Mario Pinedo, CCIM

The answer really depends on the market at the time you sell. Compare it to a more common question - a home on a busy road compared to the same home inside the neighborhood. In seller's markets, the discount approaches zero, in buyers markets with tons of inventory, the home is completely dismissed unless its at a dramatically low price (could easily be 20%). So, timing is crucial when selling a home that has an obvious negative.
With your home, because it is not a "violent" death - the disclosure laws sunset after a specific amount of years. Although beware, even though you may not be required to disclose, a buyer could still sue you (they may not win) if they find out from your neighbors after the closing.
The main discount comes when you are buying the vacant home that the owner just passed away in. You will be selling in a completely different situation. Negotiate as hard as you can and sell in a strong market. You may do better than your neighbors in price appreciation. - Tue Sep 30 2008, 21:37

sometimes it is not easy to tell which homes are bank owned and which are normal sellers. A Realtor can search specifically for you on that criteria. Also, keep in mind, some sellers realize they must compete with the bank's pricing to sell their homes. These can be good deals too. - Tue Sep 30 2008, 16:18

At worst, you should calculate the value of the home based on having to eliminate the addition if the City ever requires you to do that. Otherwise, there should be a good value put towards the cost of permitting the space. This may be very extensive (opening walls, floors, ceilings, etc. to prove that work was done correctly). There are many contractors who do additions in Sunnyvale. Asking for their advice may be wise. - Mon Sep 29 2008, 11:50

An acceptance by the bank is subject to the many terms that the bank may require of the seller. It is not a blank check situation that the seller must abide by whatever terms the bank requires. Sometimes a bank will require a promissory not signed by the seller for payments over time after the closing.
You may have little recourse in this situation. Although it would be wise to consult an attorney to see if you have a possibly stronger position and can force the seller to close escrow.
As for the bank contacting you directly, that is a very low probability. They normally have an agent already behind the scenes who is preparing to get the home on the market. If you can find that person, they can assist you to write an acceptable offer. - Mon Sep 29 2008, 11:35

I am tracking many more aggressively priced homes in the Milpitas - Fremont market. Have looked at some of the other opportunities? - Wed Sep 24 2008, 14:54