Walter's exactly right. First, determine the property's ARV (after repair value). Then subtract needed repairs. That's the absolute most you should pay.
But, to make it worth your while (your time and effort in getting those repairs done), the house really has to be purchased for substantially less. And it sounds as if the previous owners stripped the house. Do you know if they applied their magic touch to any of the important systems of the house--heating, air conditioning, plumbing, etc?
Also, you refer to a CMA of $360,000. Is that with or without the damage? And yet the bank wants $400,000? Something's not adding up.
If the CMA is taking into account all the damage, etc., then perhaps the house in its present condition is worth $360,000.
If the CMA just looked at house style, number of beds and baths, age, etc.--without taking into account the condition of the house--then the house in its present condition probably is worth between $315,000 and $340,000. And the bank's asking $400,000?
John: The numbers just aren't adding up. Like Walter said, and like I said, the maximum you can pay is the ARV minus rehab costs. And if the ARV is $360,000 and it needs $25,000 in repairs and rehab, for instance, then your offer has to be no higher (and likely lower) than $335,000. Give it a try. Give it your best shot.
In the meantime, though, you might spend some time looking for other properties.
Finally, as is frequently noted here, trying to buy REOs can be timeconsuming, frustrating, and often apparently illogical if not irrational. It's seldom an easy process.