Found an Underpriced Home? Here's Why You May Want to Run the Other Way

Don't assume you're getting a great deal.

A friend of mine was looking for a three-bedroom home this summer in a nondescript town in New Jersey. Most of the homes in that town were being listed at around the $500,000 mark (if you didn't get the memo, housing in the Garden State is far from cheap). But one day, she came across a listing for a three-bedroom home for $425,000. And she immediately called her real estate agent and asked to see it.

I had a feeling my friend would end up disappointed in the home but I kept those thoughts inside my head so as not to discourage her. But lo and behold, once she went to see the home, she found that it was extremely outdated and needed work -- hence the much lower price point.

If you're in the market for a new home, you may be eager to go after a property that seems like a bargain. But here's one thing you should know. In today's real estate market, there are no bargains. And any home that looks like one on screen is probably loaded with problems.

When a home is too good to be true

Real estate agents are often very good at portraying homes in the best possible light online. So if you see an underpriced home and there are no red flags in the listing, you may be inclined to schedule a showing and check it out.

That's an okay thing to do -- if you have plenty of time to spare. But otherwise, you may want to be wary of homes that are priced significantly lower than the competition in today's market.

And to be clear, this warning is very much a "current housing market" one. In a normal market, you might find a bargain because a seller needs to close quickly, or because there's a lot of competition. 

But in today's market, sellers have little motivation to underprice their homes unless there's a reason to. And often, that reason boils down to glaring issues, such as a home needing a ton of cosmetic work or obvious repairs. 

Should you buy a discounted home and fix it up yourself?

You may be inclined to buy a home at a lower price point and use the money you would've otherwise spent on repairs and fixes. But be careful when going that route. You might end up spending more in the process, which would've been the case for my friend. 

The house she looked at was a good $75,000 under market. But according to her agent, it would've taken a good $150,000 or more to bring that house into decent condition. 

Now, if you're really handy, you might consider buying a fixer-upper. But otherwise, it may be worth it to spend more on a home and take on a higher mortgage, but know that you're not signing up for major repairs or renovations off the bat. Not only might you end up getting in over your head financially, but there's the hassle factor to consider. 

Buying a home in disarray could mean waiting months for that property to be habitable. And if you'd rather not live in limbo, you may want to consider steering clear of underpriced homes and buying one you can move right into.