How to Find (and Buy) Real Estate Bargains

We have, as a society, evolved from hunting wild game to hunting for bargains. Some people consider it an art form, an obsession, a way of life. Many will cut coupons, others scour the sale ads in the newspaper, and the internet is full of discounted items, made available to you because a costly storefront is not required. The one place it can be difficult to spot bargains is real estate. I’m talking true bargains. Homes are big-ticket items and coupons do not apply. You can watch for price reductions, which is one way to ascertain a bargain, but its not like toilet paper, there is not an inexhaustible supply. There is only one house at that one price at that one address. If you wait too long, poof!, it’s gone.

So the brain trust at Redfin did a study, published this week on their site The Real Estate Scientist. This study is about buyers who are looking to negotiate a discount off a home’s asking price. With so much volatility in the market, anxious buyers aren’t sure whether they can get 10% off asking price or 3% (which in turn creates a lot of problems for ALL real estate agents trying to guide clients).

The computer scientists analyzed 9,053 single-family homes in three of Redfin’s markets: Fairfax, Los Angeles, and King (Seattle) counties. Data from April 15, 2008 to June 15, 2008 was used to identify the traits of the homes where the sellers accepted the biggest discounts (i.e. the sales that were in the top ten percentile of discount off asking price – which turned out to 11.4% off list; the average for all home sales was 2.5%).

The final results of the study are 7 pages, downloadable in pdf format from this page and well worth your time if you are looking to buy a home. In fact they were worthy enough to be featured on Good Morning America and the front page of the Seattle Times. Below are a few of the basic statistics that the real estate scientists found:

Where the big discounts were more likely to be found:

• 83% more likely to be 90+ days on market
• 73% more likely to be described as fixer-uppers
• 52% more likely to have seen seller-owned for more than 20 years, but 9% more likely to be seller-owned for less than five year
• 28% more likely to have already dropped in asking price
• 9% more likely to involve a bank
• 20% LESS likely to be a remodel

It’s not surprising that a home long on the market gets a bigger discount, and fixer-uppers are a hard sell. What is surprising is that 3rd statistic. We think of big discounts as coming from short sales or REOs, but I think, in general, that those homes may start out priced very low, so further discounts are not as available. With long-term owners, particularly seniors, a home is likely to need updating, and there is no mortgage to pay off, so they can afford to lower the price and are willing to do so to sell.

Go check out the results of all the number crunching. Reading the report doesn’t take that long, and it could save you thousands of dollars.