Are Cheap Houses a Bargain – Or Are They Just Cheap?
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 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 really is cheap. The real estate market can be very similar to the food market – there’s always a reason that that bargain is priced so low. Learning why a cheap property is priced so low is critical to figure out if it is truly “worth it” to pursue. Seeking the advice of a buyer’s agent can be a very wise move to make before you jump on a cheap home.
Homes that are listed with major discounts can normally be classified in just a few categories:
1. The “Fixer-Upper”
Many homes that have fallen into disrepair can be purchased at prices well below the local market price of well maintained properties. If the current property owner is unwilling or unable to make necessary repairs their only option would be to offer it for sale at a bargain price.
If the prospect of investing “sweat equity” (i.e. manual labor) is not your idea of home ownership, you may want to avoid this type of inexpensive home. Likewise, if hiring contractors to perform the necessary repairs is not a viable option – just walk away. However, If the idea of doing the work yourself doesn’t send shivers up your spine, a fixer upper or handyman special can be an excellent investment
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 home can vary quite a bit depending upon its neighborhood. This can be fabulous for the homeowner in an upscale location. However, it can be devastating for a homeowner in a neighborhood that has fallen on hard times. Contrary to many people’s beliefs, real estate 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 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.
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 “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 been a researcher and freelance writer for more than thirty-five years covering a wide range of topics. He is also a licensed real estate agent in the state of Virginia featuring Fort Lee VA real estate and Colonial Heights VA homes for sale.
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