Everybody wants a bargain. Everybody knows foreclosures are bargains. Are they? In this article, we’ll take a look at what happens with a foreclosure. Being in the Minneapolis area, this information is more pertinent to the Minneapolis and St. Paul area houses, although it might apply to other areas as well.

But first, here is some background about foreclosures.

In the past year, I have gained experience on the listing side of foreclosures, helping another agent in our office with his bank-owned foreclosures. This process has shown me that banks don’t always advertise a house for sale in a realistic manner. There have been numerous times that we’ve told the bank what the house would sell at, and they come back and list the house at twice our recommended value!! Then they will lower the price, month after month, until they finally get an offer, which could be a year later.

Let’s take a specific (fictitious) example. If the indicated value of the house is $120,000, the bank may have the house listed at $199,900. At that list price, an offer at $120,000 would seem ridiculous, and the bank will probably outright reject the offer. They will see it as a “low-ball” offer. 8-12 months later, they’ve reduced the price to $119,900 and an offer may come in at $100,000. This might not seem too bad a year after the fact, although the bank would have made more money if they accepted the initial offer of $120,000.

By this example, the initial price of $199,900 was vastly inflated. In fact, it was $80,000 over-priced. Why would they do that? Perhaps that was how much they were owed before going into foreclosure, or perhaps the market was “speaking to them.” Either way, $80,000 more than what similar houses are selling for is no bargain.

Remember the auction that took place in the Minneapolis Convention Center back in October 2007? I remember afterwards, there were several people interviewed who had bought homes. One person thought she was getting a great deal as she paid only $65,000 for a house in Minneapolis. She thought it was a great deal since it last sold for $135,000. My analysis showed that this house was worth about $50,000--so it was not a great deal since she could have bought a similar home for $15,000 less. But many people perceived that the auction was full of bargains, and many homes were sold. It is best to know the market for a particular house well in advance before going to one of the auctions. Feel free to contact me regarding market values.