Over the years I have complete many BPO (Broker Price Opinions) for banks. These are formal CMAs (Competitive Market Analysis). The rule, that all real estate is local hold very true especially with foreclosures. Size, location, condition, along with what is currently on the market, play into the computation of the house value. In many areas foreclosures are increasing. These properties are now competing with all other properties on the market. Lenders/Banks are becoming more aggressive in the pricing of these properties to move them quickly.
Find a local Realtor that you trust.

Becki,

In the Charlotte area, we have successfully negotiated contracts with banks that are below market value. As in all things economic, supply and demand dictate market forces. The bank will listen to the market when deciding what they can get out of a property. Often times, there are more important issues than price when buying a foreclosed property. For instance, last year a modification to the purchase contract allowed buyers to place an option on a property while they performed inspections. This is particulary useful when buying "as is" properties, because you can avoid under estimating the cost of repairs. Also, it is helpful to deal with a broker that is experienced with foreclosure properties as each bank handles their portfolio differently. I hope this helps. If you're considering purchasing a foreclosure property in NC please contact a real estate professional in your area before spending money.

In my experience, it depends on the bank and the house and the counsel the bank has received. Bear in mind that houses are non-performing assets for banks once they have hit foreclosure.

In today's real estate market most lenders are listing their REO properties at market value. Typically at this time lenders are playing hardball. Some are willing to do short sales as noted by Roberta Murphy while others are very difficult to convince that accepting a bit less then owed on the home is a smart move. In areas where you see a large number of foreclosures you may see lenders lower their asking price or begin to offer incentives to prospective buyers.

Becki: Short sales occur prior to foreclosure, when a lender agrees to accept less than what is owed on the property. Once the property is foreclosed upon, it becomes what is known as an "REO" (real estate owned). The lender will then order an appraisal or BPO (broker's price opinion) to determine a realistic sales price. That price may be more or less than the foreclosed debt. The listings are generally listed at a realistic market value that reflects condition of the home. If you are thinking of purchasing a foreclosure, you may wish to read this very relevant article:

Foreclosures vary by state, but most lender's will try to get a little under market for atleast 60 days. After 60 days (sometimes before), you can do something called a "Short Sale". This is less than amount owed on the home. Some lender's go for the "Short Sale" in order to get the home off of their books. They are in the lending business, not the real estate business.