Ericka, foreclosures are not supposed to be used in appraisals. As a rule, only "arm-length" transactions, those between non-related sellers and buyers who are not distressed, should be used for comps. Of course, the appraiser needs to be diligent that they also recognize and DO NOT include "short sale" transactions. All that being said, if there are enough foreclosures/short sales in a sub-division, then they do end up impacting market value.

As for finding an agent, Bank REO transactions are fairly straightforward. Your agent should help you formulate a competitive offer and be diligent about getting your offer considered (often there are multiple offers), in addition to their normal fiduciary duties. With a REO property, they are sold "as is", so it is very important that you have a qualified home inspector comb over the property. I would also recommend having an attorney who practices Real Estate Law as their primary focus and who has experience with REO transactions.

If you are considering purchasing a "short sale" property (property bought for less than what is owed the lender; they can be better investments than REOs), I think that your choice of agents is even more important. Coordinating a "short sale" can be a very cumbersome process, especially when you are working with a larger bank and an inexperienced or disinterested listing agent. I think it helps if you have a buyers agent that has handled a short sale previously.

If you want more help, please feel free to visit my Bank REO page on my website listed below.

As to how foreclosure sales effect values: Although foreclosure properties don't usually count when an appraisal is done, the net effect is to cause an over supply of homes, and drive down prices. Recently built subdivisions tend to have higher foreclosure rate, and faster price declines, than older neighborhoods.

Most banks provide very little information on a home, make the buyer cover a lot of the expenses, and won't fix anything major. So you need to do a good examination of the property by yourself, and then hire a good home inspector to check for additional issues.

As for an agent, find one that also buys foreclosures for their own investment.