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 bargain loaf of bread has reached its “sell by” date. Before I can use the entire loaf it will probably become stale and I’ll have to throw away half of it. Likewise, that gallon of milk is about to expire; by the time I get through half of it, the milk will most likely turn sour. And that shrink-wrapped package of eight tomatoes? They’re already getting soft – how will they be in 3 or 4 days? Yuck!
There are times when cheap really is “cheap” (as in cheesy). The property market can be very much like the grocery market – there’s always a reason that a bargain is priced well below the normal market value. Discovering why a cheap property is heavily discounted is critical. Without additional information it is impossible to determine if it is really in your best interest to pursue. Seeking the advice of a well qualified buyer’s agent is a very wise move to make before jumping on a cheap home.
The reasons that most cheap properties are discounted can usually be classified in a few categories:
1. The “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 Somewhat Questionable 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 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 for Quick Sale”
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.
This category of cheap homes provides the best value. However, often times these bargains are not available very long since a quick sale is the goal that the seller had in mind in the first place. The best tactic for finding these opportunities as they arise is to have your buyer’s agent notify you when new property listings hit the market. Most agents have access to automation tools that can notify you via email the same day that a property that meets your requirements is listed. Without that edge, it’s very likely that you’ll miss out on these prime opportunities.
4. The Mystery of the Unknown
This is the “catch-all” category for homes that don’t seem to fit any of the three previous categories. They are the riskiest properties and should be approached with extreme caution. There is always a reason for a house being under priced – if it’s not apparent at first glance you may have to do some serious investigating before considering a purchase. Sellers are obligated by law to disclose any information that affects the home’s value. Your buyer’s agent will prove invaluable in these cases by helping you ask the right questions.
Using a buyer’s agent and determining the reasons that a property is so “cheap” are the keys to learning the true value of a “bargain” home. These deals can seem to be very attractive at first. Only with further investigation can you determine if that bargain might turn out to be “money pit” or a fabulous opportunity. Perform your due diligence.
Jim Navary has worked as a freelance writer and researcher for over thirty 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. Grab a totally unique version of this article from the Uber Article Directory
