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Five questions every home buyer should ask before making offer

Ilyce R. Glink
Vail CO, Colorado

These days, life looks pretty good if you’re on the buying side of a real estate transaction.

The number of homes for sale is at an all-time high and continuing to rise, according to the National Association of Realtors. The number of vacant homes is also at an all-time high. Developers are so desperate to unload houses that they’re cutting prices in addition to offering free extras and upgrades.

But before you whip out a pen and fill in your offer to purchase, there are five questions every home buyer should ask:

1. How long do I plan to stay in this home?

This is the most critical question you can ask when going through the home buying process because the answer can change what you buy, how much you pay for the property and how you finance it.

Most home buyers tend to stay in their primary residences for five to 10 years. In the past few years, as the price of real estate was soaring and home-owners sought to capitalize on that, many people began treating their pri-mary residences more like a piece of investment property. They’d buy, reno-vate (or not) and flip for big profits. Often, they’d plow their profits into a bigger, more expensive property.

With the real estate market slowing in many parts of the country, it makes sense to ask how long you plan to stay, because short-term purchases will like-ly be money-losing propositions. It takes a savvy buyer to find a fixer-upper that can be renovated and flipped for a substantial profit in two to three years.

Once you figure out how long you plan to stay, ask yourself what would happen if you had to turn around and sell the property in a year. If you had to pay a 5 percent commission, plus other costs of sales plus moving expenses, and the property didn’t appreciate at all, would that change what you’d pay for the property today? Of course. You’d probably make a lower offer.

Be sure to take the length of time you plan to stay into account, but then account for a surprise move when cal-culating the price you offer the seller.

2. How desperate or anxious is the seller?

Sellers used to go to great lengths to avoid letting buyers know why they’re moving. In most cases, people move because they accept a job offer in another location, they don’t feel the local schools meet the needs of their children, or they aren’t a good fit with the neighborhood.

But sometimes sellers move because of a death in the family, job loss (the property becomes unafford-able) or a divorce.

Finding out exactly why the seller is selling should be a top priority for all buyers and their agents. You also need to find out what kind of timeframe the seller is working under ” in other words, how desperate and anxious they are to sell and move.

The current buyer’s market has pro-duced record numbers of desperate and anxious sellers. In some cases, you have sellers who have already pur-chased and moved into their new homes. For them, every day that their property sits on the market translates simply into less cash back at the closing ( assuming there is cash to be had).

You might also find sellers who are barely ( or not) keeping up with their mort-gages, and who are overextended finan-cially.

If you find a desperate and anxious sell-er, you’ll want to use that knowledge when constructing the offer. Desperate and anx-ious sellers are much more likely to accept a lower bid than sellers who feel they have all the time in the world to sell.

As real estate markets change, it’s important to keep asking questions that will help you figure out whether buying a piece of property is a good idea or not.

3. Is the local economy stable, improving or declining?

Recently, the U. S. Commerce Depart-ment revised downward its estimate of the U. S. economy during the first quarter of 2007. The Commerce Department said that the economy grew only 0.6 percent during the first quarter. That’s the worst performance since the brief recession of 2002.

When economic growth is anemic, most metropolitan areas will feel it in some ways, although not all. But asking yourself whether the local economy is sta-ble, improving or declining is important because projecting where the local econo-my is going can have a profound impact on whether your new house will appreci-ate and how long it may take to sell down the line.

For example, the state of Michigan has been in an economic downturn for the past several years. Detroit, home of the U. S. car industry, has been fighting Japanese and other foreign automakers for some time. Thousands of people have been laid off from good- paying jobs as the major car manufacturers struggle to get their compa-nies turned around. At the same time, the state’s tourism has been declining, and higher gas prices aren’t helping.

If you’re buying a house in Michigan, you have to think carefully about whether your local area is stable or is in a boom or bust mode. Michigan’s economic prob-lems appear to be long- term and it’s unclear to most housing economists how the state is going to work out these issues. Buying a house may mean taking an out-sized risk if you’re not planning to stay there for 10 years or more.

On the other hand, if you’re buying a home in Phoenix, life looks a little differ-ent. Although there is a glut of homes on the market for sale, the economy in Phoenix continues to hum along. Most people are moving to the state than are leaving, so housing economists believe that the buyer’s market and local econom-ic slowdown are temporary.

4. Is this neighborhood stable or in flux?

After nearly 15 years of continuous growth, many real estate property owners had forgotten that markets can change on a dime. And, in fact, it’s almost as though the real estate market starting moving in the opposite direction overnight.

But while it does appear that we’re tak-ing a breather in terms of sales, it’s impor-tant to take a hard look at what’s going on locally. Look for clues that a neighbor-hood is stable ( lawns and homes are taken care of, schools are good, and businesses thrive over the long run) or in flux ( build-ings are either being remodeled or are dilapidated, there’s an effort to clean up areas or you’ve noticed more garbage on the streets, etc.) Talk to local residents, school officials and local business owners. Walk the streets during the morning and evening commutes, and during the day. The only way you’ll really see what’s going on is if you’re there, in person.

5. What are the big negatives to this property and can I live with them?

Often, when we look at real estate, we start to lose our ability to be objective. Things start to get personal, and the clos-er we get toward finding the right proper-ty, the more personal things become.

The truth is, no property is perfect. But if you don’t to recognize the major prob-lems with your property ahead of time – before you make an offer – you’re going to have a tougher time selling down the road.

Once you’ve identified all negatives attached to the property, think about whether you can live with them, and whether there will be enough people who can also live with them so you’ll have an easy time selling.

Don’t be afraid to look at the negative aspects to a property. You can always adjust what you’re willing to pay to com-pensate.

Often, when we look at real estate, we start to lose our ability to be objective.


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