Cheap Houses - Why so Cheap?

By Steve Gillman - 2006

Why are there cheap houses for sale? There are many reasons. Knowing what they are, and what they mean, can help you save thousands buying your next home. The following are six common reasons that a house will be selling for less than others.

Questionable Neighborhood

You can almost always find heap houses in bad neighborhoods, but are they a good buy? Not if the neighborhood is declining - that could be the worst investment in town. In a real estate forum recently, an investor explained how he had to sell his Detroit rental house for a loss after twenty years of owning it (who says real estate always goes up in value).

On the other hand, if there are clear signs that the neighbor hood is improving, a cheap house there could be a great investment. By the time improvement is noticeable, things are usually changing fast, so you might see a huge jump in the home's value in a few short years.

Homes That Need Work

You may need to pass on by these cheap houses, if you don't want to deal with getting things fixed. Of course, these homes are often a way to build equity fast. Since they scare away most buyers, there is less competition and often a real opportunity for a low price.

However, a seller may think that if it needs a $10,000 in repairs it is worth just that much less than others. Don't buy this reasoning! Dealing with a fixer upper for no gain is no deal. If a home needs $10,000 in repairs, it had better be worth $20,000 more when you are done.

Sellers That Need To Sell Fast

If a seller needs to move soon, or has to sell quickly for any other reasons, make a low offer. Don't assume you're taking advantage of someone in this situation. You might not buy the home otherwise, right? The seller can always say no. Perhaps it is worth it to him to sell for a few thousand less to get it sold now. Why not let him decide?

Cheap Houses With Hidden Problems

If you can't find any other reasons why the price is low, there may be hidden problems. This is especially true if a seller is an investor, real estate agent, or seems knowledgeable about real estate. Maybe there are foundation cracks hidden behind paneled walls, or a highway coming through the front yard in a year.

Identify the problems. If they can be resolved, estimate the cost to see if the house is still a good deal. Of course, if the seller was hiding anything important, there may be more surprises, so have inspection contingencies in the offer if you buy these types of homes, and get those inspections done.

Unique Homes

I once lived near a house that was shaped like a flying saucer. Some homes have insanely steep driveways. Others are built underground. If the unique features they have are in demand, these homes can sell for a premium. If not, they become cheap houses.

A home that is unique in ways that buyer don't usually value will be hard to sell, so it may not be a good investment. But what if it fits your needs and you will be living there for a long time? Suppose you pay $335 less per month to buy a "unique" home, and you live there for fifteen years. You'll pay out $60,000 less in payments. That could be sufficient compensation for a difficult sale, right?

Low Priced Homes

Wouldn't it be nice to find a seller who just doesn't know that his house is worth $220,000 - and he priced it at $180,000? Okay, this is rare, but it happens. Actually that much of a deal may leave you feeling guilty, but you certainly don't have an obligation to educate a seller or pay more than the asking price. He may have other reasons for his price that you don't know about (a wish to be generous or a need for a quick sale?).

What's the bottom line? When cheap houses are good houses, don't worry too much about the reasons. Just buy one.

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