Just because a house is described as a bargain doesn’t mean it is one. On the contrary: It may be overpriced.
According to Trulia, houses listed as “bargains,” “deals” or some other catchphrase are sometimes listed for more than their estimated value. Researchers at the real estate site combed through listings over the previous year, finding that places in 35 of the top 100 markets nationally were not the great buys they were said to be.
In other words, Trulia reported, “some deals are too good to be true.”
In Cape Coral, Florida, for example, nearly 6 percent of the houses listed for sale over the last 12 months were advertised as bargains, but only a third of those were actually priced below their estimated value.
On the other hand, notoriously pricey San Jose and San Francisco tended to have the most so-called bargain listings that deserved the name. At the same time, though, these two Bay Area markets also had the most houses that sold for more than their asking price.
In such markets, it’s not unusual for houses that start out as good deals to end up costing the eventual winner of the bidding war more than he -- no pun intended -- bargained for.
The takeaway: Do your research. Check out what comparable houses recently sold for, and are currently listed for. Go online to determine an estimated value for the property you are considering, and compare that to the asking price.
A lot of legwork? Yes. But a good real estate agent can help. If you don’t make the effort, you could end up paying more for a “bargain” that wasn’t a bargain at all.
Redfin reports that in January, just 13 percent of its agents worked on behalf of clients in a bidding war over a particular property. That’s way, way down from 53 percent one year ago.
The percentage ticked up a bit in early March, but still, bidding wars are far less common now than at any time between 2001 and late last year.
“Buyers have heard that the market has slowed, so now they’re trying to get all of their ‘wants,’ not just their ‘needs,’” said Kalena Masching, a Redfin agent in Palo Alto, California. “They’re waiting until they find a home that can check more boxes ... In general, they are being more judicious as they think through their purchase.”
One reason for the current lack of bidding wars: The number of houses for sale is increasing, just as the number of potential buyers is subsiding. As of December, the inventory of houses for sale was up 5 percent from a year earlier, but the number of houses sold was down 11 percent.
Perhaps it’s time for sellers to recognize that the market is shifting, and that they need to be a little more reasonable when it comes to an asking price.
Sellers notched some pretty impressive gains last year, according to Attom Data Solutions, a purveyor of realty data. How does $61,000 strike you?
That’s the average gain on sale in 2018, and it’s a 12-year high. In 2017, the typical profit was a “mere” $50,000, and in 2016, it was a “paltry” $39,500.
The 2018 gain represented a 32.6 percent return on investment -- the price the seller paid for the place -- but does not include the cost of any improvements made to the property.
In other words, if a seller paid $15,000 for a new roof during his tenure, or $20,000 for a complete kitchen remodel, his profits weren’t nearly as high. At the same time, if a seller made those improvements, the place likely sold for more than it would have otherwise.
One reason profits are up is that people are staying longer in their homes. According to Lending Tree, folks in America’s 50 largest cities are only moving about once every seven years.
A big factor there is that many seniors are electing to age in place rather than move to smaller places, warmer climates, closer to the kids, assisted living or a combination thereof. Freddie Mac figures that in 2018, 1.6 million houses were kept off the market due to seniors staying put.
For context, 1.6 million is roughly the same number of new single and multi-family housing units built every year. But more importantly, it is more than half the shortfall of 2.5 million units needed annually to meet demand. Indeed, the Urban Institute recently estimated that 3.4 million millennials are missing out on homeownership because of the truncated supply of houses for sale, among other factors.