5 Tips To Get A Good Deal On A Foreclosure

In a market flooded with foreclosures, homebuyers can find steals easily. Or that's what many of them think until they begin searching. Soon, they learn that only savvy buyers get the best deals.

Understanding how banks negotiate foreclosure deals is a must if you want to buy low in today's market.

Here are five secrets every homebuyer must know when shopping for a foreclosed home.

Don't make lowball offers on just-listed properties

It's useless to make lowball offers on bank-owned houses that have been on the market for only a few days, says John Thompson, a Realtor at Samson Realty in Chantilly, Va.

"When you haven't had opportunity to expose your property to the marketplace long enough, you would be reluctant to take a lowball offer," Thompson says. "Most of the banks are aggressive with their pricing, but they are not going to give the properties away."

Asset management companies handle sales for banks. These companies price the foreclosed homes close to what they think the properties are worth. And they are given guidelines that stipulate how much of a reduction -- if any -- they are allowed to give during a specific period.

The guidelines vary. Normally banks are more reluctant to lower the price on properties that have been for sale for less than 90 days, says Tatiana Moody, a Realtor who specializes in distressed properties in Las Vegas.

Thompson says that in Virginia he has observed that some banks review unsold listings and consider price reductions every 21 to 31 days.

That doesn't mean you should sit and wait for the lender to reduce the price or accept a lower offer, unless you find the house overpriced. In that case, wait and check back in a few months to see if it's still for sale. If it is, most likely, the price will be reduced.

Avoid bidding wars

Many agents list bank-owned houses for less than they are worth to grab buyers' attention and attract multiple offers. Once potential buyers are emotionally attached, bidding wars begin.

Don't fall for the gambit.

Do your homework to find out what the property is really worth based on what comparable homes in that area have recently sold for.

"Know what the property is worth and know what you can afford," before you engage in a bidding war, says Jeff Richardson, a Realtor at Alliance Bay Realty in San Mateo, Calif. "You don't want to overpay."

Thompson says, "It's not uncommon for a foreclosure to come on the market for $150,000, get 12 or 15 offers and sell for $175,000."

In some cases, even when the property sells for more than the listing price, it may still be a bargain. That's why it's so important to ask your agent to do a market analysis to determine the house's estimated value.

"I've seen properties sold -- even to investors -- and I've said, 'I can't believe they paid that much for this place,'" Thompson says. "It wasn't worth it. That's why being educated on the market and being able to control yourself and not get emotional helps you make a good financial decision."

Do your research and be ready to jump on a bargain

Borrow cash if you can

Clean offers, bigger deposits get priority

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