ᐅ Buying a House at a Foreclosure Auction – What Is a Realistic Price?
Created on: 10 Jan 2020 08:07
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Maddy86Good 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
It is absolutely not your concern what the previous owner would need to get to come out of the situation with minimal loss. What matters to you is the value of the house (current market conditions, condition, etc.) and what you can and want to pay. The rest is supply and demand. If you can’t reach an agreement with the seller, then that’s just how it is. Offer what you want to give, and they can either accept it or not, and that’s it.
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nordanney10 Jan 2020 09:28Maddy86 schrieb:
Is everything correct like this? We honestly have no idea!
Are there other options? It's like buying a car. If you can't afford the price, you have to choose a smaller model. Even if the price of a Porsche seems high to you, there are plenty of people who buy it.
You can try to negotiate the price. But what valid reason would the seller have to offer you the house at a lower price?
Aside from Altai’s correct comments: if the owner lived in the house the entire time, they do not have to pay capital gains tax.
100,000 plus 45,000 equals 145,000 on which they would have paid the real estate transfer tax (also called a stamp duty or land transfer tax, depending on the region) according to the rate in your state. At a maximum of 6.5%, this would be about 155,000 plus the land registry fee (2,000). There is no notary fee in the case of a foreclosure sale. So they would not have paid more than 160,000 in total.
If the house was rented out, a tax advisor should be consulted to determine which part is taxable. But this would be the difference between the acquisition costs (minus additional expenses), i.e. 145,000, and the selling price. Assuming a selling price of 180,000, this would be 35,000 with a maximum tax rate of 45%, resulting in 20,000 in tax.
100,000 plus 45,000 equals 145,000 on which they would have paid the real estate transfer tax (also called a stamp duty or land transfer tax, depending on the region) according to the rate in your state. At a maximum of 6.5%, this would be about 155,000 plus the land registry fee (2,000). There is no notary fee in the case of a foreclosure sale. So they would not have paid more than 160,000 in total.
If the house was rented out, a tax advisor should be consulted to determine which part is taxable. But this would be the difference between the acquisition costs (minus additional expenses), i.e. 145,000, and the selling price. Assuming a selling price of 180,000, this would be 35,000 with a maximum tax rate of 45%, resulting in 20,000 in tax.
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Burner61010 Jan 2020 12:04Thank you for the responses.
The house has been rented out in the meantime.
The building’s condition is excellent; nothing needs to be done except perhaps renovating the interior doors and the staircase to the upper floor.
Standard renovation work, which is to be expected anywhere, is clear.
The roof is like new, the roof structure is insulated, electrical system is new, water pipes are new, basement is dry, heating (oil) is about 13 years old. The windows are double-glazed wooden frames.
It is unfortunate that due to the tax burden—which he naturally wants to cover—the house would have to be bought for much more than the current market value. Although he has miscalculated that himself.
Most likely, someone else would take the house, so he doesn’t need to worry about that.
The market for existing properties here is very limited! We need to decide what we are willing to pay at most. Either he agrees or he doesn’t.
The house has been rented out in the meantime.
The building’s condition is excellent; nothing needs to be done except perhaps renovating the interior doors and the staircase to the upper floor.
Standard renovation work, which is to be expected anywhere, is clear.
The roof is like new, the roof structure is insulated, electrical system is new, water pipes are new, basement is dry, heating (oil) is about 13 years old. The windows are double-glazed wooden frames.
It is unfortunate that due to the tax burden—which he naturally wants to cover—the house would have to be bought for much more than the current market value. Although he has miscalculated that himself.
Most likely, someone else would take the house, so he doesn’t need to worry about that.
The market for existing properties here is very limited! We need to decide what we are willing to pay at most. Either he agrees or he doesn’t.
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nordanney10 Jan 2020 12:10Burner610 schrieb:
It's unfortunate if you have to pay much more than the current market value for the house because of this tax burden, which of course he wants to have covered. Although he also made a bad bet on that himself...
The house would probably be taken by someone else as well, Then he is not selling below market value if someone else is willing to take it. Therefore, your chances for negotiation should be zero.
But honestly, a house of the quality you describe must be located in a very undesirable spot for the price to be that low. Where else could you buy such a house?
That aside, if the purchase price of €200,000 (about $220,000) is far beyond your budget, you might want to reconsider your desire to buy a house. That corresponds to a financing rate of roughly €600 (about $660) per month. And you definitely can’t afford that?