My wife and I had to go to our local grocery store on Saturday to pick up some basic items – bread, milk, tomatoes, etc. The store is closed on Sundays so Saturday afternoon they always reduce the price on selected perishable foods. It’s very tempting to pick up some of these cheap items until one realizes that there’s a good reason they are so heavily discounted.
That half-price loaf of bread has reached its “sell by” date. Before we can use the entire loaf it will probably become stale and we will have to discard least half of it. Likewise, that quart of milk is about to expire; before we get through half of it, the milk will most likely turn sour. And that shrink-wrapped package of a dozen tomatoes? They’re already pretty soft – how will they be in a few days? Yuck!
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”
Homes that have fallen into disrepair can usually be purchased at prices well below the asking price of well maintained, similar properties. When the property owner is unwilling or unable to make the necessary improvements, the only option is to list it for sale at a heavily discounted 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. Location, Location, Location
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 urban locations, some neighborhoods that have declined are gradually being revitalized through the renovation of individual homes. As these improvements spread, the potential value of homes in the immediate area can start to climb. Your buyer’s agent should 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 cheap properties that fit this category.
3. “Priced to Sell Quickly”
A times a homeowner may be under pressure to sell their property very quickly. There may be a need to liquidate assets for cash in hand, an imminent relocation for employment purposes, or pressure to eliminate 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 Mystery of the Unknown
This is the “mystery” category for homes that don’t seem to fit in any of the three earlier categories. They entail the most risk and should be approached with extreme caution. Don’t forget, there is always at least one reason for a house being under priced. If a reason is not apparent you may have to do some in depth investigating before even considering a purchase. Sellers are obligated by law to disclose any information that affects the home’s value. Your buyer’s agent will come in very handy by making sure you ask the right questions.
Obtaining the advice of a buyer’s agent and investigating the reasons that “bargain” properties are priced so low are the keys to discovering the true value of a “cheap” home. These deals can look very attractive at first but, only after further evaluation, will you have an idea if a property may turn out to be a “money pit” or a fabulous opportunity. You won’t regret performing your due diligence.
Jim Navary has worked as a freelance writer and researcher for more than thirty-five years covering a wide range of topics. He is also a licensed real estate salesperson in the Commonwealth of Virginia featuring Fort Lee VA real estate and Colonial Heights VA homes for sale.
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