Many people think that buying foreclosures is easy and that they're available for pennies on the dollar. Not usually, on both counts. Consider variables such as damage, comparative sales, competing offers and your purpose when you decide how much to offer.

Purpose

Knowing why you want to buy is integral to the price you should be willing to pay. If you're hoping to get a good buy on a house that you and your family will live in, you can. Keep in mind that if the house is already well priced, you may be bidding against other families, so bid realistically. If you're buying for investment purposes, you have to buy to garner a profit after expenses, which is challenging. Keep your bid inside your profit margin, but high enough to beat out other investors. Don't bother trying to low-ball a house into profitable territory. It's a waste of time.

Misconceptions

Don't get caught up in misconceptions. Here's one whopper: to believe that what the bank asks must be a bargain, just because it's a foreclosure. Here's another: To believe that you can go in and play hardball. Banks are not a family who is desperate to get out from under the mortgage.

Tax Records

Look at the assessed value on property tax records, available for free on the local county or city website. This number used to be lower than fair market value. That is no longer always true. If the asking price is well under the assessed value, that's good. Make a realistic bid. A price higher than assessed value is not good. Bid low or walk away.

Buyer's Agent

Work with a buyer's agent. Buyer's agents do not charge a fee for their services and must legally work on your behalf, not the seller's. They are also familiar with the local market. Call a buyer's agent before you begin looking, and decide how much to bid after listening to your agent's wisdom.

Recent Sales

Look at the comparative sales data. Your buyer's agent can get this for you. Compare apples to apples. Comps should be in the same neighborhood, if possible, and similar in quality. Listing prices of houses are irrelevant. They may be overpriced; that's why they're still on the market. Also, any sales older than a year are irrelevant, so get the most recent comps you can.

Damage

Don't use inflated repair estimates to get the price down, but do bid realistically. Badly stained carpets, broken windows, missing central air units and the like all cost significant money to replace.

Offer

Get the best deal on price by making a strong offer: Get bank approval for the mortgage, and get it in writing. An offer without prior bank approval is weak. Make a contingency-free offer or at least one with as few contingencies as possible. Give more than $1,000 as earnest money (also called good-will money) to send a strong message: I am serious about this house, and I can afford it.

Source:

Realtor.org: 6 Questions Foreclosure Buyers Should Ask