How do I know what to offer on a bank foreclosed property that is being sold by a realtor for the lendor?

Question

We are looking at a foreclosure property in the DC Metro Area. The list price is $675k and is close to the market price for the area. Now, by looking at county records, I found that the home owners had bought the house in 12/2003 and paid $543k. So, the outstanding mortgage would have been much less than the asking price of $675k. Any idea how low a bank might go?

Answer 1

The bank is going to go with the most reasonable offer it receives. What the buyer paid for the property in 2003 is quite irrelevant here. You have no idea if it was refinanced during that period and equity taken out as a result of the new finance. Think about it. Would the owner let it go with that much equity in it ??? I think not. It would have been sold for as much as possible to avoid foreclosure.

Your realtor should provide you with evidence of recent comparable sales in the immediate area as a guide to what the property's current market value is. Make your decision from the information provided and also be aware that the bank isn't going to sell for less than it wants to. These days, banks are holding onto foreclosed properties for six months or longer, until they get the offer they want.

Answer 2

Lots of people re-mortgage and they could owe $675k. You can either go to or call the city and find out what liens are/were on the property and see how much they actually borrowed. I would personally avoid foreclosures. Why? Because if it is a great deal, the REALTOR or a friend of theirs would have taken it already before it went on the market. Usually, these homes have issues, and the people usually don't treat the home well when they are being forced to move out. Also, banks are not that negotiable. Some might but most aren't, from my experience.

I would look for a FSBO - for sale by owner, and try to negotiate that low and also take another 6-7% off because you found it. It's easy to justify. Make seller pay your closing costs and maybe throw in an allowance for decorating or carpet or what not.

If you are set on that place, then make a low offer. Worst case, they say no. You can always get out of the deal after inspection, say that you weren't satisfied. Put a small deposit up front so you don't have issues later, who knows what could happen. For example, $1000 now + $29000 after approval of inspection.

Answer 3

I don’t, but I’ll bet a buyer’s agent in your area would have great information for you. When you’re dealing with something as complicated as a bank owned property, you absolutely want an agent on your side (the seller’s agent definitely isn’t!).

I purchased a foreclosure from a bank, and would have been lost without my agent. I had to go through two offers over the course of two weeks, and both times the bank wanted to reject me, but my agent found ways to put it all in perspective for the bank & their agent so we could make this deal happen. Additionally, my agent managed to get the bank to pay for inspections they swore they wouldn’t and got the bank to make some repairs on what was supposed to be an as-is sale.

From experience, the difference you see between the original purchase price and the amount of the mortgage could be due to a refinance. My house was sold for $92K in 1998 and by ’07, the previous owners owed more than 160K between a refi and a heloc.

Answer 4

Most likely, the bank just wants to get back what they are owed. It might not be a bad idea to just ask the realtor how much the bank has in the house now. Worst case scenario, they won't tell you and you just go in with a low-ball offer at what the house was purchased for in 2003. Keep in mind that banks are very motivated to unload their foreclosure inventory. It is costing them $$$ for every month that they don't unload the property, so don't hesitate to come in with a low offer. If they don't like it, they will at least come back with a counteroffer.

Answer 5

Glad I wasn't the first to recommend you get an experienced Buyer's agent, because my opinion would otherwise seem self-serving, and that is not my intent...

Don't forget that the listing agent represents the Seller's best interests- not yours. As a Realtor and Exclusive Buyer's Agent myself, (meaning I only represent Buyers), I have to say that I'm not a big fan of foreclosures either. REO properties are typically sold "as is/where is" and are usually exempt from having to disclose material defects or other known issues which would otherwise be required to appear on the "Residential Property Disclosure Statement" form. That said however, there are bargains to be had and negotiations can be leveraged - but know EXACTLY what you're getting into from the start, as well as your options on how to legally back out of the deal with your earnest money BEFORE you have a signed contract.

Note that in foreclosures, many banks require that proof of available funds be submitted with a Buyer's offer (i.e. buyer's bank statements, their lender's pre-approval letter, etc...), so be prepared for that. Requiring a seller pay for buyer costs such as appraisal, survey, title insurance and other closing costs is all well and good, but is financially short-sighted and can sometimes jeopardize a deal. Most sellers will flat out reject offers that come in with multiple contingencies and/or require too many seller concessions that detract from the purchase price.

But what if you could make a seller concession worth far more than its original cost, yet still not seem like a big deal or exceed conventional lending guidelines:

While shopping mortgages, ask lenders about the ability to "buy down" their stated interest rates, and if it's permissible to have seller contribution fund the "buy-down". A very powerful seller concession I pursue while negotiating on behalf of my Buyers is, rather than (or in addition to) paying cash at settlement to offset closing costs, seller pay points so that the buyer can get a lower rate. For example, 1% of a $675K asking price is $6,750 and 2% is $13,500. If one were able to negotiate just 1 point in seller concessions to "buy down" a Client's mortgage rate, that would equate to a $668,250 purchase price (on a full-price offer, which looks good to the bank) and would yield a potential buyer benefit worth far more than asking for the other closing costs at settlement. Double that benefit for 2 points, etc...

Negotiating real estate is an art, so make sure you have an experienced attorney or Buyer's Agent advocate your side of the transaction. An ethical and experienced real estate Buyer's Agent will provide you with ALL of the background information you'll need to make an *informed* decision on your offer price - as well as tactics on leveraging seller concessions into your offer as in the sample above. Buyer's Agents are typically paid via a commission split with the seller's agent at closing, so there are rarely any fees to the Buyer for their services, and they will represent YOUR best interests throughout the transaction.

Good Luck!