The low prices that make foreclosures attractive to investors also make foreclosures toxic to communities and homeowners. The discount between “normal” priced homes and the prices paid for properties than have been through the foreclosure process can spell the difference between profit and loss to an investor at the same time that they drive real estate values into the ground.

As the Foreclosure Era enters its final years, the differences in foreclosure discounts vary widely across the nation, presenting opportunities to investors and wreaking havoc on homeowners simultaneously. With regional and local conditions playing a greater role than ever in shaping foreclosure supply and demand, the differences between local foreclosure discounts may be increasing to the surprise residents who rely upon reports of “national” average discounts.

FNC, one of the top sources of pricing data used by appraisers, calculated at national average discount of 12.2 percent at the end of 2012 versus 13.4 percent a year earlier. The National Association of Realtors said foreclosures sold for an average discount of 20 percent below market value in January. At the height of the mortgage crisis (2008 and 2009), foreclosed homes were typically sold at 25 percent below their estimated market value, said NAR.

Despite the progress in national average discounts, in a number of markets today foreclosures are worse now than they have ever been. A certain tier of markets, largely in the East and Midwest, are seeing discounts reach levels far below the 12.2 percent cited by FNC or the 20 percent from NAR. In real estate, where there is no national marketplace, the use of national averages sometimes can mask very different local realities.

Several factors, which differ by market, are keeping foreclosure discounts high in some markets. These include large inventories from the continued slow processing of foreclosure due to state laws; higher default and lower rents resulting from unemployment and economic fragility; less than ideal conditions for single family rentals, including low cap rates; overcapacity; and a disproportionate number of unsold damaged foreclosures (See Damaged Foreclosures Beckon Bargain-hunters); and less investor demand compared to the West and Florida, where a culture of small investors has developed and large hedge funds are active.

To help zero in on the market where foreclosure discounts are the highest, here are two tables. The first is a list of FNC’s ten highest foreclosure discounts at the end of 2011 and 2012. The second is RealtyTrac’s list of “20 best places to buy a foreclosure,” with foreclosure discounts in the third column. Some of RT’s discounts (Chicago, Philadelphia, Stamford, Cleveland, New Haven, New York) exceed 40 percent.