Research by PropertyIQ identified mortgagee sales over the last five years and the price they sold for. It found that 88% of the houses that to go mortgagee sale end up selling below market value, with only 12% selling above.

“We have determined the market value of each property at the time of sale using our E-Valuer – an automated valuation tool that uses recent sales of nearby comparable properties to calculate the estimated market value of a property. The difference between the sale price and this estimate of market value then represent whether the mortgagee sale was above or below the expectations of a normal market sale,” research director Jonno Ingerson says.

“The high proportion of properties selling below market value means that the sale prices of residential mortgagee sales is on average 16% below the estimated market value.”

Ingerson says there is a clear difference between mortgagee and normal open market sales, where on average there is no difference between the sale price and the estimated market value.

“This suggests that mortgagee sales represent a bargain for purchasers, but a potential loss for the seller,” he says.

Ingerson points out that although there are some properties selling at mortgagee sale for above their market value, these are an exception to the rule.

Despite an increase in the number of mortgagee sales in 2008 and 2009, PropertyIQ says there has been little change in the difference between sale price and market value.

There has however been an increase in the proportion of properties selling below market value over the past year, with over 90% fetching below market value.