How foreclosure affects your neighborhood

As I was perusing through home listings the other day I came across a property close to my neighborhood that had apparently been repossessed. I looked at the sales history and noticed that the home was currently bank owned and had been previously purchased for an extremely low price. Like anyone who might live around a home that's fallen into foreclosure, I was curious about how this would impact my home's value.

Still today there's a stigma about homes that fall into foreclosure. Many people assume that homes in foreclosure are dirty and damaged or located in bad parts of town, but it's not necessarily true. During the last several years a lot of buyers purchased homes they really couldn't afford, and circumstances have now put them in a position where they can't keep their homes. Foreclosures come in all shapes and sizes, from starter homes to mansions, and the impact they have on surrounding properties is being seen all over the nation.

So how do foreclosures affect neighboring properties? Surprisingly they really don't impact home prices too much unless there is a large concentration of them in a specific area. Most appraisers try to avoid using distressed homes in their comparables if they can. They'd rather pull comps from adjacent neighborhoods and adjust them for value before they'd include short sales or foreclosures in the mix. If there are other home sales to choose from the appraiser will use those and the impact should be minimal. If there's a larger ratio of foreclosures then there are normal home sales, then unfortunately those sales prices become the market value. Communities with high foreclosure rates can also affect house values because often they're neglected. Many times the homes are vacant so no one is maintaining the property. Sometimes these vacancies are drawing crime to the area. Too often buyers look at these neglected properties and see diminished value of the entire neighborhood, not just the homes in foreclosure.

So if you happen to notice a foreclosure in your neighborhood, don't worry too much about how it will impact the value of your home. One distressed property shouldn't affect your value at all. But if you notice that the home is vacant, it might be wise to work with neighbors to maintain the exterior by pulling weeds or keeping debris out of the yard. It's too easy for the landscape to get out of control, and that's the first thing home buyers see when they're researching a community. Better to focus on preventative maintenance now and keep those home values up!