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Foreclosure, REO, and Market Sales in Residential Real Estate

Author

Listed:
  • Peter Chinloy

    () (American University)

  • William Hardin

    () (Florida International University)

  • Zhonghua Wu

    () (Florida International University)

Abstract

Abstract Assessment of lender and third-party bidder acquired properties at foreclosure auction is provided. Properties acquired at foreclosure auction by third-party bidders transact at a discount to lender dispositions of real estate owned (REO) properties. The discount reflects a reduction in costs associated with lender owned (REO) dispositions and uncertainty faced by third-party bidders. Moreover, there is a ranking in transaction prices among initial purchases by third-party bidders at foreclosure auction, REO sales, non-distressed property sales and the subsequent sales of third-party bidder acquired properties. Third-party bidder auction prices are below REO sale prices, which are below non-distressed property sale prices, which are below the subsequent sale prices of third-party bidder acquired properties. The price spacing by cohort is logical, intuitive and economically justified in a market with rational participants. Implications are also apparent for the measurement of price changes, net sale proceeds and returns to residential real estate.

Suggested Citation

  • Peter Chinloy & William Hardin & Zhonghua Wu, 2017. "Foreclosure, REO, and Market Sales in Residential Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 54(2), pages 188-215, February.
  • Handle: RePEc:kap:jrefec:v:54:y:2017:i:2:d:10.1007_s11146-015-9544-x
    DOI: 10.1007/s11146-015-9544-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Online; auctions; REO; foreclosure; real estate transactions;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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