ᐅ Buying a House at a Foreclosure Auction – What Is a Realistic Price?
Created on: 10 Jan 2020 08:07
M
Maddy86
Good morning,
We are considering buying a house built in 1960. The current owner purchased it two years ago through a foreclosure auction. The market value at that time was stated as 75,000, but he won the auction for 100,000. Afterwards, he apparently paid off a mortgage of 45,000 that was still registered on the property.
If he were to sell it now, he would have to receive around 200,000 because of the taxes he would have to pay (due to the mortgage). After six years, this would likely no longer apply.
Is this all correct? Unfortunately, we have no experience with this! Are there other options? The amount of 200,000 would exceed our budget and seems quite high to us.
Best regards, Martin
We are considering buying a house built in 1960. The current owner purchased it two years ago through a foreclosure auction. The market value at that time was stated as 75,000, but he won the auction for 100,000. Afterwards, he apparently paid off a mortgage of 45,000 that was still registered on the property.
If he were to sell it now, he would have to receive around 200,000 because of the taxes he would have to pay (due to the mortgage). After six years, this would likely no longer apply.
Is this all correct? Unfortunately, we have no experience with this! Are there other options? The amount of 200,000 would exceed our budget and seems quite high to us.
Best regards, Martin
The terminology can be a bit confusing. This isn’t my area of expertise, but here’s a way to clarify things.
He originally paid 100,000 EUR for the property, but it was still encumbered by a liability of 45,000 EUR? And the market value he determined at 75,000 EUR already accounted for this liability?
That means the pure market value must have been 120,000 EUR.
How much tax he has paid or has to pay is unrelated to the market value. Whether he wants that or not is his business.
However, if you say he could easily sell the house now for 200,000 EUR, then that is the market value.
Whether you like it or not. Whether someone thinks the current market value is too high for whatever reason is a different matter.
You also have to be cautious with appraisals. There are different approaches for determining value. If the appraisal comes up with 170,000 EUR but the seller has multiple offers of 200,000 EUR, then the market value is still 200,000 EUR.
And again, the tax implications behind this are none of your concern. What are you willing to pay? You can tell him that. If he wants more and actually gets it... then that’s how it is. But the seller’s tax situation does not change anything and especially has no impact on the value.
And just as a side note, I can’t assess the numbers in terms of scale. 24 EUR per square meter, 200,000 EUR for a house in good condition, and for a bit more you could build new. These prices are so different from those in my region (Baden-Württemberg) that I cannot make a judgment. I’m just surprised.
He originally paid 100,000 EUR for the property, but it was still encumbered by a liability of 45,000 EUR? And the market value he determined at 75,000 EUR already accounted for this liability?
That means the pure market value must have been 120,000 EUR.
How much tax he has paid or has to pay is unrelated to the market value. Whether he wants that or not is his business.
However, if you say he could easily sell the house now for 200,000 EUR, then that is the market value.
Whether you like it or not. Whether someone thinks the current market value is too high for whatever reason is a different matter.
You also have to be cautious with appraisals. There are different approaches for determining value. If the appraisal comes up with 170,000 EUR but the seller has multiple offers of 200,000 EUR, then the market value is still 200,000 EUR.
And again, the tax implications behind this are none of your concern. What are you willing to pay? You can tell him that. If he wants more and actually gets it... then that’s how it is. But the seller’s tax situation does not change anything and especially has no impact on the value.
And just as a side note, I can’t assess the numbers in terms of scale. 24 EUR per square meter, 200,000 EUR for a house in good condition, and for a bit more you could build new. These prices are so different from those in my region (Baden-Württemberg) that I cannot make a judgment. I’m just surprised.
N
nordanney10 Jan 2020 13:02face26 schrieb:
200,000 EUR for a house that is in good condition, and for just a bit more you could build new. That is so far from the prices in my region (BW) that I can’t really judge.True, in "normal" areas and larger cities, the land alone already costs that much... (excluding boom regions, where you either don’t get any land or only a tiny plot)Don’t be surprised, I created my own account this morning; the other one is through my brother. That’s why there are two different accounts.
I think I confused the terms market value and fair market value.
That should be correct. So he paid about 20-30% more than the fair market value.
What we are willing to pay, we still have to decide.
Our plots here are really still inexpensive, but not for long. Just 5 km (3 miles) further, it looks different again.
Still, we have to weigh whether we want to build or take something used. The fact is, we won’t get a house like this again anytime soon. That will unfortunately affect the price!
However, compared to other prices in Germany, this price really seems quite reasonable.
I think I confused the terms market value and fair market value.
face26 schrieb:
He bought the property back then for 100,000 EUR, but it was still burdened with a liability of 45,000 EUR? And the fair market value of 75,000 EUR he determined already took this liability into account?
Then we must first establish that the pure fair market value was 120,000 EUR.
That should be correct. So he paid about 20-30% more than the fair market value.
What we are willing to pay, we still have to decide.
Our plots here are really still inexpensive, but not for long. Just 5 km (3 miles) further, it looks different again.
Still, we have to weigh whether we want to build or take something used. The fact is, we won’t get a house like this again anytime soon. That will unfortunately affect the price!
However, compared to other prices in Germany, this price really seems quite reasonable.
N
nordanney10 Jan 2020 13:38Maddy86 schrieb:
I think I mixed up the terms market value and fair market value.They both mean the same thing – so you can’t really mix them up.nordanney schrieb:
They both mean the same thing – so you can’t mix them up Ask okay
The value calculated by the land registry office for this property is between 110,000 and 130,000 for this region.
I don’t understand what taxes have to do with the sale price? Taxes are only due (if at all) on the profit, which is roughly the difference between the purchase price and the sale price (plus additional costs, etc.). Or do you mean that he wants to sell it for more than he bought it because he also paid property transfer tax? That shouldn’t have been very high given the amounts involved.