How much can you negotiate with the bank on a property that will be soon a foreclosure?

Question

I see many houses on-line where they ask you to make an offer before they get foreclosed on but their listing price is often higher than of the comarables...what is the deal? and if they actually get foreclosed on, how much can you negotiate with the bank, let's say on a house that is currently listed for 500k? From what I red online the bank will try to recoup the amount of the loans secured by that property, but usually those loans total more than the house is worth on today's market...I am trying to find out, if anybody knows, how much of a price reduction I could get buying an REO or a foreclosed property.

thank you!

Answer 1

There are several factors that go into what you should be willing to offer a bank and what they will be willing to accept but the truth is that you will NEVER know what their bottom number is.
Banks lend money on properties then resell the morgages to others and so make a profit on the gross amount of loans they create and sell. When a loan goes into foreclosure then the bank that wrote the note must repurchase that note from whoever they sold it to. Without getting too deep into the logistics of it; let's just say that the bank has to foreclose and if the house is not sold on a shortsale before auction date then the bank will go to the courthosue steps and bid the amount owed on the property. Most, if not all homes are bought by the bank because they are worth less then the amount owed on them. The house then goes into the Real Estate Owned department (REO) of the bank and is considered BAD DEBT. This means that the bank must hold additional funds in reserve to cover the rehab or resale cost of these properties. This means that the bank has to reduce the amount of funds that they have availible to loan out on new loans. The more property a bank holds the more they are willing to negiotiate to get these off their books and the more they will deal will lower offers on foreclosures and shortsales. The banks incentive for doing shortsales is the the property never gets titled back to the bank so it stays off their books or REO dept.
So when looking at purchasing a foreclosure you need to not only look at the property's current condition, value, and resale value; you also need to consider how much property the bank has, how long have they held it, and how many more properties are in danger of beccoming a shortsale or REO foreclosure canidate. These numbers will be almost impossible for you to get.
My best advice is to determine WHY the local market in your area has gone done, when and IF the market will return to prior levels and then after taking the property condition into account; bid a price that will make you money on the day you BUY and not hope for a profit in the future.
I just closed on a foreclosure here in Las Vegas last Monday. The house sold Feb 2006 for 300K, the bank foreclosed for 255K and I offered them 152K. they countered with 169,900.00 and I accepted that. So here is a case that the bank PAID 255K for the house at foreclosure, amount owed on loan. And they received 155K at closing on the sale to me.
I am in the process of putting 5K into the house for paint, landscaping, and a few small repairs. After we finish we will rent the house for $1400 a month and then get a new loan(paid cash at closing) on the house for 70% of the new appraisel. House should appraise for 250K so I should have almost ZERO money of mine in the deal, breakeven cashflow and hold the property for 4 or 5 years until we are back at a 300K valuation. I KNOW the Las Vegas market will go back to that level because we still have lots of commercial construction going on, 5,000 people a month are still moving here, and gambling is not going away anytime soon. This market was a very high % of "investors" chasing rapid growth and had high % of subprime loans that now can't be paid for with current rental rates. We are also number 1 in the nation for foreclosures. NOW is a GREAT time to be a REAL investor as opposed to all the "flip" experts who chased the market.
NOT every market will return to prior levels like Las Vegas will; if you are looking to buy in Detroit or other places where the population and jobs are declining you will have a VERY long wait to recover if it ever does. Population and job growth drive demand so without that houses have a tough time gaining value.

Answer 2

Basically the bank wants back what is owed and fees. The fact that they are asking for more then what it is worth is proof of the problems with lending that is causing the current situation. Mainly, they lend out more then they should. In the "old" days, the lenders would watch how much they lended. i close mortgages for a living and see where several pepople are digging holes. Keep an eye out, there will be several situations where the amount owed is less then the value. There is a big problem now that the lenders can not sell the foreclosed properties. This situation is going to cause more problems down the road. I'm interest how it will all plan out and great subject material if i go for a masters.

Answer 3

You don't get nearly the amount of reductions that you find splattered all over the internet. Basically, these houses sell close to current market value. Some buyers claim they got fantastic deals because they purchased $$$$$ under appraised value. In most cases, those appraisals are out of date, and the value of the property has actually dropped to what they paid for it.

Use caution when pursuing a foreclosure. Know what you are buying. There can be problems with foreclosed properties, and you are always buying 'as is'.

Answer 4

If you Google "foreclosed property" it will bring back a wealth of websites that will educate you on how to purchase a foreclosure.

One you're into most of these sites.....the property listings clearly state what the bank intends to recoup from the loan. It will also give you information about what "stage" of foreclosure the property is in.

You will see in your research.....many of these homes have a SIGNIFICANT reduction in price. Its hard to average exactly what that reduction will be.....since its affected by taxes....balance owing on the mortgage....many factors.

Its best you begin by researching individual properties. You may very well find these very same foreclosures being listed by a real estate company......for a considerably higher price......but if you are wise.....and do your homework.....and have your financing.........at the right time......you can purchase a property for a song.

Answer 5

Ya know, there is no set guidelines. It is possible that the mortgage amount is more than the house is currently worth, and in that case, I would advise you to use a Realtor to help you determine what the best price for you to offer would be. It's not like these properties are selling quickly, so do your homework. Because time is money, don't waste your's. Understand? But keep in mind too, that you price will become the properties current value as seen in the eyes of appraisers. So don't think you can make big money by turning around and selling it. Those days are OVER!

Good Luck, use your best judgement, be fair and make your best offer.

Answer 6

We do short sales. At the most, you may negotiate ten percent off the first mortgage. The banks are just not going to give it away. If there is also a second mortgage, that is usually a little more negotiable.

Answer 7

You can offer and negotiate as much as you want. It all depnds on the individual situation. You just have to "feel them out" for how good of a deal you can get.