The quickest path to finding true foreclosure bargains

The quickest path to finding true foreclosure bargains
Monday October 15, 1:07 pm ET

By Jennifer Openshaw

Following the facts on discounts can help you find the real deals

NEW YORK (MarketWatch) -- You've heard a lot (probably too much!) about real estate market problems and especially the rapid rise in foreclosures. But as a real estate investor you're picking up big-time "bargain" signals on your antennae.

The headlines are ominous: some 243,000 foreclosures in August, up 36% from July and 115% from August 2006. There's blood in the streets.

So how do you get from "there must be bargains out there" to "how much will I save, and where are the best bargains?"

I like to guide any buying decision as much as possible with the facts. But while lots of foreclosures are out there, how good an opportunity they might be was hard to know. Until now.

For sale and on sale
RealtyTrac, the same real estate portal and analysis group that supplies monthly national foreclosure statistics, also calculates the average discount-to-value by market -- that is, how much foreclosed homes actually sold for vs. their estimated market value in their markets. So -- bingo -- you've got a good indicator of how good an opportunity you're looking at. Search on "foreclosures by state," and then click "view (state) foreclosure trends," and you'll get a nice snapshot of foreclosure filings, actual sales, average sales price and -- most of all -- the discount-to-value.

You could page through state by state to get a national picture of where the good deals are. Instead, I went to the source. RealtyTrac was kind enough to supply me with source data in a spreadsheet. I'll share the most interesting findings.

National trends
Nationwide, in the three months June through August, some 68,426 foreclosed homes sold in 2007 vs. 54,886 in 2006. The average sales price dropped from $271,000 to just over $239,000.

The discount-to-market ratio increased slightly from 76.42% to 77.68%. How do you read this ratio? It is the actual foreclosure sales price compared to the perceived market value of the home. So 77.68% means, on average, you'd get just over a 22% savings or "discount" on your foreclosure purchase. That's down from just over 23% a year ago.

The best (and worst) around the country
So, now the fun part: a state by state look at where the best deals and biggest changes are happening:

From June-August 2006 to June-August 2007, California, Nevada, Michigan, Massachusetts and Arizona showed the greatest increase in the number of foreclosure sales, while New York, New Jersey and North Carolina posted the biggest decreases among states that had 1,000 or more foreclosure sales.

But while California heads the list in sales, the discount is relatively small -- one of the five smallest in the country at only 17%. The best deals are in troubled Rust Belt or manufacturing-centric states -- Alabama, Pennsylvania, Indiana and Ohio.

States with largest discounts Average foreclosure sale price Average % of market value
Alabama $133,834 59.95
Pennsylvania 110,936 61.68
Indiana 99,255 63.50
Ohio 90,300 64.70
Missouri 144,768 67.25
States with smallest discounts Average foreclosure sale price Average % of market value
Hawaii $657,211 85.41
Washington 288,397 83.68
Virginia 338,912 83.48
Massachusetts 290,835 83.03
California 437,813 83.00

Finally, trends are interesting: Discounts are increasing in Midwestern states and in New Mexico, while decreasing some in Alaska, Iowa and Texas. This may be a sign of strengthening real estate markets in those states -- or weak market values to begin with.

State Average % of market value Discount increase (decrease)
Louisiana 74.04 15.88%
New Mexico 72.59 12.01
Minnesota 72.79 10.50
Indiana 73.52 9.82
Alabama 63.50 7.48
Alaska 82.02 (8.03)
Iowa 77.32 (5.34)
Texas 78.75 (4.82)
Kansas 74.03 (4.56)
Hawaii 85.41 (3.47)

These facts will help you know how much to pay -- and to know if foreclosures are right for you in the first place. They may also say something about which way the market in your area is likely to go. Either way, they will help you find the "real" deal.