Researchers at Harvard and the Massachusetts Institute of Technology have plunged through 1.8 million Massachusetts house sales to emerge, dripping and covered with seaweed, with a few pearls of wisdom. Their report, scintillatingly titled “Forced Sales and House Prices,’ looks at the effect of ‘forced sales:” bankruptcy, death and foreclosure – the three horsemen of home-value apocalypse.
Before I get to the results of their “static hedonic regression analysis,” which I am sure is not nearly as much fun as it sounds, let’s pause to consider this riposte tossed off in the gallop to the good stuff.
Real estate agents are dishing bad advice to their clients.
Yes. It’s true.
Page 4 of the report cites a 2008 study that “realtors (sic) selling their own houses get higher prices and keep their homes on the market longer than their clients do.” Now, we all know that most real estate agents pressure their clients to set a ‘reasonable’ price and then keep lowering it. They want clients’ houses to clear the market so the clients can ‘move on’ with their lives – after lightening their wallets by that 6% commission, of course.
But Levitt and Syverson (whoever they are – but hey, if they are credible enough to be cited by the Harvard and MIT researchers, that’s good enough for me) found that agents price their houses by about 4% more and wait 10% longer to get that higher-priced sale. That would be the opposite of the ‘professional advice” they give clients. Good to keep in mind the next time you’re sparring with a commission-sniffing agent.
Now to the official findings of “Forced Sales and House Prices.”
- A foreclosed house loses 27% of its value at sale, based on averages for recent forced and unforced neighborhood sales.
- Much of the discount is due to deterioration and vandalism. Since that’s less of a factor with condos, the value of foreclosed condos does not erode as far or as fast.
- More expensive houses sold in bankruptcy sell for greater discounts.
- Each foreclosure within a quarter-mile radius of a given single-family home erodes the value of that house by 1.7%.
- Your house loses 8.7% of its value if your next-door neighbor goes into foreclosure.
Won’t this give you something to talk about at your next block party!