The Thrifty Buyer’s Guide to Getting a Great Deal on a House

It’s tough to get a great deal on a house when the trend is to pay over the asking price. Our Q3 2020 survey of more than 1,000 top real estate agents confirms that 87% of homebuyers are bidding over asking to win homes with inventory at rock-bottom lows.

With this guide, we’ll help you develop a razor-sharp bargain house-hunting strategy, featuring clever ways to save and tips for spotting an opportunity in disguise. Play your cards right and you’ll be happy you stayed right on budget without having to settle for a total dud of a home or even sacrifice your must-haves.

Watch for listings with high days on market, price reductions

When you start your search for a home, you’ll gravitate toward listing photos and property stats like beds, baths, and square footage as any house hunter would. A bargain hunter should also pay extra attention to two often overlooked details: the property’s days on market and pricing history.

Days on market is a real estate industry term for how long a home has been available for sale. Conventional wisdom says that if a house sits on the market longer than usual, then it must be flawed in some way.

“Some buyers shy away from homes that sit on the market for too long, because they think there’s something wrong with the house,” says Gail Carillo, a top-selling real estate agent in Holbrook, New York.

“But if you look at the pricing history, you might find that it’s a wonderful house that was simply overpriced.”

That gives you a window to swoop in, make an offer, and negotiate without worrying about much competition from other buyers.

To execute this strategy, some real estate apps for house hunters will allow you to sign up for notifications whenever there’s a price cut on a house in your target search area. Most of the time you can also find a property’s days on market directly on the listing page and toggle over to its pricing history from there.

Look for the ‘sold as is’ label

As you’re browsing through homes in your search for a great deal, you’ll come across some listings being sold “as is.” The “as-is” label could appear in the property title or description section. Whenever you see it, hit pause and take a closer look.

By definition, an “as-is” home is one that’s been priced according to its current condition — imperfections and all. Any repairs and updates will be the buyer’s responsibility. That means you can expect to get a discount upfront knowing the house won’t be turnkey.

What you see is what you get, and you’ll need to decide how much time, money, and effort you’d be willing to put in to bring the house up to your living standards. But not all “as-is” sales will be gut jobs, either.

Some sellers, for example, choose to list “as is” when they’ve inherited property and don’t have the ability to make significant upgrades prior to listing.

When sold off from an inherited estate, an as-is home presents a prime opportunity for scoring a great deal. Just make sure that the property has cleared probate, which has a lengthy, sometimes unpredictable timeline that may mess with your own.

Many as-is houses will only have worn out materials or outdated finishes, too, which you can fix yourself over time with a little elbow grease. However, you’ll want to get a thorough home inspection to verify that the house isn’t a total lemon.

Search for bank-owned or short sale properties

Another way to deal-hunt for a home: Look for short sale properties that are headed for foreclosure, or properties that are already bank-owned (also called real estate owned or REO). As of May 2020, foreclosed homes sold at an average 20% discount below market value, according to data from the National Association of Realtors.

Some short sales will be listed online as “pre-foreclosures” or “subject to bank approval.” You can also find short sales by digging into public records. As for bank-owned homes, you can ask your agent to look up REO listings in the MLS or search using an online foreclosure aggregator like the one offered by Bank of America.

But buying a foreclosed home or short sale comes with unique challenges. With a foreclosure, you’ll need to be ready to bid on a home on the courthouse steps, auction-style, and you’ll likely need to pay cash. Competition is fierce in the foreclosure market when you’re up against big money, all-cash investors looking to flip or rent out these bargain-priced properties.

Short sales, on the other hand, can be complex and drawn out while requiring involvement from multiple parties. Because the lender has agreed to sell the home for less than what’s owed, it will oversee the sale and have to approve your offer. You’ll need some guidance along the way for either route. We recommend partnering with a Realtor who specializes in short sales or investment properties.

Buy in the offseason

It pays to zig when other homebuyers zag. Data from our Best Time to Sell a House Calculator shows that if you start your house hunt in March with everyone else and close in June, you’ll pay an average of 3.83% on whatever home you purchase. This is due to the increased competition from other buyers and real estate momentum that tends to pick up in the spring.

Instead, launch your home search around November when the rest of the nation falls into a turkey coma. Data from our calculator shows that homebuyers who close in February will save an average 7.17% on their home purchase by beating the spring rush. To drill down into seasonal trends for your individual market, input your city and look for the “Worst Month” to sell.

Separate needs vs. wants

Every homebuyer has a list of new house must-haves, but holding out for your “dream home” that has everything you’re looking for may kill your chances of getting a great deal.

“The last thing you want to do is walk away from a house because it doesn’t have something that you can add,” advises Carillo.

Your list may have some features that simply aren’t practical to add, like a basement. If that’s something you need, don’t look for a house without one.

But other features on your must-have list, like a remodeled kitchen or fenced backyard, could be added later with money from your savings or a cash-out refinance once you’ve gained some equity. You can even plan to expand if there’s room for an addition in the backyard, or space in the attic or basement with refinishing potential.

Have a solid idea in mind of what you’d be willing to compromise on before you start shopping for a home.

Hire a buyer’s agent who will go to bat for you

“You don’t want to house hunt first and wind up in the hands of the listing agent because you called the number on a for-sale sign of a particular home,” advises Carillo.

“A lot of buyers don’t realize that the listing agent has a fiduciary responsibility to work in the interest of the seller. Buyers have an entitlement to representation, which is why they need their own agent who prioritizes their interests.”

Take the time to interview several agents before choosing one. Ask about the agent’s house-hunting strategies for finding a good deal, and how they negotiate on behalf of their buyers.

Listen for whether they seem knowledgeable about specific neighborhoods with comments like, “Here are some great resources on the West Glen neighborhood and its affordability — Check it out. I’d be happy to show you some houses there.” Or, “I helped my last buyers shave $7,000 off the list price and negotiate a new roof, here’s how.”

These types of specifics lend credibility to an agent’s promises.

In addition, check the real estate agent’s average sale-to-list price ratio for their buy-side transactions. As a calculation of what a home was listed at vs. what it actually sold for, this number tells you how much an agent historically saves for their buyer clients.

Keep in mind that a lower sale-to-list price ratio on the buy side is favorable. If one agent is at 99%, and another at 95%, go with the latter if all other qualifications are equal.

The sale-to-list price ratio is just one datapoint HomeLight uses to help sync up homebuyers with excellent agents known to save their clients money. If you’d like to connect with a few great candidates in your area, we’d be happy to make the intro.

Compare lender fees with a critical eye

In addition to your down payment, you’ll need to account for closing costs as part of your overall home buying expenses. Closing costs are fees tacked on to your bill as a buyer that typically range from 2% to 5% of the loan amount, and they’re paid from your cash reserves on closing day. On a $250,000 home loan, that’s an additional $5,000 to $12,500 owed at closing.

What many buyers don’t realize is closing costs often include fees charged by the lender for your loan application, origination, and processing. Some lenders (like HomeLight Home Loans) offer competitive fees, which could save you thousands, which is why it is best to shop around.

Once you have a home you plan to buy, the best thing you can do is comparison shop among lenders and get multiple Loan Estimates. That way you can compare fees — along with interest rates and mortgage terms — apples-to-apples. In fact, The Federal Home Loan Mortgage Corporation known as Freddie Mac reports that getting two competitive rate quotes will save you about $1,500, while getting five can net you a savings of $3,000 to $4,000 over the life of the loan.

Take some time to get your finances in order

Buyers who take the time to get into a strong financial position prior to shopping for a home will likely find that their diligence can lead to savings. Check out our Guide to Saving Up for a House Step by Step for advice on how to pay down current debt, build up your credit, and scrape together a down payment in increments.

“If a buyer has bad credit or a high debt-to-income ratio, one hiccup in their finances

could disqualify them from securing a loan,” says Carillo.

Target areas with lower property taxes

When you buy a house, your total monthly housing payment will include more than just your mortgage principal balance and interest. It will also bundle in the cost of insurance and what can be a fairly substantial additional cost: property taxes.

Property taxes are levied by the local government at a set rate and calculated based as a percentage of your assessed property value. The typical U.S. homeowner pays $2,279 in property taxes per year, or $189 per month, though in some states and counties, property taxes run a lot higher.

“It’s super important that buyers educate themselves on how taxes impact their mortgage payment,” advises Carillo. “Sometimes houses with higher price points have mortgage payments that are actually less expensive than lower price point houses due to property taxes.”

Ask your real estate agent for any local property tax resources and breakdowns. They may offer something like a one-sheet that lists property tax rates in nearby cities and counties. You might find that by changing your target house-hunting area to a suburb without schools, for example, saves you hundreds of dollars a month in property taxes.

You’re ready to bargain shop!

You know now that shopping for a discount in real estate takes some serious effort. You’ll have a hard time finding a house for 50% off on Black Friday or buried in the discount bin at TJ Maxx.

What we’ve covered here shows that getting a good deal on a house calls for a multi-pronged strategy. Search for cheap houses by looking for price reductions and the “sold as-is” label. Gather several Loan Estimates and shop for a lender who won’t crush you with fees. Get a head start on your search by looking for deals during the holidays. Work it from every angle!

And to guide you through the whole endeavor, hire a real estate agent who can point you to REO listings, give you resources to scout affordable neighborhoods, and be your partner in negotiating on price, concessions, and repairs.

So what are you waiting for?

Go find that deal!

Header Image Source: (Ksenia Balandina / Unsplash)