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

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, 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 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. 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 ben any failed escrows.

If a house is listed as price-reduced, have your broker or agent do some investigating into why? 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 home could fetch is no longer realistic. Some sellers might even insist on shooting for the moon pricewise despite their agents' effors to set them straight.

Sometimes clients insist on listing higher than what their agent's market analysis shows that the home is worth. 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 swoop.

There are cases where a price-reduced home can still be overpriced compared to similar homes in the area.

In this case, a home may go through numberous 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 becuase 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 negotations.

Don't get caught up in the excitement and overpay for a property.

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.

What to offer on a price-reduced house

Whether you offer above, below, or at the reduced asking price wilol 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.

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