STEP FIVE: EVALUATING DIFFERENT COMMUNITIES AND TAKING TIME TO RESEARCH HOUSING MARKETS
It’s a good idea to do some fact-finding before you start looking at homes. After considering the communities you would be interested in, now it is time to narrow the search to find your new home. Review your notes and decide where you want to conduct your home search. Use our Community Research Checklist to help you decide on the right location. Your agent can help you review recent sales activity in the area to get some idea of what you can expect to find in your price range.
- Evaluate the Real Estate Market
Real estate markets are extremely cyclical, with pricing and demand greatly influenced by interest rates and economic conditions. Flexible buyers and sellers can often do very well by timing their entry into the market.
- Choose a Weak or Strong Market?
Most people who buy a home also have one to sell. Thus, except for first-time buyers, it may be difficult to determine the most advantageous time to enter the market. It’s important to consider all aspects of the transaction – the homes being bought and sold, interest rates, time pressure, etc. – to determine what is best for you.
- When is a Weak Market Best?
Generally, it is advisable to act during a weaker market when moving up – purchasing a more expensive home – since a bargain on an expensive new home will offset losses on the old one.
- When is a Strong Market Best?
If you are downsizing – moving to a smaller home – you may want to act during a strong market to maximize gains on your larger, current home. Retirees and empty nesters are the primary members of this group. Since a home is a major asset, choosing the right time to sell and then buy a smaller property can have a major impact on retirement savings.
- Signs of a Weak Market
A weak market is characterized by large numbers of homes on the market and stable or declining prices. During such times homes tend to sit on the market for fairly long periods, and sellers may have difficulty finding buyers – so this is the time to find a real bargain.
- Signs of a Strong Market
A strong market is characterized by appreciating prices, tight inventories, and short selling times. Buyers may have a difficult time finding a suitable property in their price range.
- Signs of an Overheated Market
Overheated markets are characterized by rapidly increasing prices, extremely low levels of available inventory, and bidding wars for attractive properties. While obviously an ideal time to sell a home; buyers should exercise extreme caution when purchasing during an overheated market. Prices almost always contract sharply when the economy falters.
- Market Lag
Popular perceptions and pricing often lag behind the actual turn of a market. For example, prices are often slow to react to the onset of adverse economic conditions, as sellers and agents are reluctant to accept the change until properties have languished on the market long enough to force price reductions.
- Choose a Weak or Strong Market?
COMMUNITY RESEARCH CHECKLIST
While much of your opinion of a town will be based on your own viewpoint and impressions, there are some objective standards to review as well. Consider these factors when researching a community.
- Is the community accessible?
Access is a key consideration of any location. Is the area well served by major highways and public transit? How far is the nearest major city? The closest airport? How long of a commute will you have?
- Is the school system highly regarded?
School quality is a crucial factor in property value, so it is important even if you do not have children. Are the school buildings and grounds well maintained?
- What is the reputation of the community?
Is the town considered an upscale community? Reputation can be important – sought after towns tend to appreciate strongly during good markets and retain their value best when the economy falters. Keep an eye on pricing, however, and make sure there are offerings within your price range.
- Is there significant development in the area?
This can be a source of strain on the community as local services become stretched by the growing population. However, it also indicates that the area is in demand and that property values may continue to grow.
- How are the town services and recreational facilities?
Does the community offer parks and other recreational amenities? What services are provided by the town – police, fire, garbage collection, etc.? Is there municipal sewer and water service?
- Are property taxes high?
It’s important to check out the real level of taxation. Since many communities use old or outdated assessments, the specified rate may not tell the whole story. Check on the actual tax bills of houses of the size and type you plan to buy – this should give you an idea of what to expect. Also, check to see how quickly taxes have been rising in recent years.
- Is there shopping and recreation nearby?
Few homeowners want to drive a significant distance to buy groceries or see a movie. Check to see if the town is well served by stores and recreational facilities.
- Are there potential problems specific to the area?
Try to discover any potential problems that may impact your quality of life. Is there excessive traffic in the area? Are there any proposals or plans to build an unappealing facility – power plant, prison, etc. – in the area?
- What is the current status of the local housing market?
Real estate markets are highly cyclical. The current status of the market can have a significant effect on your home buying strategy. Try to develop an understanding of the state of the market, so you’ll have some idea of the conditions to anticipate when shopping – and a feel for how hard you can bargain when negotiating.
- Is the housing market hot or cold?
Unless you’re a first-time buyer, you’ve probably got a house to sell while you’re shopping for a new home, so it’s not easy to determine if a strong market is helpful or harmful. As a general rule, if you are moving up – looking for a new home significantly more costly than your old one – you may want to act during a weak market when the savings on an expensive, new property will more than outweigh the losses on the older one. Conversely, empty nesters looking to switch to a smaller home may want to plan their move during a hot market, when they can maximize gains on the sale of a larger home.
- When is the best time of year to sell?
In most markets, there are two primary selling seasons – spring and fall. Spring is the strongest since many buyers want to move in before the next school year begins. Summer and winter are generally poor selling periods. Avoid marketing your home at these times if you can. Of course, some areas have their own specific seasonality. If you are selling a home in a seaside vacation spot, for example, summer is an excellent time to be on the market.
- Understand Recent Area Sales
Don’t listen to anecdotes about bidding wars and homes getting snapped up in one day. There is no substitute for accurate information. Check out the actual sales prices of area homes, and try to get a feel for what is really happening in the marketplace. Your real estate agent can access past sales information quickly and is the best person to help you understand what has been happening in the areas you are considering.