Periodically we read statements like this in the media: "RealtyTrac reports that REOs sold during the first quarter carried an average markdown of 35 percent compared to the price of homes not in foreclosure." That statement is from an article recently appearing in DSNews and it turns out to be extremely misleading if not downright wrong. Especially using the word "markdown" it sure sounds like these properties are discounted by 35% from what they would be if they weren't foreclosures.
However, all you have to do is look at the RealtyTrac 1st quarter foreclosure release to see what they really mean, even though they also incorrectly use the word discount in other parts of their release. In that press release they say "The average sales price of foreclosure properties was nearly 27 percent below the average sales price of properties not in foreclosure." (The reason the number is 27% and not 35% is because it includes pre-foreclosure properties as well which they explain later aren't as cheap.) That is NOT equivalent to a 27% discount. As anyone who reads GettingReal knows the foreclosure market is heavily skewed to the lower end so the average sales price reflects this higher mix of smaller and lower end properties. That's all it means.
It's really not particularly useful information. In fact, coming up with the statistic that people would really find useful - the true discount - would be impossible to generate because it would require you to sell each home twice - once as a bank owned property and again as a not bank owned property. See what I mean?
This sort of misinformation is unfortunate because it leads potential buyers to go out looking for these great deals and then they are incredulous that they can't find them. Having looked at many bank-owned properties, I can assure you that it's highly unlikely you are going to find any for 35% off. If you could find those I wouldn't be sitting here writing this blog on a Saturday afternoon.
I'm sending an email off to RealtyTrac about this. It will be interesting to see what they say.