How to Negotiate the Purchase Price on a Foreclosure

Check public records to find foreclosure property for purchase.

Savvy buyers negotiate the price of foreclosure homes during two of the three stages of the foreclosure process. In the first stage, the pre-foreclosure home still belongs to the original owners, but the lending institution is in the process of taking ownership. Negotiations are possible at this time. During the second stage, the foreclosure auction, the minimum bid is the total of the mortgage owed and additional fees. Negotiations are usually not possible at the auction. However, if no one buys the house at the auction, ownership of the house reverts back to the lender. It is possible to negotiate the purchase price of the house with the bank during this third stage.

Instructions

1. Find homes that are in pre-foreclosure. Some lending institutions prepare online lists of homes facing foreclosure. Read the legal sections of newspapers to find information about upcoming foreclosure auctions. Contact the county recorder's office to find foreclosure information. Talk to neighbors and friends who might know about homes in pre-foreclosure.

2. Contact the owner of the pre-foreclosure home. An offer that pays off the mortgage, all back taxes, and selling expenses may stop the foreclosure and be beneficial to the homeowner. However, the mortgage owed on the home may be greater than the current value of the house. Consider a short sale in which the lending institution accepts less money than is owed. Expect this to be a complex process that takes at least several months. Explore the possibility of assuming the current mortgage. Hire a lawyer to safeguard the purchase if you proceed with this plan.

3. Talk with an experienced real estate agent who specializes in foreclosure properties. Obtain information about REO properties. REO homes are foreclosed houses owned by the bank or other lending institutions. Find online lists of foreclosure houses. Drive through desirable neighborhoods and note vacant or abandoned houses. Study the selling price of comparable non-REO homes in the neighborhood to determine the current market value.

4. Inspect the REO home paperwork carefully. Note factors valuable to negotiations. Look at the days on the market. If the home hasn't sold quickly or if few offers have been received, negotiate a lower price. Watch the current market conditions. If house prices are falling, make a lower offer on the house.

5. Perform a thorough house inspection. If the house is a fixer-upper, has damage, or is vandalized, negotiate the price. Consider the age of the house, the condition of the roof, the absence of appliances, and the condition of the heating and cooling systems. Inspect the foundation, check for pests and look at the paint. Check the landscaping and note any environmental problems. Determine the cost to fix up the house and deduct the amount from the asking price. Negotiate the new price with the bank. Be patient with the process and don't appear extremely eager to buy the house.

References

• Federal Citizen Information Center; Buying a Foreclosed Home; October 2008
• Bigger Pockets; Investment Property: What is a Foreclosure?; Jay Redding; June 2010
• Bigger Pockets; Why Pre Foreclosures Vs Foreclosed Homes; Judson Voss; March 2010
• Bank Foreclosures -- Government Foreclosure Homes for Sale; Negotiation Tips for Buying Foreclosure Home; John Anderson; 2011
• Michigan State University Extension: Options in Foreclosure; Selling Your Home