Getting a good deal on a home is highly dependent on the current cycle of the real estate market, which is heavily influenced by the ever-changing economy.
While the state of the economy is out of your control, there are still several things you can do to get the best deal possible on your next home, such as getting pre-approved for your mortgage before you start looking, keeping your closing costs and agent fees to a minimum, and buying an unconventional home through a short sale or foreclosure.
We’ve compiled a list of our top five tips for getting a house for cheap.
1. Foreclosed Homes
Buying a cheap foreclosure at a trustee's or Sheriff's auction is a great way to reduce the amount you’ll pay for your next home. You can find notices of auctions online and in local newspapers. Additionally, there are a number of websites that post information on auctions, and some, such as Property Radar, offer a free three-day trial.
You typically pay cash at public auctions and buy the home in "as is" condition. Smart buyers will pay a title company to do a preliminary search prior to bidding.
You can also buy a cheap foreclosure at a private online auction, although some online auctions charge you a percentage premium to buy. Oftentimes, a private auction house will let you obtain financing to buy a cheap foreclosure. You might find it helpful to bring a buyer's agent to represent you.
Some auction companies will let you inspect the foreclosures prior to bidding. In these cases, it’s best to set a spending limit and be careful to not get carried away by the excitement created during the bidding process. Otherwise, you can overpay for that cheap foreclosure.
2. Short Sales
In a short sale, the seller is behind on payments and headed toward foreclosure, so it’s likely you can snag the property for less than what it’s worth. But while the seller might be willing to deal, be warned: These types of sales can be difficult, since the sale must also be approved by the lender.
The seller will typically list the property at a substantial discount, and then send the offer to the lender for approval. But, the mortgage lender might hesitate and it’s not unusual for it to take months of back-and-forth to reach an agreement. That’s why short sales are an option most suitable for a buyer who is flexible on timing.
As with foreclosures, banks aren’t giving away short-sale properties at "steal" prices like they used to. If you know what you’re getting into, however, and think you can make the necessary repairs cost-effectively, a short sale might be right for you.
To start, ask the bank if it has prepared a BPO (broker price opinion), which it often does to help determine what the home will sell for. Try to offer between 5% and 10% less and see what happens.
3. “Price Reduced” Homes
The term "price reduced" sounds pretty good. But is it too good to be true? Naturally, you may start to wonder if there is something wrong with the home. Don’t fret too much; there's likely nothing wrong with the property for sale.
Typically, a reduced price just means that the property was priced too high to begin with and the seller is reducing the asking price to stir up more interest. Since the home was overpriced from the start, the savings may feel a bit inconsequential at first glance.
The bargain, however, might lie in the fact that the sellers — perhaps feeling panicky about how long their home has sat on the market — could be willing to negotiate an even lower price or offer other valuable concessions.
4. Vacant or Inherited Houses
Even though no one is living in these homes, they're still racking up bills every month. As a result, the owners might be willing to unload them quickly. In the case of inherited houses, the heir is typically not interested in becoming a landlord or doesn’t want the expense of a second home. These houses are often dated or damaged, so make sure you have a home inspection done so you have a clear picture of what your entire investment, including repairs, will be.
These sellers are far more likely to entertain any and all offers than a typical seller, so go ahead and lowball your offer to see what happens. One way to sweeten your offer is to buy it as is, which makes things easy for the seller, who might have neither time nor money to deal with repairs.
5. Consider a Fixer-Upper
Sometimes cheap homes for sale are priced low because they require a lot of work. However, just because a property needs some TLC, it doesn’t mean you can’t pursue it and get a great deal.
Fixers, however, carry with them a certain degree of risk and complications, and can often be difficult to finance. If you decide to purchase a fixer-upper, always get the property inspected by a professional home inspector so you know exactly what you are getting into.
You’ll also want to get estimates from licensed contractors so you can accurately estimate the potential repair costs. Look for “cosmetic fixers” that need simple fixes, like paint or carpet.
This may sound unusual, but bad smells are actually great in this case; they are typically easy to remedy, but drive away most of the competition.
Lastly, consider using a rehab loan, such as the 203k FHA insured loan, to wrap the rehab costs into the loan.
If your goal is to get a house for an unbelievably low price, Clever can help. Clever Partner Agents offer a Home Buyer Rebate that can help buyers save even more money, which can be put towards your down payment, closing costs, or even to purchase points on your mortgage.