Recently, the federal government has enhanced an existing policy to allow potential owner-occupants and nonprofits an exclusive chance to purchase properties without investor competition. First-look policies, which give owner-occupants and nonprofits an exclusive period to shop and bid on real-estate-owned properties, have been in effect since 2009, but several changes were made in 2022. As part of the Biden administration’s Housing Supply Action Plan, Fannie Mae and Freddie Mac increased the exclusivity period of their first-look initiative from 20 days to 30 days of listing. The same year, the US Department of Housing and Urban Development (HUD) established a 30-day first-look period for its sales of foreclosed, formerly Federal Housing Administration–insured properties.

Unfortunately, because of data scarcity, there is very little research on how effective these policies are. Jakabovics and Sanchez, using Florida data from 2014 to 2017, show that first-look policies result in higher owner-occupancy rates, particularly in low-income neighborhoods and neighborhoods of color. With the longer first-look period from Fannie Mae and Freddie Mac and the establishment of HUD’s first-look policies in 2022, we wanted to take another look at this topic. We partnered with Auction.com, the nation’s largest online auction site, to review data on real-estate-owned properties, and we found that first-look policies are effective in raising the share of owner-occupants who buy real-estate-owned properties.

What effect have first-look changes had?

All states require a public auction for any foreclosure property, and Auction.com accounts for close to half of these foreclosure auctions nationwide. If a property does not sell to a third-party buyer at the foreclosure auction, it reverts to the foreclosing lender as a real-estate-owned property. These properties may be sold at auction or go through the multiple listing service. For Fannie Mae, Freddie Mac, and HUD properties, a first-look period is required for all real-estate-owned properties. Otherwise, sellers (usually the servicer) can put their properties in the First Look program.

Between August 1, 2022 (when the new first-look policies were fully in effect) and August 11, 2023, 13,226 real-estate-owned properties were bought to auction, and 56 percent went through First Look. Of those that went through First Look, about 10 percent sold to owners compared with 5.9 percent for non-First-Look-eligible properties.

Not all First Look–eligible properties purchased by owner-occupants were done so during the first-look period. Owner-occupant buyers purchased 6.6 percent of the properties during First Look, while nonprofits purchased 0.1 percent. In the auctions that followed the first look, owner-occupants purchased 3.3 percent of the properties.

The data also show that a higher share of non–First Look properties sold than First Look properties. This difference in part can be attributed to a substantially higher share of occupied properties in the First Look program, which poses a barrier for purchasers, both owner-occupants and investors. But even with a lower overall sales rate, owner-occupants make up a higher share of purchases for properties sold through First Look. As a share of total sales, owner-occupants comprised 31.1 percent of First Look–eligible sales compared with 14.3 percent for non–First Look properties.

What are the characteristics of properties sold through First Look?

The Auction.com data also show that a lower share of properties sold during the first look were occupied at the time of purchase than properties sold after the first-look period. For the First Look–eligible pool, 43 percent of properties bought by owner-occupants during the first-look period were occupied compared with 56 percent and 58 percent bought during the post–First Look auctions by owner-occupants and investors, respectively.

The same pattern holds for the properties not eligible for First Look, with owner-occupants less likely to buy occupied properties. Owner-occupants, by definition, want the property for their use, meaning they would need to make a cash-for-keys arrangement with the existing occupant or begin eviction proceedings, which most owner-occupants are not equipped to undertake.

Properties sold to owner-occupants through First Look were also more likely to be located in neighborhoods of color (37 percent) compared with post–First Look sales (30 percent) or non–First Look sales (28 percent). This trend suggests that homebuyers in neighborhoods of color have a better chance through the First Look program.

Consistent with our prior research using Auction.com data, owner-occupants are more apt to buy properties that are larger, newer, and more expensive than those purchased by investors. This trend held true of the properties sold during the first-look period, as well as both First Look–eligible and First Look–ineligible properties and those sold during the general auctions. The pool of properties that were not First Look eligible was larger, newer, and more expensive than those that were First Look eligible, suggesting that if ineligible properties had a first-look period, the owner-occupant purchase share would have been higher. Alternatively, the properties purchased by nonprofits were smaller, older, and less expensive than for any other group—owner-occupants, investors, or nonsales—which is consistent with results from our prior research on investor-owned properties.

How can we further help owner-occupants purchase real-estate-owned properties through First Look?

Data from Auction.com demonstrate that the more generous first-look policies enacted in mid-2022 have improved the likelihood of owner-occupants purchasing distressed homes at a lower cost. These early results suggest that expanding the share of real-estate-owned properties that go through First Look can further increase the share of sales to owner-occupants. Additionally, expanding awareness of the program could also help owner-occupants access real-estate-owned properties.