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Buyer Beware: There Are Still $1 Homes for Sale—but Many Smart Buyers Don’t Want Them

Saturday, February 17, 2024   /   by Richard Eimers

Buyer Beware: There Are Still $1 Homes for Sale—but Many Smart Buyers Don’t Want Them

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In today’s ultraexpensive housing market, buyers who find a home listed for $1 might think they’re hallucinating.

They’re not.

In January, there were 216 very real homes listed for $1 on Realtor.com®. That’s right, there were properties listed for less than the cost of a bottle of soda in many parts of the country. There were an additional 333 priced at $5,000 or less, according to a data analysis of Realtor.com listings.

While some of these unbelievably cheap home prices are typos, marketing ploys, and scams, many are foreclosures, starting bids in auctions, or homes in such bad shape that they need tens of thousands of dollars in repairs to become habitable again.

“If it sounds too good to be true, it probably is,” says Realtor.com Chief Economist Danielle Hale. “It’s important to read the fine print and look at the pictures.”

Why cheap homes aren’t always a bargain

Even at extremely low prices, these properties fail to attract regular buyers and investors. Last year, there were 23,000 properties listed on Auction.com with a starting bid of $1. Only 10% of them sold—at an average sale price of $41,000.

“In most cases, you’re not going to actually buy them for a dollar,” says Daren Blomquist, vice president of market economics at Auction.com. “When there is [buyer] interest, they will still be bid up to a larger price.”

If these homes are foreclosures, the bank often has a minimum amount it wants for the property. So if buyers don’t bid up the price enough, the property sometimes won’t change hands.

Sometimes buyers can purchase a home for cheap—but they are then on the hook for the back property taxes and other liens that the previous owners didn’t pay off. This can be quite costly.

The buyers might also be charged commissions and transaction fees that boost the true cost of the home far above $1. And this is all before any repairs are made.

Those searching for inexpensive homes also have to be careful that they’re not getting ripped off.

Investor Scott Stuber, of Nuremberg Properties, cautions against fraudsters who sell properties they don’t own to unsuspecting buyers. When buyers see these extremely cheap properties, they should be on their guard.

“A lot of times, it’s just a marketing ploy or a scam, period,” says Stuber. “People need to do their due diligence. They have to really understand what they’re getting into. You have to be really careful. There are a lot of scams and unsavory characters out there.”

Buyers may spend more on repairs than the home purchase

Even if the sale is legitimate, there aren’t any back taxes owed on the property, and buyers can get it at a good price at auction or from a private seller, the new owners still have to consider the cost of the repairs, renovations, and maintenance that many of these homes desperately need.

These ultralow-priced homes are often not in the best condition. Some need significant work to be habitable, and many aren’t located in the most desirable neighborhoods.

“These are typically pretty highly distressed homes,” says Blomquist. “The electrical may not be working, the plumbing may not be working. … They may be right next to the train tracks or right next to something that is going to be disruptive to anybody living there.”

Nearly two-thirds of Auction.com buyers said they spent more than $20,000 on renovations.

“In a lot of cases, it takes a special buyer to come in and be ready, willing, and able to take on these properties—even at an extremely low price,” says Blomquist. “These properties typically are going to require major repairs at least in the tens of thousands of dollars, possibly in the hundreds of thousands of dollars. It requires skill and [financial] capital to fix these properties up.”

Last year, as mortgage rates surged and home prices remained high, the percentage of people purchasing homes on Auction.com with the intention of living in them more than doubled, says Blomquist. About 15% of sales were for owner-occupied homes in 2023, compared with 7% in 2022.

That might be due at least partly to how financially challenging it’s become to purchase move-in ready homes, especially for first-time buyers. They might be seeking more affordable options, such as fixer-uppers.

“Affordability and lack of inventory are pushing more owner-occupant buyers to consider more out-of-the-box alternatives,” says Blomquist.

Even investors won’t always buy the cheapest homes

Investors remain a big buyer of these distressed properties. Generally, they will fix them up and then either flip them or rent them out to tenants.

Stuber and his husband, Tyrone Velasquez, have purchased more than a dozen homes in Dayton, OH, since 2017. The investors do most of the rehab work themselves and then turn the properties into rentals.

They will buy smaller, single-story houses at auction, on the regular market, or through estate sales for as little as $6,000. In some cases, they’ve only been able to drive by a property to see its exterior before bidding on it at auction. What’s on the inside, then, is a surprise. That’s why Stuber encourages folks interested in these homes to get a home inspection done by a professional whenever possible.

He will also pass on some of the cheapest homes that are in the worst shape.

“There’s a lot of $10,000, $12,000, $15,000 homes on the market there. But they’re just in really bad condition pretty much to the point of just being a teardown,” says Stuber. “It’s going to take serious investment to get it to the point where it is going to be livable.”

Source: Realtor.com

Beach Road Realty
Richard Eimers
17 Roundwood Drive
Inlet Beach, FL
Beach Road Realty

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