Foreclosures Can Hurt You
Have you heard someone complain that their neighbor with the unkempt lawn or the crumbling driveway is "bringing down home values"? They might have a point. Since the value of your home is largely determined by the sales price of similar homes in your neighborhood, there's a lot riding on how your neighbors take care of their properties.
But even more problematic than weedy lawns or chipping paint jobs is a housing market hit hard by foreclosures and short sales (when a homeowner in financial trouble sells their house for less than the amount owed on the mortgage). These types of "distressed sales" can significantly lower property values for comparable homes in the neighborhood, including yours.
The good news is that most appraisers will try to exclude foreclosures and short sales if they can find other accurate comps nearby. But if the neighborhood is drowning in distressed sales, it will inevitably bring down the value of all homes.