It is wise to be suspicious of homes priced under market value in the Bay Area. In some areas, which are hit hard by foreclosure, it can be difficult to tell if you are looking at real home prices or fake prices, but keep in mind banks are known to underprice homes on purpose. There may be more than you think to artificially low prices.
Types of Underpriced Homes
You will often find home prices in the Bay Area that seem too good to be true. Before getting excited, ask your real estate agent why the homes are priced so far below market value. Homes priced under market value include:
You cannot trust a price on a short sale home in the Bay Area because no one knows what the bank will accept. An agent may have told the seller to price the home low to attract buyers. The bank will be very unlikely to accept an offer that does not match comparable sales, though.
A home that needs a lot of repairs will have a discounted price. There may even be defects you cannot see. Consider whether the cost of the repairs on top of the sales price brings the home to market value anyway.
These properties have been seized by the bank. The properties are on the market because no one wanted to pay the bank’s price at the courthouse and the bids were lowball offers. The price advertised may simply be the opening bid for an auction, which typically raises the price to market value. When the bank prices a foreclosure below market value, it is a strategy to encourage several offers and drive up the price further.
As they say, the number one rule in real estate is location, location, location. A home in a bad location will often have a low price, including property near commercial zones or a freeway.
The bottom line is you should realize that there is probably a good reason the home is priced so low in the Bay Area, and it may not be the deal you think.