What is the foreclosure value?
The foreclosure value (or forced sale value) is the estimated proceeds from a forced sale of a property at an auction. It is always lower than the market value, because forced sales fetch less than ordinary private sales.
Why a lower value?
Forced sales bring several price-suppressing factors:
- Time pressure — the property must be sold quickly
- Limited viewing — buyers cannot inspect properly
- Risk for the buyer — condition uncertain
- Tenants in place — protected tenants reduce value
- Image — the term “auction sale” puts off some buyers
The foreclosure value is therefore typically 15 to 30 percent lower than market value.
Application
The foreclosure value is mainly used by mortgage lenders:
| Term | Meaning |
|---|---|
| Market value | Price at normal sale |
| Foreclosure value | Proceeds at forced sale |
| Council valuation | Local council assessed value |
| Purchase price | Buyer/seller agreement |
Example
A property with a market value of £400,000 has roughly a foreclosure value of £320,000 to £340,000.
Mortgage and security
Lenders look at the foreclosure value for:
- High-LTV mortgages — above certain thresholds
- Buy-to-let mortgages — rented properties
- Second homes — holiday properties
- Risk pricing — interest rates and risk assessment
Who determines the foreclosure value?
A qualified surveyor sets the foreclosure value in the valuation report, alongside the market value. The surveyor uses comparisons with other auction sales in the area and applies correction factors.
Foreclosure auction
When forced sale becomes necessary, a court-appointed officer organises the public auction. Since 2015 this can also be online in many countries, often achieving better results than traditional in-room auctions.
Related terms
- Mortgage
- Market value
- Valuation
- LTV
- Surveyor
Want to learn more about construction terms? Visit our knowledge base at fredsdiyplans.com.