The Impact of REO Sales on Neighborhoods
and Their Residents
Published online: 31 May 2014
Springer Science+Business Media New York (outside the USA) 2014
Abstract The foreclosure crisis in the U.S. has resulted in a large number of residential
REOs. These properties have been found to reduce the value of nearby homes. An
unresolved issue is whether these negative spillover effects disappear after the REO is
sold. We hypothesize that these effects are greater if the REO is purchased by an
investor in comparison to an owner–occupant. In this paper we report the results from
estimating the spillover effects of both current and ex–REOs, where the latter are
divided into those possessed by owner–occupants and those possessed by investors.
The results lend considerable support to our hypothesis.
The foreclosure crisis in the U.S. has resulted in a large number of residential REO
RealtyTrac, a leading provider of real estate information, reports 498,122 REOs
were sold in 2012, accounting for 11 % of all residential sales during the year.
Moreover, the number of REO sales is not likely to decrease anytime soon.
CoreLogic, another leading source of real estate data, provides an estimate of the
J Real Estate Finan Econ (2016) 53:282–324
REO or Real Estate Owned is a class of property owned by a lender—typically a bank, government agency,
or government loan insurer—after an unsuccessful sale at a foreclosure auction.
Wall Street Journal, Market Watch, February 28, 2013, “Foreclosure Sales and Short Sales Account for
43 % of U.S. Residential Sales in 2012 According to RealtyTrac,” www.marketwatch.com accessed on
March 1, 2013.
DeVoe Moore Center and Department of Economics, Florida State University, Tallahassee, FL, USA
T. Mayock (*)
Office of the Comptroller of the Currency, Credit Risk Analysis Division, Washington, DC, USA