Before you plunk down your hard-earned cash for what seems to be the perfect home, step back and take time to consider the following:
A Comparative Market Analysis
Ask your REALTOR® to provide you with a Comparative Market Analysis (CMA). A CMA compares similar homes in the same neighborhood that have sold in the past six months to a year or are still on the market. The house you want should compare favorably in price, with the price properties sold for being more indicative of real estate value than the listing price. The more similar the features (square footage, number of rooms, number of bathrooms, age, lot size, etc.) and the more recent the data, the more accurately the CMA reflects the current market.
It’s also useful to look at how quickly homes are selling in the neighborhood. If similar houses are selling rapidly (within a month or so) at close to their listing price, it’s a sign the home you are interested in is probably priced fairly and will be more likely to appreciate in value over time than a home that has sat on the market for a year or more.
Location, location, location
It’s an old real estate saying that the three most important factors to consider when buying a home are all location. It’s certainly true when determining price. The least fancy home in a good neighborhood is worth more, in the long run, than the fanciest house in a bad neighborhood.
To evaluate the house you want, research the local housing market. Browse the Internet, local newspaper ads and real estate publications. Visit nearby open houses, talk to the neighbors and keep your eyes open. The best neighborhoods have:
- Good schools
- Proximity to public transportation
- Convenient amenities like grocery stores, parks, a post office and a doctor’s office
- No environmental hazards -- clean air, water and soil, and minimal noise pollution (visit at night and listen for traffic, trains, planes, barking dogs and loud neighbors)
- Low crime
Also, find out how much it will cost to live there. The house itself may be a great value, but the cost of taxes, water, electricity, natural gas, oil, television and telephone could be inordinately high.
The condition of the home
Look past cosmetic repairs such as a fresh coat of paint and new carpeting. These could disguise defects such as peeling walls or cracked flooring. And try to ignore decor. Those beautiful paintings, vases overflowing with flowers and freshly baked cookies won’t be there when you move in. Focus instead on basics that add value:
- A solid structure -- well-constructed walls, floors, ceilings, doors and windows
- A roof and basement that don’t leak
- Heating, electrical, plumbing and other systems that work
- Kitchens, bathrooms and bedrooms with the space and amenities to meet your needs
- No signs of termites or other vermin
- No signs of mold, rot or water damage
Your current and future needs
Ask yourself how many bedrooms and bathrooms you need for the next few years. And whether you need, and are willing to pay for, space for a home office, a garage, air conditioning, a swimming pool, etc. It’s not worth paying for amenities you may want but don’t really need.
A well-designed, renovated kitchen or basement, or extra rooms are usually worth paying more for. But only pay more for extras such as fancy tiles if you want them to improve the quality of your life. Unique extras that may have cost the owners $20,000 are unlikely to add $20,000 in value to the home when you decide to sell.
A home inspection and appraisal
It’s always wise to make your offer conditional upon a home inspection. A reputable home inspection company will provide you with a report that identifies existing and potential problem areas, suggestions on how to solve these problems and a cost estimate for any work you’ll eventually require.
It’s also a good idea to have the home’s market value professionally appraised. Your lender may require a home appraisal in any case before providing you with financing. Home inspections and appraisals usually each cost around $200 to $500.