Monday, September 7, 2009

Why you can’t always buy a foreclosure for list price.

Boy oh boy, I wish I had some disposable dollars to invest in some of these deals. Yep, they’re out there.

We’ve seen homes that previously sold for $220,000 sell for $145,000. We’ve seen new construction that was priced at $425,000 and undoubtedly would have sold for that price, sell for $275,000. Wow – there are tons of examples.

Some banks will list the property for what they hope to get. Others list for lower than what they hope to get.


So, here you are Mr. and Mrs. Buyer and you look at this foreclosure. It’s priced at $170,000 and you say – “I can do better”. You offer $120,000 on a house that should sell for $240,000, even in it's distressed state. If you offered list price, you probably won't get it at that price either. Here’s what you may not know.

Very often, some banks will list a home at a price considerably lower than what they hope to get. This serves to attract interest from the buying public... lots of interest. Hopefully (for the seller/bank) all this interest will result in multiple offers. When this occurs, the listing agent is obliged to notify all parties that there are “multiple offers” and invite those who have made the offers to revisit their original offer and come back with their “highest and best” offer.

This is, indeed, nothing more than an auction except in a conventional auction, all the bidders are in one place. Nonetheless, the seller hopes that one or more of the bidders has become emotionally invested in the property and thus submits a “highest and best” offer well in excess of the listing price. And, needless to say that's who ends up with the house.

So, when you're contemplating making an offer, whether it is a foreclosure or not, make sure your agent reviews a CMA (comparative market analysis) of the subdivision with you before you make your offer. This will help you understand what to expect as negotiations proceed.


And, when you are approved for a certain max purchase price, don't try to buy a foreclosure that is listed artificially low, that is at your maximum purchase price. You will be disappointed when that property is "bid up" in price and ends up beyond your reach. And how do you know if it's artificially low? Trust your agent.

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