The Relationship between Foreclosure Status and Apartment Price

Abstract

Empirical studies disclose that foreclosed residential properties sell at a discount from the expected market price for non-foreclosed residences. This investigation shows that prior findings on residential properties can be extended to include income-producing properties. In addition, it employs market rent to control for variation in property quality. An analysis of apartment sales in Phoenix, Arizona, demonstrates that foreclosure-status apartments sell at a 22% discount when compared to non-foreclosure apartment sales. The rationale for accepting discounted prices may be atypical seller motivations such as a need to satisfy regulatory capital requirements, to mitigate negative stock price effects, or to protect credit ratings.