When a buyer sees a bank owned home with a list price below market they start to become excited about the prospects of a great deal. After all, what buyer doesn’t want a great deal. But take a step back and understand what’s really going on. The list price isn’t what the home is worth or for that matter what you can buy it for.

The list price is simply a marketing tool to create interest in the home. A bank can afford to under list a home and create an auction environment. Think about how auctions work. They have a very low starting bid, which is driven up and up by bids. Typically still below market but certainly way above list.

I worked with a buyer this summer who purchased a bank owned home in a competitive bid situation  for $430,000 listed at  $410,000. It was still a great buy and way below the market value. (The same floor plan was in contract around the corner and listed at $530,000)

A buyer recently called me all excited about a bank owned home for sale at a great price. It’s listed at $305,000 and is a 5 level split at 3,600 sqft. It needs under $10,000 of work. As improved it would be worth $385,000 to $395,000, so I can see why he was all excited. He sees a great bargain at list or a little above list price. The problem is he has no chance  of winning the bid .

There will be a lot of bids for the home. The winning bid will be a buyer who understands to purchase a comparable home they will have to spend over $380,000. They will discount this home for the headaches and such by $10,000 to $15,000 and another $10,000 for repairs.  That puts the winning bid between $350,000 and $360,000, about $50k over list. All the other buyers excited about the prospects of a great deal and are focused on the list price will miss out.  The winning buyer will be pragmatic and realistic and will still end up with a bargain.

Bank owned homes can offer below market values. What they don’t offer is some magic chance to buy something at a mystical discount. Especially if the home is in a great market, with limited supply.  If you are looking at bank owned homes the list price isn’t the value, just a tool to generate  interest. Focus on the true value of the home and be rational about your approach, this will give you a fair chance to win a home at a reasonable discount from market value.