Pre-Foreclosure magic?

Question

Hi,

I am looking for a house within a very small radius in Las Vegas, and a house came up in a pre-foreclosure/foreclosure search of the area that is way out of our budget.  The house is estimated value is at about 1,100,000.  I don't know much about buying pre-foreclosure, but I just wanted to know how cheap I can try and get this house for.  If we would be willing to spend up to about 550.000-6K, is there any chance we can try and get that pricing for this house? Even though its half the estimated value of the house?

Total loan on the house is 1,300,000, and equity is about 350,000.

Any help, tips, advice would be really appreciated!

Thanks!!

Daniel Rubenstein · Answer

Thanks everyone for your replies and help.  I actually just reread the listing and the owners have negative equity of 300k..I missed the negative.

Looks like this property is out of range.  But in general, what is the best to determine when looking at pre-foreclosure what you can reasonably expect to pay for it when negotiating price?  what combination of factors, mathematics, etc. do you need to figure it out?

Thanks again!

Wayne Brooks · Answer

Good points.  As to the original question, no.  Banks aren't in the business of giving away equity.  If it's a short sale, they will do their own evaluation and be looking for close to FMV.

Robert Adams · Answer

Good points Phillip. Also sites like Zillow depend on 3rd party sites to feed them data. So in markets that have appreciated at high rates (or depreciate at high rates) will sometimes have properties that are worth a lot more than the zestimates state because they have not received the most up to date data yet. The best way to get the most current value is to have an agent run a free CMA (comparative market analysis) for you. They will use the most recent sales and property details to estimate the homes value.

Phillip Dwyer · Answer

@Robert Adams gave you a good summary.

I'd like to add, that valuations in this price range can be way off if you're relying on something like Zillow.  Certain areas have property characteristics that don't plug well into the AVM software (view, slope, architecture, quality, etc) can very widely in a custom home development.

Robert Adams · Answer

There are 2 ways I know of to get the home for 600k based on the facts above.

1. The seller must give up the $350k equity and be willing to pay the difference of the remaining loan balance and the purchase price of $600k. (This is not likely to happen. Why would someone want to pay hundreds of thousands of dollars out of pocket when they could just walk away or short sell the property.)

2. You put in an offer at $600k and the seller agrees and then you submit the offer to the bank for a short payoff approval. Most likely the bank will counter you on the price once they send someone out to do a BPO (broker price opinion). You may still get a good deal on the property but I wouldn't expect them to agree at $600k.

You could also have them carry the note for you. If the home is worth $1,100,000 and they have $350k in equity you are saying they should owe the bank $750,000. If you can buy the property for $750k and have them carry the note for you that would be a steal. BUT I think what you were trying to say is that it is worth $1,100,000 and they owe $1,300,000 and there fore have no equity in the property. Actually, they have negative equity of $200,000. Equity is based off of the value of the property vs what they owe.

So based on all of that, it seems these people are in need of a short sale badly. Is it listed as a short sale currently?  If it isn't listed as a short sale you maybe able to have a discussion with the seller about short selling it to you. If you want to send me a PM or email I can see if we can make a deal out of it for you.