In a neighborhood where few homes are on the market and foreclosure is rare, you may have to pay near asking. If in an area with a high percentage of recent N.O.D. filings and many on market, paying asking price may not be the best price. Again, if this will be your home for many years....choose a home you love and buy at a price your agent, the market, your finances and your gut says is good. REO's typically are set at a price with 5-15% "wiggle room" to allow for closing costs, additional repair items etc. BUT, in some area, there is much competition for homes, even in this market. If you are in one of those areas, the banks price may be the price you have to pay...or even more.
Different lenders have different parameters on what they can take for a property at any given time.
Generally the longer they hold the property, the more flexible they are in negotiation of price.
Since lenders use realtors for the disposition of their REO property, have your realtor go into the recently sold properties in the MLS to determine:
List price vs Sold price on that lender's REO's.
Time on market (DOM)
Type of loan buyer used (if you see FHA or VA financing you can estimate seller
probably paid 4% of purchase price toward buyer's closing costs
With some properties, the buyers ask the seller to pay buyer closing costs (which in itself is an offer less than list price).
Once you see a recent list of properties sold, list vs sold price, DOM, terms, for that lender, you will know how flexible they may be to receive your offer.
If you are not in a multiple bidding situation, go in a little lower than your research indicates, the lenders always counter an offer.
If you are in a bidding situation, go in with your highest and best, i.e. a bid that if you found out you lost the bid by $1 you would not be dissapointed
Best of luck in your purchase