Distressed Sales Are Rising, Renewing the Importance of Comparable Selection

Short sales and foreclosures remain a small part of today’s housing market, but new data suggest that appraisers should pay closer attention to distressed transactions and the market conditions surrounding them.

A new Realtor.com analysis found that nearly 30,000 short sales occurred nationwide in 2025, representing approximately 0.6% of conventional, arm’s-length home sales. Short-sale transactions increased 4% from 2023 to 2024, nearly 10% in 2025 and approximately 16% year over year during the first quarter of 2026. Short sales accounted for about 28% of distressed sales in 2025, while foreclosures represented the remaining 72%.

Those figures remain far below levels experienced during the Great Recession. Short sales peaked at approximately 358,000 transactions in 2012, when they represented 8.8% of arm’s-length sales. More than one-third of all home sales were distressed transactions at the height of the housing crisis. Today’s data therefore point to a gradual normalization from exceptionally low levels, not a return to crisis-era conditions.

The national numbers also mask substantial local differences. Short-sale activity is concentrated in markets that experienced rapid appreciation after 2020 followed by slower demand, increased inventory or flattening prices. In May 2026, short sales represented 6.7% of listings in Lakeland, Florida, 5.8% in Colorado Springs and 5.6% in Putnam, Connecticut. These patterns reinforce the need for appraisers to analyze conditions at the market and submarket levels.

The findings also renew the relevance of the Appraisal Institute’s Guide Note 11, Comparable Selection in a Declining Market. Guide Note 11 explains that appraisers cannot categorically exclude foreclosures and short sales as potential comparable transactions. Nor should distressed sales automatically be treated as equivalent to conventional sales.

Instead, the appraiser must investigate the circumstances of each transaction, including seller and buyer motivations, marketing and exposure time, concessions and property condition. A bank-owned property may reflect typical market motivations and exposure, while another transaction may require an adjustment for atypical conditions of sale. Physical condition and conditions of sale are separate factors and should be analyzed accordingly.

The central lesson is that a distressed label does not determine comparability. As distressed activity changes, credible valuation continues to depend on careful verification, local market knowledge and transaction-specific analysis. The Realtor.com research provides an early signal for appraisers to monitor, particularly in markets where price trends, inventory and homeowner equity are shifting.