Is there a rule of thumb for bidding below the asking price on a foreclosed home?

Asked by Skylie, San Jose, CA Fri Jan 27, 2012

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Ricky Ablaza, Agent, Milpitas, CA
Fri Jan 27, 2012
Hi Skylie,

Here are my 6 Tips Buying An REO (Bank Owned / Foreclosed Property)

1. Hire a professional and experienced REO agent who can help you navigate the complexities of Buying an REO (bank owned property). An REO agent who has listed REO's would have the knowledge to put the 6 Tips For Buying an REO to good use.

2. Get pre-approved
* A pre-approval let's you know how much home you can afford.
Sellers of REO's, specially the big banks, do not want to waste time as every day they carry the REO
costs them. A pre-approval shows the asset manager (the bank's representative) that your offer is
serious and that you are qualified for the purchase. Especially important if there are several buyers for
the property you want.
* Most bank's require buyers of their REO's to be pre-approved with their own mortgage lending
department to ensure buyer's are truly qualified. So get pre-approved with the mortgage lending
department of the bank you are purchasing the REO from. However you can use your lender of choice
in the actual sale. It is important to note that choosing a reputable Mortgage Lender, preferably a retail
banking institution, will serve to make your offer stronger and ensure the sale will close.
* Some REO's may have been vandalized in the course of foreclosure. You will need to know, from a
contractor, the cost to repair the home and make it habitable to your taste. Your loan officer can show
you loan programs, available today, that will allow a Rehab Loan (203K loan) to be included in your
mortgage loan.
* Or, because the home is dated, you may want to renovate it to your taste. There are Home
Improvement Loan Programs (203K loan) for that as well that can be tucked into your mortgage loan.
* Ask your loan officer. Dealing with these matters appropriately through the pre-approval process will
help you avoid "buyer's remorse."

3. Ask your Loan Officer or Realtor to help you understand your mortgage payments and the costs
associated with closing the sale:
PITI (Principal, Interest Taxes and Insurance payments)
HOA dues (if applicable)
Closing Costs (escrow & title charges, notary, pro-rata tax payments, etc.)
Cost and Future Value of Rehab or Home Improvement Loans (203K loans).

4. You are making a huge investment when purchasing a home. Consider a Home Inspection, especially when purchasing an REO. Knowing the condition of the home helps you make an intelligent purchasing decision and will help you in negotiating a fair price - in case there are deficiencies found. Compared to the huge investment of a home purchase, the cost of a complete home inspection is minimal. Remember, neither the Asset Manager nor the bank, have lived on the property; thus, would not know if the home has defects. That responsibility falls on your shoulders.

5. Get a Home Warranty. The cost is a few hundred dollars for a year, but the value is considerable. A home warranty covers the cost of repairs or replacement of some appliances, home defects, plumbing, heating, etc. Should your furnace need replacement, a home warranty will replace it and your out of pocket cost will be limited to your deductible and the yearly premium. A furnace can cost a few thousand dollars.

6. Last but not least, do not submit a lowball offer. Although REO's are priced lower for a quick sale, it goes through at least 3 independent Broker Price Opinion's (a mini appraisal) and at least 2 full appraisals to determine its sale price. The seller of an REO knows its market value. You should too. Ask your agent to do a BPO of the property. A tight BPO will help you submit an offer that is reasonable and fair and help you purchase that lower priced REO.

Follow these 6 Tips in Buying An REO. There is more to buying an REO (bank owned / foreclosed property). I am an accredited REO listing agent for Bank of America, IAS_REO, EMC and Chase. Call (408-316-0793) or email ( me if you are considering purchasing an REO. I know the transaction process required in successful REO sales. I have managed countless REO's to the closing table.

Ricardo Ablaza
DRE # 01266541
First Pacific Real Estate
Cell: (408) 316-0793
1 vote
Allison Fish…, Agent, Ann Arbor, MI
Sun Jan 29, 2012
Hi Skylie,

There is no Rule of Thumb that works in every situation. Make sure to hire a Realtor that you trust and before signing a Buyer's Agency Agreement (that locks you into working with the person for a set period of time) make sure that the Realtor's answer to this same question meets your expectations! Sometimes homes go for less than expected, and some times more...never bid or offer more than you feel comfortable with and don't expect every great deal to go through!
0 votes
Grace Hanamo…, Agent, Cupertino, CA
Sun Jan 29, 2012
Hi Skylie and thanks for your post.

If you're working with a Realtor, utilize this very valuable real estate information resource to its fullest advantage by asking your Realtor for comparables in the area, and then work with the professional to get a sense of the price for the home. Many times, as agents, we've worked with a lot of these banks and we know from experience whether or not their policy would accommodate a lower than asking price offer. In some cases, the answer is NO--and in other instances, the banks are more flexible. Again, your Realtor should know this information. So whilst I would never advocate NOT bidding lower than the asking price for any home (REO, short sale or private seller), I would certainly strongly advise a client to offer a price for the home commensurate to its relative value.

Finally, remember, "price" for any item (be it home or jewelry) is based on the item's "perceived" value which includes the raw cost of the item, its amenities, its desirability and the added "value" from the buyer--and no two buyers look at a home as being worth the same price. The best you can do is to work with your Realtor to determine a price range and to then evaluate the value of that home based on your own personal criteria.

Good luck!!
Grace Morioka
Area Pro Realty-People's Choice
0 votes
Christopher…, Agent, Tarrytown, NY
Sat Jan 28, 2012
Hi, Every situation will be different, it will depend on how the property is priced, how many other competing bids there are, etc. Do your research to determine where the current values are in the immediate area and where they may go in the coming years. Once you have this info you can plan your strategy around that. Keep in mind ,most foreclosures are priced well below what they would normally sell for, be aggressive.

0 votes
Scott Hulen, , 64068
Sat Jan 28, 2012
As many have stated there is no magic in the actual number that the banks/HUD will accept. But they do have a plan and I believe the “guidelines” go something like this: on the market for less than 90 days, you are the only current offer, are a well-qualified buyer, 10% off and not a dime more. (PS this assumes the Realtor® doesn’t increase their commission beyond what is considered typical) Multi offer situation less than 90 days up to 15% off but you are in competition with others to purchase the property. For properties over 90-120 days on market maybe 10-30% off it really depends on previous bids and the asset manager, at this range the general rules go out the window. Hope this helps Good Luck! PS I submitted over 50 offers this year and closed 20 transactions on REO properties this is the trend I saw in the Kansas City North area. One more tip: timing is everything; REO’s usually have price drops about every 30 days on market. If you find a property you are interested in and you can catch the price drop you can usually grab another 5-10% if you act quickly before a multi offer situation occurs. Last tip: Every market is different seek out a Realtor® who does many of these type of transactions, I can tell you for a fact you get better with practice!
0 votes
Stephanie Le…, Agent, Miami Lakes, FL
Fri Jan 27, 2012
No rule of thumb.. It would depend on your market area... Here in Miami FL foreclosed homes are selling for more than list price and all cash...

I would suggest you work with an agent who can pull up a report on your area's foreclosed sales to see where are they selling at...

If the report shows the homes are selling less than asking price then you can use that figure as a guide for your market conditions.

Good luck.
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Ruth and Per…, Agent, Los Gatos, CA
Fri Jan 27, 2012

No rule of thumb.

Some prices are market low to generate multiple offers and sell in the first week.

Prudent to work with a Realtor who can guide you.

Good luck.
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Andrea Wince…, Agent, Milpitas, CA
Fri Jan 27, 2012
It depends on the condition of the property and the market value. Current market value is determined by what other homes have recently sold for in the immediate neighborhood. Adjustments can be made for condition, lack of appliances and days on market.
0 votes
charles butt…, Agent, san jose, CA
Fri Jan 27, 2012
Thank you, Skylie:

There is no rule of thumb that is accurate or that works.

What you need is a very accurate determination of the Fair Market Value of the home. Foreclosed homes often have a substantial amount of deferred maintenance. You need to determine as accurately as possible what the deferred maintenance is and make an accurate determination of the cost to repair the defereed maintenance. You then need to determine a value for your time, and effort that you will expend to arrange to hire the contractors and supervise the work to be done. You also need to determine an amount to compensate you for the cost of money, and your time and effort to get that money. You should also determine an amount of money to compensate you for the risk that you are taking in buying a foreclosed home and making the necessary repairs.. You should use those amounts of money as reductions in the amount that you are willing to pay for a foreclosed home.

For more information please call me at my cell phone: (408)509-6218

Thank you,
Charles Butterfield MBA
Real Estate Broker/REALTOR
Former Real Estate Appraiser
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address:
0 votes
Jeffrey Kami…, Agent, La Grange, IL
Fri Jan 27, 2012
I prefer to base an offer on what I feel the value of the home is based on comps of recently sold properties. You should also factor on how badly you want this particular home based with others in the same price range.
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Lorrie Feld,…, Agent, Scottsdale, AZ
Fri Jan 27, 2012
Hi Skylie,
If a home is priced right or below market value, people will more likely bid over asking price. It all depends too on how long the property has been on the market. Here in the Phoenix/Scottsdale area, when a home comes on the market that is bank owned and it's priced pretty close to fair market value, there are multiple offers coming in on it. I work with a lot of investors and these past 4-5 months there has been a big change in the market. Inventory has come down and prices have inched up. Have your realtor do a comp on the house so you know what the true value is and then go from there.
Good luck,
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0 votes
Michelle Car…, Agent, Coppertino, AL
Fri Jan 27, 2012
The key is to have a good idea of true market value. Choose a skilled, knowledgeable professional real estate consultant to help you with this. Are you looking for an investment or a home to live in? This may make a big difference in how to approach this purchase.

Pricing on bank-owned homes varies widely. In a market where homes traditionally sell in 30 days or less, a bank-owned home still on the market without a price reduction after 60 days (double the norm) may seem ready for a lower offer. If the days on market average at 100 days, 60 days probably isn't "ripe" enough for the lender to accept a lower offer.

However sometimes bank-owned homes are speculation homes that builders or ambitious developers did using higher-end fixtures and features, making it improved to a level above the current market "norm."

Learning the highs and lows of the unique market you want to buy within and what are the current patterns will help you make the right choice for you.
0 votes
Bill Phillips, Mortgage Broker Or Lender, San Jose, CA
Fri Jan 27, 2012
Hi Skylie,

Michael is absolutely correct. Work with a professional Realtor. My "rule of thumb" is the same for all offers. Present the strongest offer you think could be/will be accepted. Show proof of funds along with a pre-approval letter from a professional Mortgage Consultant who really understands today's financing complexities. If your offer is less than asking, a Realtor that successfully gets clients offers accepted, will know to validate the offer with recent sales comparables to the listing agent and Bank. They also will have the loan officer contact the listing agent and their "preferred lender" to help get your offer accepted as well. Lots of strategies available for making REO offers and getting them accepted, just not enough room to go through them all.
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Thy Nguyen, , San Jose, CA
Fri Jan 27, 2012
Whatever rule there may have existed, is no longer valid. What you need to understand when approaching a foreclosure auction is that those others who attend are much more adept at the bidding. More oftentimes than not, a novice or first time bidder will end up with the highest price/bid - which is exactly what you didn't want to begin with. Find out more at
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Michael Koen…, Agent, Pleasanton, CA
Fri Jan 27, 2012
Hi Skylie,
There really is no rule of thumb for bidding below asking on a foreclosed or REO home.

A better rule of thumb, is to work with an experienced full-time Realtor, who can help you determine what a fair-market price would be.

Foreclosed homes, just like other listings on the market, can be priced all over the map.

It's not uncommon for a home to be priced WAY over market value. Conversely, sometimes homes are priced well below market; the seller hoping to generate multiple offers and therefore a 'bidding-war' to drive the price up.

The bottom line: a home will only sell for as much as a buyer is willing to pay. So if a home is sitting on the market for quite awhile, odd's are, it's priced too high. Be aware, that there are other significant terms to your offer that can help your 'low' offer get accepted. It's all negotiable ;)
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