Q: I am thinking about buying a foreclosed home in Kissimmee, Fla., that just went on the market. But both prices and interest rates seem to be getting lower every day, and I'm not sure whether I should put in a bid now or wait. If I do bid, how should I determine what price I should pay?
A: You're not alone in wondering what to do. A new Harris survey reports that 80% of Americans now hesitate about buying a foreclosed home, compared to 69% in April.
But there isn't much point in waiting, especially since you've identified a home that interests you. Although prices and interest rates have been dropping nationally, there's no way to predict exactly when the bottom of the any local market will be reached. So if the deal works for you, go for it.
Now, as to how much you should bid: That same survey, sponsored by Trulia.com and RealtyTrac.com, said that three-quarters of buyers expect to pay at least 25% less for a foreclosed home than a comparable market-rate home, and a third expect at least half off. But while those sorts of bargains do occur in some places -- in Pennsylvania, bank-owned homes are selling for 87% less -- you can't expect a steal everywhere. In fact, according to the survey, foreclosed homes in Florida overall are selling for a median price of $171,000, a 22% discount over market-rate homes statewide. In Kissimmee, they're selling for $164,500, only 16% less.
The reasons for these differences vary tremendously, from inventory levels and local employment prospects to the level of investor interest: Kissimmee, a suburb of Orlando, is more attractive to investors than cold Pennsylvania. Neighborhood matters, too -- discounts will be less in a well-kept locale where there are few other foreclosures -- as does the condition of the home itself. So it really isn't possible to generalize about how much of a discount you should expect.
Instead, use a buyer's agent experienced in foreclosures and knowledgeable about the neighborhood to get an opinion on a good bidding price. Ask the agent to explain the reasons for the price, comparing the home you want to those nearby that are for sale and that have recently sold. Visit as many comparable homes for sale as you can to get a personal feel of how the home you want stacks up.
Before you make a bid, you should also tour the foreclosed house with an inspector in tow. Although lenders usually are selling the homes as-is, and may balk at making repairs, you should have a clear idea of what you'll have to pay to make the home habitable -- especially if the previous owner walked off with everything from the chandelier to the refrigerator.
An inspection will cost you a few hundred dollars. But the information that it provides will allow you to make a bid that will withstand a market that still may have a way to fall, yet won't be so low that the lender ignores it. And if you really want the house, don't wait too long to make your move. Many lenders have stacks of bids for foreclosed properties these days. Though they can be maddeningly slow in responding, they put reasonable offers at the top of their piles.
Write to June Fletcher at fletcher.june@wsj.com