Why Are There Cheap Houses?

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

1. The home needs work.

What does this mean to you? It may mean you need to pass on by, if you don't want to deal with getting it fixed. On the other hand, these houses are often a way to build equity fast. They scare away most buyers, so there is less competition and often a real opportunity for a low price.

Be aware, however, that 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 it! Dealing with a fixer upper for nothing is no deal. If it needs $10,000 in repairs, it had better be worth $20,000 more when you are done.

2. The neighborhood is questionable.

Cheap houses in bad neighborhoods are common. Are they a good buy? Not if the neighborhood is still declining. That could be the worst investment in town. I caught a story in a real estate forum recently, from an investor who 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).

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

3. The seller needs to sell fast.

We all have our deadlines. If you learn that the seller needs to move soon, or has to sell quickly for any other reasons, make a low offer. Don't ever assume you are taking advantage of someone in this situation. You might not buy the home otherwise, and the seller can always say no. It may be well worth it to him to sell for a few thousand less to get it sold now. Let him decide.

4. There are hidden problems.

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

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

5. The house is unique.

I used to live near a house that was shaped like a flying saucer. Some houses are up insanely steep driveways. Others are built halfway underground. If the unique features are in demand, these homes can sell for a premium. If they aren't they become cheap houses.

A house that is unique in ways that the general public doesn't value will be hard to sell, so it may not be a good investment. On the other hand, what if it fits your needs and you will be living there for a long time? Suppose you pay $300 less per month to buy a "unique" home, and you live there for fifteen years. You'll spend $54,000 less on payments. That might be sufficient compensation for a difficult sale, right?

6. The price is just set too low.

Would you like to find a seller who just doesn't know that his house is worth $220,000, and has priced it at $180,000? It is rare, but it happens. Actually that may be too much to hope for without feeling guilty, but you certainly don't have an obligation to educate a seller or pay more than the asking price. He may actually have reasons you don't know for pricing it that way (a wish to be generous or a need for a quick sale?).

Bottom line? If cheap houses are good houses, don't worry about the reasons too much - just buy one.