Buying a home under market value is not the same as purchasing a home at a discounted price. That just means that the seller choose for whatever reason to sell the home for less than the asking price. Just because the homeowner sells their home for less than the asking price does not mean that they are selling a home below market value.
Market value is the price that’s put on a home using the most recent sales data of comparable homes in the area by an appraiser or a real estate agent. This involves reviewing homes that have similar size in living square footage, and a similar amount of bedrooms and bathrooms. However, you need to filter out properties in bad condition or that were distressed sales or were sold through foreclosure.
A lot of homeowners who use a real estate agent will list their homes close to market value. This is due to the fact that the real estate agent has completed the necessary research to determine what the accepted value is for similar properties in the neighborhood.
Real estate agents use comparable home sales that have occurred in the past 60 to 90 days as well as active listings, ideally within the same neighborhood to establish how much your property should list for. Additional considerations is given to when the area is a buyers or seller’s market.
There can be plenty of reasons why someone would list their home below market value. Every so often homeowners, may not be aware what the actual market value of their home is, and simply underestimate it when they place it up for sale. This can happen in more cases with “For Sale By Owners”.
Additional reasons why a home is listed below its true market value is because it’s being sold through an estate sale. In normal cases, it’s the sale of property whose owner has deceased. The home typically needs to be updated and renovated.
Usually the family or heirs want to sell the possessions from the inheritance at a price that will attract a quick sale. They simply don’t have the time to wait months for a sale as they are looking to move on and will list their home under market value.
Another popular means to find homes to be purchased below market value are those that have been foreclosed on. 
These properties are owned by the lender or bank. They are also known as REO’s (real estate owned homes), and often have asking prices below market value so the bank can get rid of the property as soon as possible. Many times, the price reflects the condition these properties are in as they tend to require a great deal of work.
Traditionally, for those who bought an REO, they end up with a home that needed some work but it paid off at a 2:1 ratio or better in terms of equity appreciation.
For example, this means the renovation or repair costs were maybe $30,000 but the gained value was $60,000. Speak with a licensed contractor or professional who can help you determine what costs you will probably have to bring the home up to satisfactory condition.
The government also offers foreclosed homes for sale at an attractive price. They are known as HUD Homes and are on the government’s books because the previous homeowner defaulted on their loan had an FHA mortgage. These homes are sold by a licensed agent through an online bidding system.
Bids are sealed so that other buyers cannot see how much you are bidding. It is illegal to buy a HUD home stating you will be an owner occupant but in actuality it will be used as an investment property.
HUD allows homebuyers who want to live in the home to bid on properties that qualify for FHA loans during the first 15 days. This time period is restricted for only bids by owner-occupants. If the home is not in acceptable condition per FHA guidelines, the time period is reduced to just five days for owner-occupied bids. it’s worth noting that during the inspection phase, prospective buyers are required to pay for all utilities charged.