But you, my friend, are free to buy as much home as you can get for as little money as possible. In fact, I would encourage it. That doesn't mean you won't have a potential tax obligation down the road if and when you resell for what could be a much higher price. Nor does it mean your property-tax authority will calculate your assessment based on what you paid for the place. It will attach its own estimated -- or appraised -- value based on past assessments, similar transactions, estimated market prices or some combination of the above.
As for the sellers: If they're relatives and passing along the house to you at a discount, they'll need to bone up on the IRS rules on "arm's-length" transactions and structure the sale accordingly. By the way, a single person can gift an annual equity amount of $13,000 ($26,000 for a married couple) without tax liability unless they have hit a lifetime threshold gifting limit of $5 million (it was upped for 2011 and 2012). Of course, this may be a moot issue for you if no kin are involved.
With the market tumult of late, you may be a little confused on what constitutes fair market value. If you are buying a home for 30 percent to 35 percent less than it sold for five years ago, you may be paying today's real-time market rate depending on real estate conditions in your area.
If you are still convinced that you're buying significantly cheaper than market value, I would suggest ordering an independent appraisal to get the most accurate, up-to-date valuation. That appraisal will factor in neighboring foreclosures and short sales and other distressed sales as well as conventional sales.
As you are probably are coming to realize, a home's estimated market value and its ultimate sales price aren't always one and the same.
Also, be forewarned that if you're buying a short sale home, meaning the seller's lenders are accepting a discounted payoff to release the mortgage, such transactions have a tendency to take much longer than conventional sales -- sometimes up to six months or even longer. For some buyers, that takes the luster off a deal.
But barring that, you might just be in the right place at the right time. Good luck.
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