Q: I am currently trying to buy a home that was foreclosed on. I have followed this house for the past couple of weeks through a few banks and have learned the house will be listed with a local real estate firm.
I’ve gone to the courthouse and made sure there were no liens or back-taxes on the property. However, it was foreclosed on because of mortgage payments that add up to around $150,000. I also got the fair market value of the property, which is $99,000.
I’ve heard that in cases like this one, the property usually sells for 15 percent more than fair market value, or about $115,000. In this case, the home has been vacant for close to 6 months. The grass is 5 feet high.
The home hasn’t been officially listed because the real estate firm hasn’t had a chance to evaluate the property yet. I do want to make an offer, but don’t want to pay $150,000, which is the amount of the mortgage.
Can I pay in cash and negotiate hard on the price?
A: As far as the foreclosed property goes, all you can do is make an offer based on how much you think the property is worth. If the property is worth $99,000, then make an offer for $99,000. If you’ve got the cash on hand, your offer will be even stronger.
My question to you is, how do you know what the property is worth? When you talk about “fair market value,” I get the feeling that you’ve looked up the tax records and that is the price you’re using to quote fair market value.
In fact, the tax records are the wrong place to go because as far as I’ve been able to tell in the many markets I’ve studied, they’re out of sync with what property prices are actually worth. Instead, you need to spend some time looking at homes in the area and determining fair market value by what’s out on the market that’s comparable.
If you have, in fact, determined that the property is worth only $99,000, then it’s time to get serious as a buyer. You can hire a real estate attorney to represent you and present your offer to the real estate firm. And if you decide not to pay with cash, you can make sure your financing is in order by getting your mortgage preapproved by a lender.
But be prepared for your offer to be rejected. Although the house is only worth $99,000, the lender will take a $50,000 “loss” by selling it to you at that price, if the mortgage on the books is for $150,000. For reasons that may not be understandable to you, the lender may not wish to take the loss at that time, but instead, would rather keep this non-performing loan on its books and hope another buyer will pay more.
July 2, 2004.