The selling price is set by one thing and one thing only - what someone will pay for it.

The listing price, on the other hand, can be any nonsense the seller believes.

As a practical matter, someone about to be foreclosed on generally can't bring much/any money to the closing table, so they could only sell the home if the proceeds were enough to settle the current mortgage and cover the fees related to the sale. As a buyer, you can only guess at the finances of the seller though. Some people are going into "strategic foreclosure" with plenty of cash on hand but are unwilling to continue paying for a house that is worth substantially less than they owe on it.

This is an interesting article on the subject (see link below).

Here is a link that might be useful: How do banks set prices on bank foreclosures

"This is an interesting article on the subject (see link below)."

It is a complete puff piece from an RE agent viewpoint.

It completely fails to discuss a number of other factors the bank considers, like PMI, carrying costs, etc.

trying to determine the possible market value of a property is only a small part of what the bank considers.

While the bank would like to sell the property for as much as they can get, they may sell for less then the mortgage balance if PMI is going to cover the loss (or a major part of it).

When there is no other money available to cover a loss banks get really nervous.

In many cases the banks do not even own the note, but are acting for the actual owner.

Great points.. I was interested in how an agent/seller establish the value/price, as opposed to a bank - though they are, in the end I guess, in the same basket.. ie, foreclosure is a foreclosure. From what I've been reading, I'm unsure if it's easier/different to buy from a bank - or a seller in pre-foreclosure, or pricier, one way or another.

"agent/seller" use comparable sales that have closed.

While foreclosures have generally NOT been accepted as 'comps' (except maybe for other foreclosures) they ARE driving down prices in some areas and having an impact.

Luckily the otherwise poor condition of many foreclosures makes them less acceptable as comps for otherwise 'normal' sales.

The banks are worried since if the price of foreclosures falls, the security they have for ALL the loans in the area decreases.
If you fail to pay and they foreclose, they will not get as much money as they thought.

The 20% down or PMI was an admission that the house might not sell for the value of the loan.
The bank transferred the risk to the PMI company, who accepted it for a fee.

The drops appear to have been large enough in some places (more then 20%) leaving the banks on the hook again.

Thank you, brickeyee, and others. I'm disappointed the piece maurenemm attached would be considered a RE agent 'puff piece'.. It's difficult to identify guidelines (for how a foreclosure is priced), but roughly, looking at prices and info I have access to (and not being a bank), it seems they're priced 20-30% below traditional market prices, depending on condition and competition (# of similar foreclosures nearby), - as an incentive for buyers.

And is, or how is, a bank's appraisal of such a property in the process, affected by its status and # of properties in similar - or not similar - circumstances ?

This is really important to me, so I much appreciate the info/input.

"And is, or how is, a bank's appraisal of such a property in the process, affected by its status and # of properties in similar - or not similar - circumstances ? "

They have to sell in the market in the location of the house.

Other houses in similar sales are the direct competition, and more of something for sale tends to depress prices.

Uncertainty in value tends to drive prices down also.

Who wants to pay $X and find out that the market is actually lower?

REO properties are sold with a special warranty deed vs. a general warranty deed. They are sold "as is where is" without any disclosures to a potential buyer, making buyer due diligence inspections exstreemely important and more costly, such as the cost of dewinterizing utilities and re-winterize them after inspections.
Around here, REO properties listed can range from 15% to 30% below comparable properties, many don't have appliances, which adds an additional cost to buyers or investors.

'Very helpful, berniek.. thank you. It seems if you buy from a seller pre-foreclosure, you can get disclosures, and save several thousand on appliances.

Good that you can quote a range where you are (% below traditional market) - it's a wide one! Been trying to study sale price numbers here - agents seem to be going with 'gut' - as prices (on the surface) are all over the place. It's scary. That's why I wondered if appraisers were any more help.

"REO properties are sold with a special warranty deed vs. a general warranty deed."

As long as you get title insurance the difference is not significant.

A general warranty deed says that the title has not been encumbered by the grantor, and is 'good' going back as long as their are records.

A special warranty deed just states the grantor did not encumber the title.

You could pursue the grantor of a general warranty deed for any defect in title found later, but buying insurance and making it the insurance companies problem is s better option.

Special warranty deeds are used when the grantor does not wish to assume personal liability.

"Special warranty deeds are used when the grantor does not wish to assume personal liability."

Good point.
Also, read the "Exceptions" page in the title commitment/insurance, you'll quickly see that even the title company does not want to be liable for much. Make sure everything is explained to your satisfaction.

What is an REO property?

"REO" refers to 'real estate owned,' by a bank in this case. I'm not aware if it goes beyond banks in industry use.

It seems it can be quite a different ball game (not only for the usual reasons in buying/selling homes) - when dealing with pre-foreclosures, auctions/Sheriff's Sales, and REOs, when looking at the part of the market with foreclosed homes. The seller - whether bank or individual - is under pressure/wants to meet financial obligations/investment/output - and thus you might find properties priced under the traditional market price.

Some important points have been made here, though I don't believe anyone's mentioned the home's 'condition' - though I expect it's generally referred to, or included, when talking about appraisal and title insurance. I don't know if agents or sellers have any formula for setting price based on a home's condition. I've seen (at open houses) 'foreclosures' which look as good or better than some priced much higher on the traditional market.

Thanks Debndulcy.

Last month in worcester ,Massachusetts..A buyer had placed a bid on a triple decker for very short change..After being awarded this auction property he had 30 days to pay off the additional sale..The total was roughly $80,000.The only problem was that all the copper had been stripped from the basement of this multi family property..What happened next was crazy...Once he brought the inspectors in for a look they told him it had to be brought up to code 100%..The total bill was 65,000 additional costs...This was a foreclosure and i still think he got a great deal..He could have got a better rate if he knew this prior to buying the property..Here is a prime example of buying in a city other than the city you are from...

Here is a link that might be useful: home warranty