Price reduced? So what? Big deal

During the heady days of the real estate bubble, brokers were shy about advertising properties as "reduced". But now that the market has tanked and everyone is looking for a bargain, it's different.

Agents proudly hang "reduced" signs on properties and MLS listings regularly contain phrases like "Price slashed!" and "REDUCED FOR QUICK SALE!"

BusinessWeek and Trulia report that the markets that have shown the most life in recent months are the ones that have had the most aggressive discounting. In Scottsdale, Arizona, 37% of listings have been reduced at least once and are currently being marketed at an average of 12.9% below the original asking price.

For buyers, Trulia recently added a feature where you can search for price reductions in your area.

What does it all mean? Nothing, and real estate shoppers would probably do well to simply ignore price reductions and the associated hype.

Why do you care what the seller used to be asking for his house? I recently noticed a condominium in my town that was reduced 3.8% to $149,900. The problem is that similar units in the same building are selling for $125,000. The fact that it's 3.8% less overpriced than it used to doesn't change the fact that it's still priced 19.9% higher than it should be. The seller could have started off asking $2,200,000 but guess what? It's still overpriced at $149,900.

What matters when shopping for real estate is value, and the fact that the seller was once hoping to get a higher amount that no one offered isn't proof, or even evidence, of value. Don't let Jedi mind tricks and slippery marketing fool you into thinking a home is a good value just because the price has been lowered. Get to know your local market. Find out what similar homes sell for, and run the numbers and see whether it would be cheaper to rent a similar house. That's the objective way to find out whether you're getting a good deal or an overpriced pile of hype.
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