I had to go to the grocery store on Saturday afternoon to pick up some basic items. You know, bread, milk, tomatoes, etc. Our favorite local store is closed on Sundays so on Saturday they normally mark down some perishable items with huge discounts. It’s extremely tempting to snatch up some of these cheap items unless one realizes that there’s a good reason the price is reduced.
That discounted loaf of bread has already reached its “sell by” date. Before we can use the whole loaf it will most likely become moldy and we’ll have to toss half of it. That gallon of milk is also about to expire; by the time we get through half of it, the milk will probably sour. And that shrink-wrapped package of six tomatoes? They’re already getting soft – how fresh will they be in 2 or 3 days? Ugh!
Sometimes cheap is just cheap. The real estate market can be compared to the food market – there’s always a reason that a discounted property is priced so low. Determining why an inexpensive property is priced so low is critical in order to determine if it is truly “worth it” to pursue. Obtaining the advice of a well qualified buyer’s agent is very wise move to make before committing to purchase a cheap home.
The reasons that homes are listed at bargain prices can generally be classified in just a few categories:
1. The Handyman’s Special or “Fixer-Upper”
Often times properties that have fallen into disrepair can be bought at prices significantly below the local market price of similar but well maintained properties. If the property owner is unable or unwilling to make the necessary repairs, their only recourse would be to offer it for sale at a much lower price.
If the prospect of investing “sweat equity” (i.e. manual labor) is particularly unappealing, you may want to avoid this type of cheap home. Likewise, if paying someone else to perform the necessary repairs is out of the question – walk away. However, If the prospect of doing the work yourself doesn’t make you uneasy, these fixer uppers can be an excellent choice.
2. A Less Than Desirable Neighborhood
We’ve all heard the saying that the three most important aspects of real estate are location, location, location. Well, it’s really true. The value of a property will vary quite a bit depending upon the location. This can be something to rejoice for the homeowner in an upscale location. However, it can be financially devastating for a homeowner in a neighborhood that is falling on hard times. Contrary to some people’s belief, property values do not always increase with time.
In some cities, certain neighborhoods that have been on the decline are gradually being revitalized through the renovation of individual homes. As these renovations spread, the potential value of property in the immediate neighborhood can begin to climb. Your Realtor will be able to give you an idea about the direction that prices are moving so that you can make a well-informed decision about the potential value of inexpensive homes that fit this category.
3. “Priced to Sell Quickly”
Circumstances may arise when a homeowner must sell their property very quickly. These can include a need to liquidate assets for cash in hand, a requirement to relocate for employment purposes, or pressure to get out from under double mortgage payments after committing to the purchase of another home.
Inexpensive homes in this category usually provide the best value. However, these bargains do not normally remain on the market very long since a fast sale is the very reason that the property was discounted. The best approach to finding these fleeting opportunities as they arise is to have your buyer’s agent notify you when new property listings hit the market. Most real estate agents have access to automation tools that will automatically notify you via email the same day that a property that meets your requirements is put up for sale. Without that type of competitive edge, it’s likely that you’ll never hear bout these prime opportunities.
4. The Challenge of the Unknown
This is the “catch-all” category for properties that don’t fit in any of the other three categories. These homes involve the most risk and should be considered with extreme caution. Remember, there is always a reason for a house being under priced. If that reason is not apparent at first glance you may have to do some serious research before even considering a purchase. Sellers are obligated by law to disclose any information that affects the home’s value. Make sure that you ask the right questions. Your buyer’s agent will prove to be very helpful with this research.
Obtaining the assistance of a buyer’s agent and investigating the reasons that a home is priced lower than would normally be expected are the keys to determining the true value of a “cheap” home. These deals can look very attractive at first but, with further investigation they can end up being either a “money pit” or a fabulous opportunity. It all depends on performing your due diligence.
Jim Navary has been a researcher and freelance writer for over thirty years covering a wide range of topics. He is also a licensed real estate salesperson in the state of Virginia featuring Fort Lee VA real estate and Colonial Heights VA homes for sale.
Topics: Real Estate, inexpensive home, buying property, Buying A Home