kentucky. We are working with a realtor who did some comps for the area and told us we won't be able to sell the house for what we want because there are 5 foreclosures in the area bringing the prices down. I'm so confused by this. She explained it to me, but it still doesn't make sense to me. How can foreclosures bring the selling price of a house down?? I know that doesn't look good for the neighborhood, but I can't imagine someone trying to negotiate with us saying well the house down the street was foreclosed on so you need to lower your price... Can someone explain this?? Thank you!!! Liz

[Gilbert Dominguez]

Well I will try. He goes. Thing is your property is surrounded by other properties which in all likelihood will be sold at a discount. You will have more houses purchased by investors rather than by owner/occupants and as we all know people will spend more money for a personal residence than they will pay for an investment property. So the valuation of your property will be more inline with investment properties , meaning people will generally pay less and also sell them at some kind of discount. 

Occupancy rates will be lower, care will be less, renters in the area more in number versus owner/occupants, just generally less of a demand for another property in that area which translates into less of a demand for your personal property as well. 

More foreclosures means a poorer performing economy. People living around you generally have a  poorer economic outlook and poorer economic strength. More foreclosures equates to more people wanting to move to more gentrified areas and take their money out of your area. Foreclosed homes start to get boarded up to protect them against damage, they are more unsightly.  A higher vacancy rate will start to make itself more evident which equates to a lesser desirability which equates to lower offers and a more depressed market. The good buyers will be looking elsewhere to buy and be less willing to pay a higher price for properties around you, including yours. 

Look at areas in Detroit. You can find 6000 sq. ft. mansions offered at $100K. Go to the heart of San Francisco and you will find studios priced at $500K.

Market price is a subjective thing, there is nothing saying anyone will be willing to pay a high price for your home simply because you want that. 

Many of us would think that a 6,000 sq. ft home will fetch something in the millions of dollars but if no one is living around you and no one is paying property taxes and there are less customers for businesses wishing to establish themselves around you then there is the perceived idea that your property is worth less to most buyers. Those that will want to buy your house will be those that can not afford to buy in a better area where prices are higher and a higher demand is evident.  

With more foreclosed properties around you people will perceive your property as being less desirable and therefor worth less. Remember the first rule of real estate. Location !, location! location !

There are abandoned apartment buildings all around being offered for less than $140K in depressed areas and then in areas where demand is very high you can find an apartment building that is 200 years old being sold for over $20M