What is the average discount on foreclosure after 1 year vacancy

7 Replies

Anyone know what the usual discount is on a foreclosure that's been vacant for a year?  I'm looking at one in Bakersfield right now, weeds 6ft tall, but the house (on the outside) is in decent shape.  If this inside needs paint/floors/cleanup it could be a good deal.  Zillow estimates the place is worth $117k, but that's subjective.  I'm thinking of calling up the holding company and, after inspection, offering $50-60k.  Thoughts anyone?  I'd appreciate your perspectives.

The asking price has nothing to do with the value nor does it have anything to do with what you should offer, in my opinion.  Maybe it is worth $ 200,000 as it sits now, maybe it is worth $ 2,000 as it sits now.  I place very little trust in Zillow estimates, though others may disagree.

I'm going to assume this is a single family home that you plan to rehab/sell. First you need to determine the after repair value based on recent, real, and comparable sales near the property. That is the most you will likely sell it for and it is also a number you never want to see as your cost basis! I always like to discount the ARV a few percent because I want to be the first to sell, not the last. That is my top line number.

Now determine an accurate repair cost by looking at the property and putting actual costs to it.  Finally, determine your holding costs and resale costs (property taxes, interest cost, marketing cost, realtor fees, etc.).

Now that you have those numbers, subtract them from your discounted ARV, then subtract how much you want to make on the project. That determines the offer price. It might be near your number in your original post, or it may be miles away. That is a real number, though.

Your method places too much trust in the original asking price.  Holding time doesn't always have much to do with what it will sell for.  I have had offers accepted for less than half the asking price a week after it hits the market, and I have had offers rejected for almost full price after it has been on the market for a long time.

Always use YOUR numbers to analyze the deal, not the seller's numbers.

Best of luck.

Unless you know the actual asset manager that will handle that file calling up the holding company will do nothing to get you the property. The banks have a process a house has to go through before it's sold and the last step is to get it listed with a realtor. You're going to have to wait until that sign appears in front of the house. As for using zillow for an estimate just know that even their CEO has come out and said that the "Zestimate" can be off by up to 42% regionally and the average in the country is 8%. 

Wow, Adam, thank you very much for that analysis.  I couldn't have asked for a better demonstration.  Your methodology makes total sense and is logically laid out to me.  It seems like a winning formula.  I will certainly be using this metric when making a decision.

and why are Zillows estimates are so far off? I would like a website that actually give you more accurate,estimates and accurate comps info. I used to love Zillow when looking at comps until I found out how to do comps.we need a website that gives us accurate info especially if you don't have access to the MLS instead of relying on RE agents for info.

Zillow is good for looking up historic price info (what a property sold for in say 1972, or 2003, or whatever). Their "Zestimates" seem to me to be a blatant attempt to fan the flames of the market -- after all, who could resist buying a $78k house "worth" $468k.

Rural or neighborhoods with a variety of home types/conditions are particularly confusing for their algorithms, though goodness knows I would have dearly loved to sell my MH for the $379K they said it was worth shortly after I purchased it for $60k!

In my humble opinion, finding ANY website or even making one to give an estimate of value is not a good idea.  Ultimately, value of a given property is determined by a ready, willing, and able HUMAN.  So basing a buying decision on some web-driven algorithm is dangerous.  In short, a property is only truly worth what somebody will pay for it, not a penny more.

I understand the frustration behind waiting for a Realtor or appraiser to give you an informed value guesstimate, but having human input from an experienced advisor has far more value. I too used to wait for value opinions. Then I got sick of it and became a licensed broker and I pay for access to MLS Data now.

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