White Paper Finds Nationally Foreclosures Sell At 72% Of Market Price

Services for Real Estate Pros with Zillow

I often get asked, does Zillow account for Foreclosures when calculating a Zestimate?  Short answer: no. 

However the long answer is very interesting.  Recently Zillow released a white paper where we looked at the question of if Foreclosures constituted a distinctly separate market from non-Foreclosures.  This paper was born from this debate where some thought there were so many Foreclosures that they were the market; while other argued that Foreclosures have characteristics that caused them to sell lower than at market value. 

The white paper itself goes into a high level of detail about methodology and data points used, but I'll skip to the results here.  Our data found that the answer to this question is YES, they are distinct markets. 

Of course, real estate is local so the numbers vary across local metros, but the trends held relatively the same. 

  • Nationally the average ratio of Foreclosure prices to market value is 72%.  This is against the assumption that non-Foreclosures sell at market value, or 100%. 
  • It appears that more Foreclosures in an area do lead to a smaller gap between Foreclosures and non-Foreclosures.  However, there is rarely less than a 20% discount for Foreclosures.

Based on the data, it indeed did find that Foreclosures sell for substantially less than non-Foreclosures, meaning that you can't compare two like houses when one is in Foreclosure and the other is not.  Two conclusions were drawn at the end of the study.  

1) The difference in these two markets is the reason why we can't include Foreclosures in our Zestimate calculations. We also don't use them in factoring our Zillow Home Value Index (ZHVI), or the trend information you find on the Local Info tab of the site.  Interestingly, this is a key reason why our ZHVI is currently down 21% from its peak compared to Case-Shiller Home Price Index (which does include Foreclosures) which is down more than 30% from its peak.

2) These findings show that it is inappropriate to include Foreclosure sales data when appraising non-Foreclosure homes.  Adjusting for the condition of recent Foreclosures, as well as the Seller's motivation in the Foreclosure situation, sounds great in theory but is ultimately complex in practice.  Especially given the Appraiser has likely not been inside the homes being used as comparables for the subject home.

Download the full report  - Price Differences Between Foreclosures and non-Foreclosures

Video recap with Dr Stan Humphries, Zillow's Chief Economist


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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Pat Tasker 02/03/2010 02:01 PM
  2. Maureen McCabe 02/03/2010 05:37 PM
  3. Cheryl Ritchie 02/03/2010 10:03 PM
  4. Evelyn Zebro 02/04/2010 02:34 AM
  5. Joseph J. Chang 02/04/2010 02:40 AM
  6. Joseph J. Chang 02/04/2010 02:40 AM
  7. the Chris & Lisa Grus Team 02/08/2010 07:02 AM
  8. Nicole Borsey 02/08/2010 10:59 AM
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Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Sara, this post is totally separate from the whole Zestimate debate. You are talking about actual sales, right? Appraisers do use foreclosures, like it or not, if there are enough of them and many are lowballing appraisals even if they don't have to. Thanks for clarifying that you do not use them. I like that. It would be great if a law were passed to exclude them from appraisals and short sales as well - or at least bring them up to market value through adjustments. There is no attempt to do that in the appraisals I have seen that use them and this is wrong, in my opinion. They are distressed sales.

Feb 04, 2010 01:24 AM #33
Mike Yeo
3:16 team REALTY - Frisco, TX

Sara, thanks for sharing this information. I'll have to read the entire article. Thanks again.

Feb 04, 2010 01:50 AM #34
Andrew Martin
REMAX Accord - San Ramon, CA


The problem with what you said is that many clients somehow got the impression that Zillow was accurate and they look to it for what a house is "worth". Then they call us as agents and we have to spend the first hour explaining how Zillow is not accurate and it is just non-productive time.  Zillow is great for entertainment purposes.

Feb 04, 2010 02:10 AM #36
Robert De Curtis
DECURTIS Properties,LLC - Howell, NJ


  Clients in general will listen to the news and believe the sky is falling, based on what they've heard.  I don't see much difference in clients that are looking to by a home.  They will absorb only the information that they are presented.  All of us have a job to do, whether we're agents, investors a buyer or seller of property. 

Trust me I can understand your frustration when dealing with a client who only believes what they read or heard.  But, again Zillow or any other site or information source has to be substantiated to be made valid.  If you find yourself debating with clients over what information is accurate, it's time to take a deep breath, offer a solid presentation based on factual data and let the chips fall where they may.

You and I both know, most people in general are good people that are probably misinformed to one extent or another when it comes to understanding information in an area outside of their expertise.  All we can do is help them understand the information presented and hopefully they feel comfortable enough to trust it and who it came from.

In my original comments  I stated that Zillow was a good basic starting point and it does have some useful information.  As long as it's back up with solid data from other sources like town tax and assessment info, appraisal data and actual sales and market analysis data.  Remember, if an individual isn't going to take the time to research a large purchase like buying or selling a home or rely on a trusted company or individual to give them the best information available, maybe they don't deserve your time.  Thank you.  We'll be talkin'.


Feb 04, 2010 03:55 AM #38
Marie Walton
Ebby Halliday, REALTORS - Dallas, TX

I pay no attention to Zillow! Their sales information in Texas is highly suspect because Texas does not require sales prices to be recorded in public records. It appears to me that a great deal of the sales they claim are actually loan amounts that they get from the Deed of Trust which is filed for record.

They also seem to pickup amounts listed in the Substitute Trustee's Deeds that are filed after a property is foreclosed on as sales.

An example of this occurring is a comp sale they listed when I looked up my home on Zillow. Zillow listed a property that is actually in my neighborhood (the rest of the comps were not) as selling for $129,000 on 2/12/2009. A quick check of the records found that this was the amount on the Substitute Trustee's Deed filed by Wells Fargo on that date. Wells Fargo repaired the foundation, painted the house and installed new floor coverings. Then they sold the house on 7/29/2009 for $153,000 but Zillow did not have that sale.

This is only one example of why Zillow can not be trusted in Texas.

Feb 04, 2010 04:46 AM #39
Stan Humphries
Zillow.com - Seattle, WA

To several of the comments: Our analysis looked at sale prices, not list prices. Foreclosure prices are sold prices for REO sales (defined as the resale of a home that has previously had a Trustee's Deed Upon Sale or equivalent transaction) regardless of whether they were marketed via the local MLS or not.

@ David Roberts #18: Note, it is quite possible that listing prices between foreclosure resales and non-foreclosures are more similar even while it is also true that actual sale prices are quite different (as found in this analysis).

@ Christine #21: Yes, the more foreclosure re-sales, the lower the discount was but it never got much below 20% discount even in areas with lots of foreclosures (e.g., more than 50% of monthly transactions made up by foreclosure re-sales).

@ Jeremy #24: "...wouldn't that become the new market value for a home that is similar in traits to the foreclosure?" Apparently not, unless you believe sale prices lie. Controlling for physical attributes and location, a non-foreclosure home will sell for more than an REO home. Why? Condition, motivation of seller, more disclosure from previous owner, etc. Note, if you don't control for attributes and location, then the difference between REO and traditional sale prices is even greater.

"...wouldn't it depend on how many foreclosures are available in your market…?" Yes, a bit. Discount varied from 18% to 59% and there was a moderate relationship between increasing proportion of foreclosures in the market and decreasing discount.

@ Mary Jo #32: You're making some good points between foreclosure prices and prior sale prices for the same home or the listing price for the home. This analysis looked at the differences between foreclosure and non-foreclosure sale prices.

@ Sharon #33: "...or at least bring them up to market value through adjustments." This is the key. Current appraisal practices do allow for the use of distressed sales in the valuation process and this is, frankly, unavoidable in many markets currently. Guidelines do, however, stipulate that distressed sales need to be adjusted to reflect fair market value. See http://matrix.millersamuel.com/?p=4853 for an interesting discussion of how appraisers wrestle with this guidance.

@ Marie #39: Yes, non-disclosure laws in Texas make the market quite a bit less than transparent. We'd love to work with you to open up the data there if you have some ideas about how to do so. Also, please send me the address of the home you're referencing where a trustee's deed is showing up as a sale so that we can fix the issue.

Thanks for everybody's thoughtful engagement here.

Feb 04, 2010 06:11 AM #40
Barb Fischer
Big Block Realty - La Mesa, CA
San Diego and La Mesa Real Estate

Yes but when there are multiple offers, all best are off

Feb 04, 2010 08:15 AM #41
Corinne Guest
Corinne Guest, REALTOR® | Barrington Realty Company - Barrington, IL
Barrington Lifestyles

This is something the buyers with ideas of buying at 50% of market value should see!

Feb 04, 2010 08:37 AM #42
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Sara. 72% is pitiful!! About 85% of the sales in my market are distressed sales so there really is no "normal" to compare to.

When you say there are two markets the question I have is how many normal sales are there?If normal sales are selling for 28% more but only make up 15%  of the sales then they really are not the norm.

In a market like mine appraisers have no option but to use distressed properties for comps because that is basically all there are. 

Right now I am selling some "normal" properties for quite a bit more but only because we are offering no qualifying owner financing. That's starting to be a trend in my market. So these deals would actually mess up the stats because they are not "normal" sales either. We are selling financing. Is Zillow considering these types of deals in their analysis?   

Feb 04, 2010 09:18 AM #43
Greg Nino
RE/MAX Compass, formerly RE/MAX WHP - Houston, TX
Houston, Texas

I stopped being disgusted with Zillow once they acknowledged that Zillow was just a good "starting" point for consumers. The entertainment value of it is pretty transparent. With or without full disclosure Y'ALLS numbers wouldn't be valued any differently. The initial entertaiment value, real estate foreplay at most.

Feb 04, 2010 09:51 AM #44
Sara Bonert
Zillow - Atlanta, GA
Real Estate Internet Marketing

I just wanted to point out that commenter #40, Dr. Stan Humphries, is Zillow's Chief Economist and the person who actually wrote the study.  So thank you to Stan for commenting and if you missed that comment, it is worth reading through. 

Bryant (#43) - Thanks for the comment, I know you are in the thick of things.  After reading Stan's comment, REO is defined as "resale of a home that has previously had a Trustee's Deed Upon Sale or equivalent transaction" - so 'normal' would be one without this criteria.  Interesting to hear that trend, and pretty crazy.  So you're saying that the owner will finance, without a high level of qualifiers?  Would the deal be considered a non-arm's length transaction and reported to the county? 

Feb 04, 2010 11:07 AM #46
John Elwell
CENTURY 21 Bill Nye Realty, Inc. - Zephyrhills, FL
You Deserve a Full-Time Agent, Not Reduced Results

I am with Andrew, Jeremy & Scott, and would truly prefer a few more featured posts from the wide variety of good authors that are here, not free advertising for corporations whose actions make my job harder. Apparently all some have to do is attach their name or organization to a blog and it gets featured. That' s one of the main reasons I blog mostly for the public and not here. Points matter little to me. But seeing people with good ideas relegated to the back of the line so the companies and favorites get the top spots does not seem fair. But ActiveRain sets its own rules.

Sorry, customers do not see it as a starting point and use it against our good judgment. To say otherwise is to live in another world, not the one most of us live in. But PT Barnum had the right idea.

Feb 04, 2010 12:02 PM #47
Craig Bosse
J Rockcliff - Walnut Creek, CA

Many of the foreclosures in my area are in very bad condition compared to regular or short sales. Many of them are missing ovens, sinks, whole bathrooms, windows, and even crown molding. This effects the financing possibilities and eliminates certain buyers.

The foreclosures that are in great condition that have easy financing (such as Homepath or FHA) easily go for market value. In fact it could be argued that they go for more than they are worth because of the perceived value of an REO.


Feb 04, 2010 02:18 PM #48
Andrew Martin
REMAX Accord - San Ramon, CA

By the way, the other thing Zillow has no clue about is when a credit is given back to a client for closing costs etc.. Many times a client may get up to 3% for closing costs, and on a 900K home that is 27K. Something Zillow would have no clue about when they use "sold" data.

The only accurate data is the MLS with an agent helping to interpret.

Feb 04, 2010 02:49 PM #49
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Sara, These are mostly international buyers who pay cash for a property and then turn around and "hold paper". It is just like a regular sale and would be recorded at the clerk of courts. Usually we are getting 30% to 40% down and are not doing credit checks at all. It works out better for the investor than renting the property out. And the buyers get to own a property. They have 5 years to clean up their credit and get a new mortgage.

Feb 05, 2010 09:34 AM #50
Jenna Dixon
DRA Homes | Cobb County Real Estate - Marietta, GA
Empowers You With a Better Real Estate Experience

Now, can you convince lenders and appraisers that foreclosures are different from non-foreclosures?

I wish!

Feb 07, 2010 02:28 AM #51
Kim Hannemann
Samson Properties - Springfield, VA

I recently got embroiled in a discussion on Trulia about the "discount" a buyer should expect on a foreclosure. My response was that there isn't any such thing as a discount - every single home has a market value; and every single home that sells, sells at market value.

You cannot expect a discount. An underpriced home - REO, short, or regular sale - will attract competition and the price will rise to its market value. That is the definition of "market value." When you are able to find a home you can buy at less than the value of "similar" homes in the same area, you can be sure that there is something about it that makes it worth less - either it is trashed, missing key features, or generally run down. You will pay for those missing features somewhere.

Feb 07, 2010 03:56 AM #52
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

I agree with Kim, homes will sell at their market value.  The foreclosures are generally in need of a lot of work and they are priced accordingly.  When foreclosures are priced to high they don't sell.  When priced lower than market value, foreclosures bring multiple offers and price escalations. 

Feb 24, 2010 01:01 AM #53
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Quite interesting - especially the comments generated. Dan's comment #53 seems to be a reasonable assesment. I am thinking that short sales and foreclosures are being considered the same in many minds.

Feb 26, 2010 05:16 AM #54

In Calif at least it is 2 different markets - foreclosures are all cash. However,  I find it intersting that Zillow doesn't list foreclosure sales in its property sales history.  One recent example - 411 Stonecrest Ct, santa Rosa sold at auction for 475K in May 2010 and then was flipped by investers for 575K in July. Zillow shows the July sale - but the May sale is no where to be found.

Sep 03, 2010 06:03 PM #55
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