Why would anyone sell below market value?

Question

New to real estate, would like to buy rental property in the next year or two.  I keep reading that I should be buying property at a discount.  Why would anyone be willing to sell me a house at less than what it's worth?  Are they just unaware of the value?

I see posts in the market place, like the one below, advertising 52% below market value.  Isn't market value defined as what someone is willing to pay?  Why would anyone want to sell something at a dollar amount less than what they could get from someone else?

http://www.biggerpockets.com/forums/517/topics/209799-zionsville---52-below-market-value---check-this-out

Perhaps just to get rid of the property quicker?

Thanks for reading, I'm sure there's something I'm missing here.

Ryan Dossey · Answer

The property may not be "up to par" with market condition so it doesn't command full market value. The seller could be desperate/motivated so they're willing to let it go cheap/at a loss.

Honestly what it comes down to is that Real Estate is an imperfect market. Your skills in negotiating can make you thousands of dollars or stonewall you.

Anthony Dooley · Answer

A motivated seller is short on time and / or money. They may not have time to wait for someone to buy it at "market value."  Selling it fast means the price has to be low. The bottom line is there are people who have property that they don't want more than the cash it can give them.

Gilbert Dominguez · Answer

Yes you can say that ARV = Market value. Market value is the average price people are willing to pay for your house and any house that is comparable in the same area at a given time. Market value is an indicator of buyer sentiment, interest rates, whatever is contributing to demand at any given time and momentum. etc. If houses are selling it is also an indication of the strength of the economy. It means people have jobs and are risking taking on the expense of paying for a house. If the economy is down and few people are getting jobs then few people will be out taking on the burden and expense of a house. So you want to be sure there are plenty of comparable houses that are selling in your area before you think of putting your house on the market.

Suppose I was told by my doctor I needed an operation withing the next 15 days and I did not have insurance or enough insurance to pay for my operation and recovery time but I have a house. I might offer to sell my house at a discount in order to make sure I will have to money to pay for my operation. Also suppose I am getting a divorce and the court ordered me to sell my house and give half the proceeds to my wife. I may be motivated to sell my house at a discount just to get the divorce process done with as quick as possible.

Lets say my kid just entered college and we do not have to money to pay for their tuition. Once solution I might think of is to sell the house and get the money we need for tuition. There can be many reasons why I would be willing to sell my house at a discount as compared to market prices.

Then again I may just use a marketing ploy as say I am selling below market when i know my house needs many repairs and I do not have the money to make the repairs. Still I get people to come over and see the house and maybe someone will offer to buy it.

Below market may not mean below market as is. It can mean below market for a house or my particular house if someone were to fix it up, add some square footage etc.

Tony Otis · Answer

Thanks for the clarification.  So would it be a correct statement to say that the market value on a home selling for much less is equal to the after repair value?  So a home selling for 52% below market price is the same as selling at 52% less than what it would be priced after repairs?

Joseph M. · Answer

They would sell it below market value because they are motivated and either don't want to wait for a higher price or they can't wait for a higher price.

This is one of the huge advantages of real estate, it's an inefficient market. Everyday investors are buying properties under market value. This is different than the stock market where you have to pay the going rate if you want a stock.For example, today Apple stock is $123 a share. I can't offer to buy it for $100 today and get that order filed/accepted.

It's not just real estate where this occurs but look at other things that are bought and sold. Cars, antiques, used electronics  all sorts of items are being bought for at one price and sold at a higher price.

An important thing too is to understand the benefit of looking beyond your local market for buyers. Today we live in global economy.

The last properties that I sold were to a cash buyer in France. There was another buyer that  had cash and really wanted the properties from Canada.

Eddy Dumire · Answer

The other way to get a house at discount is from a foreclosure process.  At the auction steps the market discounts these houses heavily because you're not able to see the inside of the house and there may be an occupant that must be removed through legal action.

This implies additional risk and risk can bring big rewards.

A REO is also discounted because there are usually problems with condition and the bank wants to eliminate holding costs.

Eddy Dumire · Answer

In order to buy a house on the retail market and finance it with a conventional loan, a house needs to be in fairly good condition.  It also takes months for the transaction to be complete.

That's why you see investors marketing specifically to those two scenarios with ads targeting either "not pretty" houses or touting that they can buy your house in 6 days.

George P. · Answer

Nigerian scammers sell at over half off all the time. just check CL for their ads. they rent cheap, too.

Why would anyone sell below market value?

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