MIT: Foreclosure Reduces Value of a House by 27%

A foreclosure reduces the value of a home by 27 percent on average, according to a MIT study titled “Forced Sales and House Prices,” which examined 1.8 million home sales in Massachusetts from 1987 to 2009.Researchers weren’t surprised to find that foreclosures were selling for a discount, but were shocked at how large it was.Other types of “forced sales” lowered home prices by much smaller amounts – when a house was sold after the death of the owner, the price only dropped about five to seven percent.And when a homeowner declared bankruptcy, the home price fell just three percent on average.They believe the gap in home price reductions has to do with the tendency of foreclosed properties to fall into disrepair.You know, the homes with overgrown weeds and brown lawns accompanied by foreclosure notices in windows.The brains behind the study found that those same properties also lower the values of homes in the surrounding area, but not by much.If a property is located within 250 feet of a foreclosed home, you can expect the value of the home to fall by just one percent on average.