Question on making an Offer

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Hello, all. I’m new to the forum, new to REOs and new to real estate investing altogether. I read an article on foreclosures in Kiplinger’s December 2006 issue. The article suggested a “newbie” property investor like myself should look into REOs rather than attempting to acquire foreclosures from auctions.

I’ve been doing a considerable amount of research on this site and others. I believe I understand the process pretty well. However, I need clarification on negotiating prices with the bank. On a number of posts under this particular forum I’ve read that you should offer below the asking price, never exactly what the bank ask for, and the offer shouldn’t be ridiculously low. My understanding of this is that the bank wants to get exactly what they’re asking for the property, or close to it. This all makes perfect sense if the property is listed for about $200,000. Well, what if the listing price is say…$15,000. That is, the loan balance on the property is $15000 and perhaps the market value is at about $150,000. In this situation unsure as to what an appropriate offer would be. Is the object of the bank to recoup the $15,000 and let the property go, or, given the large disparity between the balance amount and market value, is the bank expecting an offer in the neighborhood of the $150,000 market value?

I see a lot of listings like these on numerous sites where a property may have $30K or less left on the balance but the market value is five times that amount. I just wanted to be clear on exactly what I would offer to the bank. If I happen to find an attractive property once I attempt my first purchase, I don’t want to be laughed out the door as a result of offering a bank the balance when in fact the standard is something else entirely.

Any assistance would be greatly appreciated.