Assessing the Value of a Foreclosed Property

Value and price are closely related terms but they are not necessarily interchangeable. On one hand, value is more subjective and mainly based on emotional factors. For example, a foreclosed property could have a very strong sentimental value to the owner that cannot be expressed in terms of monetary price. This is especially true in cases wherein the property is already connected to many fond memories of family life. When directly negotiating with an owner of a pre-foreclosed property, you must also take into consideration the emotional attachments of the owner to the property. You must be sensitive and sympathetic if you want to get the best deal.

Objective Price

On the other hand, price is a more objective term that is quantifiable. It can be expressed in exact numbers, denominations and currency. It is something that can have documentary support, such as deed of sale and post-dated checks. However, this does not mean that price is always absolute. It can always be negotiated between the seller and the buyer. Foreclosed properties that are listed to be auctioned, however, are of slightly different matter. Person-to-person negotiation is not applicable. You need to deal with lending institutions that usually have strict policies. You also need to outbid others based on a start bid price.

The objective price of a REO property may also be based on the tax assessed value but sometimes it is actually lower than this. The physical condition of the property can also make the price much lower. Banks typically sell repossessed properties at rock bottom prices because they want to immediately dispose of them. The payments already made by the former owners are also deducted.

Negotiating Leverage

Assessing the value of property is usually not within the power of a buyer. The seller and other market factors determine the selling price. However, if you want to have some negotiating leverage, choosing properties that are included in the pre-foreclosure lists is a good strategy. Properties included in these lists are not yet foreclosed but already defaulted in payment for several months. These properties can be negotiated directly with the owners. You can physically inspect the property and make your own assessment.

The location of the property is a crucial consideration because it is the primary factor that could determine the current selling price and future value of the property. Aside from standard taxation purposes, the location is a crucial factor in terms of convenience and potential growth.

If you can directly negotiate with the owner of the property, over-valuing and undervaluing can be prevented. If you intend to invest and make profits in the future, this is a very important factor.

You will have better negotiating leverage if you do background research. The more you know about the property and the neighborhood where it is located, the better is your chance of getting the best value deal. Hence, you must search in locations that have good potential for growth in terms of business and employment opportunities. Properties located in these places could attract other buyers in the future who are willing to pay higher price.