The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes

By Stephan Whitaker and Thomas Fitzpatrick
Federal Reserve Bank of Cleveland
September 2011 
 
 
In this empirical analysis, we estimate the impact of vacancy, neglect associated with material property-tax delinquency, and foreclosures on the value of neighboring homes using parcel-level observations. Numerous studies have estimated the impact of foreclosures on neighboring properties, and these papers theorize that the foreclosure impact works partially through creating vacant and neglected homes. To our knowledge, this is only the second attempt to estimate the impact of vacancy itself and the first to estimate the impact of tax-delinquent properties on neighboring home sales. We link vacancy observations from Postal Service data with property-tax delinquency and sales data from Cuyahoga County (the county encompassing Cleveland, OH). We estimate hedonic price models with corrections for spatial autocorrelation. Importantly, we find that excluding tax delinquency and vacancy from this type of analysis significantly overstates the impact foreclosure has on surrounding home values. We find that an additional vacant or delinquent property within 500 feet of a home reduces the home’s selling price by approximately 0.7 percent. The negative impact of individual foreclosures is about 2 percent if the home is neither vacant nor delinquent. Foreclosed homes have a large negative impact on nearby property prices, a 7 percent to 8 percent reduction, if the home is tax delinquent or vacant in addition to being recently foreclosed. Homes that are tax delinquent, vacant, and foreclosed have the largest impact on home sale prices within 500 feet, at 9.6 percent.
 
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