Although foreclosure conjures up the idea of a home selling for a fraction of its value, foreclosure homes rarely sell. If you want to purchase a foreclosure home at the lowest possible cost, you must meet the "upset price" on the home. You can obtain a good deal on a foreclosure home, but you need to do research on the property beforehand.
Upset Price Definition
The upset price for a foreclosure sale is the absolute minimum the seller will accept. The officer conducting the foreclosure receives instructions not to sell the property for anything less than the minimum or reserve price. A foreclosure sale usually occurs in a courthouse or on the courthouse's steps in the county of the location of the property. As a potential buyer, you usually yell out your bid or use hand signals to indicate a bid.
In general, the mortgage provider sets the upset price at a value that covers the mortgage and any associated fees, such as interest and legal expenses. If the foreclosure sale occurs because of a nonjudicial foreclosure, when the creditor does not need to go through the courts to force foreclosure, a court judge sets the upset price. Because most foreclosure sales are judicial, the upset price is so high that you rarely receive a significant discount on the property.
Since the housing bubble burst in 2007, the number of foreclosure sales have risen so much that banks are more likely to take offers below the upset price, according to Aleksandra Todorova of SmartMoney. Banks are more likely to perform appraisals than before the crash and look at the potential housing market in an area. If the bank thinks the market in a certain community is about to fall, it might sell the property at a small loss to prevent a greater loss.
Finding a good deal on a property requires adequate preparation. You may not want to purchase a property at the upset price if it exceeds the market value of the property. Call your county clerk and ask for the time and location of mortgage foreclosure sales and a list of properties. Examine the property beforehand to see if it needs repairs. You might also talk to other people in the neighborhood to get an idea of the value of the property. Set a price ceiling for yourself so that you do not overspend for the property. According to RealtyTrac, 20 percent off the property's full market value is a good ceiling.
- "The New York Times"; Your Home -- Buying A House in Foreclosure; Jay Romano; March 1998
- USLegal: Upset Price Law & Legal Definition
- SmartMoney; Banks Seem More Willing to Cut 'Upset' Prices; Aleksandra Todorova; April 2007
- MSN Real Estate; 12 Tips for Buying Foreclosures at an Auction; Steve McLinden
- RealtyTrac: How to Buy a Home at Auction -- STEP #3 -- Check Potential Bargain