A Buyer’s Guide to ‘Price-Reduced’ Homes—and Why They Aren’t Always a Deal

A Buyer's Guide to 'Price Reduced' Homes—and Why They Aren't Always a Deal

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Homebuyers who’ve braved the real estate market lately have no doubt noticed that housing prices are through the roof, hovering at a record-setting national median of $450,000. Combined with rising interest rates on mortgages, it’s enough to make many give up hope that they can find a decent real estate deal today.

Still, what goes up must eventually come down—and as the dog days of summer give way to bargains on all sorts of things (e.g., “20% off Weber grills”), home shoppers who are still hitting the open houses hard in this heat might be pleasantly surprised to find a number of deals popping up on the real estate front.

Want proof? In June, the number of properties for sale with price reductions doubled, with 14.9% of all listings cutting their asking price compared with 7.6% the same month last year. In other words, a growing number of home sellers have come to realize that their lofty expectations need a trim.

Though this is generally good news for homebuyers, price-reduced homes aren’t always the bona fide bargains they appear to be. Here’s the scoop on what price-reduced homes really are, and how homebuyers can navigate this strange new world and perhaps score a deal.

How to find price-reduced homes

Homes with price cuts are typically easy to spot, with real estate listings displaying price cuts prominently in the hopes of attracting buyers.

True bargain hunters may even want to try narrowing their search exclusively to price-reduced homes, which is possible on Realtor.com® by filtering the listing status for “price-reduced” properties.

Working with a great real estate agent or broker is also essential because these professionals can search their own multiple listing service (which homebuyers are not privy to) for homes that have recently cut their asking price.

Agents may also hear through word of mouth about home sellers who are planning to reduce their price soon, and can pass that info along to give you a leg up on other homebuyers.

Why price-reduced homes aren’t always deals

“Don’t mistake a price-reduced home for being an automatic bargain,” warns Matt Woods, co-founder and CEO of Sold.com.

If anything, your first question should be: Is anything wrong with this house?

After all, it’s entirely possible that a home’s price was slashed because a home inspection found something wrong with the property that will cost the buyers more to fix than it’s worth.

As such, homebuyers should attempt to pinpoint why the price has come down. Look at how long the property has been on the market, whether it’s received any offers, and whether there have been any failed escrows.

“If a house is listed as price-reduced, have your broker or agent do some investigating into why,” says Woods. “Did a contract fall through? What’s the possible catch?”

Why price reductions are on the rise in a shifting market

Another (and perhaps less worrisome) possibility that’s becoming common as today’s seller’s market cools down is that sellers’ hopes for what their homes could fetch is no longer realistic. Some sellers might even insist on shooting for the moon pricewise despite their agents’ efforts to set them straight.

“Sometimes clients insist on listing higher than what their agent’s market analysis shows that the home is worth,” says Carolyn Barnes, a real estate agent with Walzel Properties in Houston. “This is generally evident within a few days of listing.”

In this case, a price reduction simply means a home seller had high hopes that are finally coming back down to earth. But even then, keep in mind that sellers may not have the heart to drop their price to where it truly should be, all in one fell swoop.

“There are cases where a price-reduced home can still be overpriced compared to similar homes in the area,” says Kevin Bazazzadeh, a real estate investor and founder of Brilliant Day Homes in Houston.

In this case, a home may go through numerous price cuts before it’s truly a deal.

Why price-reduced homes could be bait for a bidding war

While sellers may reduce their price because their homes were overpriced to begin with or they’re facing competition from more homes coming on the market, it could also be a sales strategy. A price drop brings attention back to an already listed house and is one way to bring in offers, and perhaps even spark a bidding war, which could drive the price back up again to where it was—or beyond.

Bidding wars, like price cuts, prey on emotions, and emotions will put homebuyers on treacherous footing amid negotiations.

“Don’t get caught up in the excitement and overpay for a property,” warns Bazazzadeh.

Given a home’s price is such a moving target, it’s essential that homebuyers do their due diligence so they can fight from a stance of facts rather than feelings (more on how to do that next).

What to offer on a price-reduced house

Whether you offer above, below, or at the reduced asking price will all hinge on two things: why the home’s price has been reduced and the sales price of comparable properties (or comps) in the area.

Bazazzadeh recommends the following steps to get a good gauge of what’s really going on:

  • Get a professional home inspection or ask for the home’s most recent inspection report.
  • Research the neighborhood crime rate, schools, and the number of foreclosures.
  • If you do buy the house, 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, says Kseniya Korneva, a real estate agent with Pineywoods Realty in Tampa, FL.

“Have them uncover whether there are other offers, why the price was reduced, and what the seller is ultimately looking for,” she says.

The other thing to keep in mind when making an offer is to always submit the strongest offer you can. Note that the dollar amount doesn’t have to be the main factor.

“More escrow, a shorter inspection period, and asking the seller what their preference is for a closing date can many times help get an offer accepted,” says Mike Warm, a real estate agent with Premier Sotheby’s International Realty in Sarasota, FL.

Don’t let a price cut alone be the reason you buy the home

While a price reduction is certainly enticing, it should not be the main reason you buy a home.

“Perceived and emotional value will be different for each buyer,” says Shaun Larson, a real estate agent and contractor with PARKS Real Estate in Brentwood, TN. “So if a buyer finds a home they personally love—not based only on numbers—then a reduction is an added bonus if they intended on moving forward on the home already.”

In other words, if you adore a house and it’s within your price range, don’t get too caught up on whether or not it’s 10% off.

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Watch: 7 Red Flags To Watch for When Buying a Home ‘As Is’

 

The post A Buyer’s Guide to ‘Price-Reduced’ Homes—and Why They Aren’t Always a Deal appeared first on Real Estate News & Insights | realtor.com®.

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