Homebuyers who have recently braved the real estate market have noticed that housing prices are through the roof, hovering at a record national average of $450,000. With the rise in interest rates on mortgages, many have given up hope of ever finding a decent real estate deal today.
Still, what happens must eventually come down—and as the dog days of summer give way to bargains on all sorts of things (eg, “20% off Weber grills”), home shoppers still hitting open houses might be pleasantly surprised to see a number of deals pop up on the real estate front.
Need proof? In June, the number of properties for sale with price cuts doubled, with 14.9% of all listings cutting their asking prices compared to 7.6% in the same month last year. In other words, an increasing number of home sellers are realizing that their lofty expectations need a trim.
While this is generally good news for home buyers, discounted homes aren’t always the best bargains. Here’s the scoop on what price-cut homes really are and how homebuyers can navigate this strange new world and maybe even score a deal.
How to find discounted homes
Real estate listings are often easier to spot with price reductions prominently displayed in hopes of attracting buyers.
True bargain hunters can try to narrow their search exclusively to price-reduced homes, which is possible by filtering the listing status for “price-reduced” properties on Realtor.com®.
Working with a good real estate agent or broker is also essential because these professionals can search their own multiple listing service (homebuyers are not privy) for homes that have recently reduced their asking price.
Agents can hear through word of mouth about home sellers who are planning to lower their prices soon and pass that information on to help you land other home buyers.
Why discounted homes aren’t always deals
“Don’t mistake an underpriced home as an automatic bargain,” he cautions Matt WoodsCo-Founder and CEO of Sold.com.
If anything, your first question should be: Is there something wrong with this house?
After all, the price of the home was cut because the home inspection found something wrong with the property that would cost the buyer more to fix than it was worth.
So, home buyers should try to identify why the price has gone down. See how long the property has been on the market, whether it has received any offers, and whether there have been any failed escrows.
“If a home is listed as price-reduced, have your broker or agent investigate why,” says Woods. “Has a deal fallen through? What is the possible catch? “
Why price cuts are increasing in a changing market
Another (and perhaps less worrisome) possibility that is becoming more common as today’s seller’s market cools is that sellers’ hopes for what their homes will fetch are no longer realistic. Some sellers may insist on shooting according to price, despite their agent’s efforts to set Moon straight.
“Sometimes clients insist on listing for more than their agent’s market analysis shows the home is worth,” says Caroline Barnes, a real estate agent with Walzell Properties in Houston. “This is usually evident within days of listing.”
In this case, the price reduction means the home seller has more hope that it will eventually return to land. But even then, keep in mind that sellers may not have the heart to lower their prices to where they really should be.
“There are times when an underpriced home can do Still The price is higher compared to similar houses in the area,” he says Kevin BajazadehReal estate investor and founder of Brilliant Day Homes in Houston.
In this case, the home may go through several price cuts before it actually goes under contract.
Why underpriced homes can be bait for a bidding war
Sellers may lower their prices because their homes are overpriced to begin with or because they are facing competition from more homes coming on the market, which can also be a sales strategy. A price drop brings attention to an already listed home and is a way to bring in offers, and perhaps even spark a bidding war, which will push the price back up to where it was or beyond.
Bidding wars, price cuts, sentiment hunting, and emotions put homebuyers in a treacherous position in the midst of negotiations.
“Don’t get caught up in the excitement and overpay for the property,” warns Bajazadeh.
Home prices are such a moving target, it’s essential that home buyers do their due diligence so they can fight from a standpoint of fact rather than emotion (more on how to do that later).
What can be offered on a house that has been reduced in price?
Whether you offer above, below or below the asking price all depends on two things: why The home price is reduced and the sales price of comparable properties (or comps) in the area.
Bajazadeh The following steps are recommended to get a better gauge of what is really going on:
- Get a professional home inspection or ask for a recent home inspection report.
- Research the neighborhood’s crime rate, schools and number of foreclosures.
- If you buy a home, get a home warranty to protect you from costly repairs.
Another way to ensure a strong offer is to get intel from the listing agent Ksenia KornevaReal Estate Agent with Pineywoods Realty in Tampa, FL.
“Reveal if there are other offers, why the price is lower, and what the seller is ultimately looking for,” he says.
Another thing to remember when making an offer is to always make the strongest offer you can. Note that the dollar amount does not have to be the main factor.
“A high escrow, a short inspection period, and asking the seller what their preference for a closing date will often help get an offer accepted,” says Mike WarmReal Estate Agent with Premier Sotheby’s International Realty in Sarasota, FL.
Don’t let a price cut be the only reason you buy a home
While a price cut is certainly attractive, it shouldn’t be the main reason you buy a home.
“Perceived and emotional value is different for every buyer,” he says Shawn Larson, is a real estate agent and contractor with PARKS Real Estate in Brentwood, TN. “So if a buyer finds a home they personally love—just based on the numbers—the reduction is an added bonus if they already intend to move forward on the home.”
In other words, if you adore the home and it’s in your price range, don’t get it too much It holds whether it is 10% off or not.