Foreclosure Pricing

How Prices Are Determined

Foreclosures can cost just as much as any other house in a neighborhood, or they can be significantly cheaper than other area homes. What's the difference? A combination of factors will influence a lender's pricing decisions for homes they own.

Market strength

You've probably heard the terms "buyer's market" and "seller's market" before.In a buyers market, prospective homebuyers will have lots of homes to choose from, and there won't be a strong trend towards increasing prices.In a sellers market, homebuyers will be strongly competing against other homebuyers for the relatively few properties coming on the market and prices will usually be increasing on a regular basis.Lenders selling homes in a buyer's market will have a lot more price flexibility because they aren't making any interest on the loan they foreclosed on, repairs done to the property won't get them a significantly higher selling price, and their out-of-pocket costs go up the longer it takes to sell the property. Lenders selling homes in a seller's market will usually repair the property to "move-in" condition, then ask and receive the current market value of the home. In a seller's market, the time to make a quick closing low offer to the lender is before they list the property with a Realtor and begin repairs.

Total Units Owned

Lenders, in most cases, do not make any money by owning homes, they make their profits by charging interest on loans. Foreclosed homes do not generate interest, so if a lender has a significant amount of homes, they will often prefer to sell the homes quickly and convert the funds they have tied up in those properties into performing loans which will generate interest for them.

Property condition

Foreclosures are quite often very poorly maintained, first because the previous owner was in financial distress, second because they probably didn't care about keeping the house in tip-top condition when they knew they were losing it. Because lenders aren't overly efficient at getting a home quickly repaired and in marketable condition, a property in very poor condition will usually have more flexibility in price.

BPO accuracy

Lenders use local area Realtors to provide a Broker Price Opinion about the property value and local market conditions. Like any opinion, they vary from person to person and in this case, a low opinion of value may be helpful if you are submitting a low offer to the lender.If you are seeking to buy a foreclosure under market value, having your financing in place is essential so you can make offers with a minimum of contingencies and the capability to close the transaction quickly. Offers should be submitted before the property is listed and repaired, if it's at all possible, and if your offer isn't accepted, re-submit it if the property does not sell quickly.