Value Of Property In Foreclosure

Reader Question: In general, what kind of pricing schedule do banks use for foreclosure properties (as far as a discount rate per every 15, 30, 60, 90 days etc…? I know that the bank is willing to take less for a property the longer a foreclosure sits on the market, however, in general what is a standard pricing or discount schedule that banks and PMI companies use when dealing with foreclosed properties?

I read a rule of thumb to subtract 10-15k per every 15 days a property is on the market. I am looking at a property that was listed on the market on March 12 and has has 1 other offer besides mine (both rejected.) It is now the end of April, and the 60 day mark will be March 10th. At the 60 day threshold, will the bank be willing to negotiate more on price?

What about 75 days and the 90 day marks? Looking forward to your response. Tiffany G. – Boston, MA

Monty’s Answer: Hello Tiffany. While there are a lot of real estate myths, I suspect no such schedule exists. It is true that banks do not enjoy owning REO. They generally have a plan developed for each property. The huge differences in markets, sub-markets and local market activity would prevent a smart bank from adopting a schedule. The markets are dynamic and change constantly.

If you have your sights set on this home, you may want to study the current market in the neighborhood to find your answer. What are similar homes selling for today? How many are on the market currently? How often does a home like this sell? I suspect the old law of supply and demand is working well in Boston.

The bank that owns the property is listening to their agent and asking the same questions. They are protecting their own interests. Banks may attempt to create a bidding war if the market appears bright. Or, they may choose to negotiate. In some cases, they may even raise the price!

Here, is an example where that eventuality could happen: Every month 8 homes like this home have sold in the past 6 months. 6 months ago there were 34 similar homes offered for sale. Each month for last 6 months only 2 similar new listings came into the market. If I were advising the bank, I would suggest they raise the price. I suspect that they could get more money as the inventory has shrunk substantially, but there is a strong demand in the neighborhood. In terms of raising or lowering the price, the numbers existing for this neighborhood should tell the tale.

There are other factors that come into play with short sales, foreclosures and REO. Each loan has its own set of circumstances. Each lender has it’s own set of circumstances. Factors like bank liquidity, default ratios, mortgage insurance, loan servicing, regulator rules and influence and more may be a consideration. So there is no industry benchmark as to what course of action to take as a group. I hope you find this information helpful.

Not knowing any of your personal circumstances or motivation for buying this home, I cannot provide any more insight here. A side benefit of making the effort to dive deep into understanding the neighborhood market is that you may uncover a home more suitable for your needs.

Good luck to you, Tiffany.

Monty