4 ways to avoid buying a ‘dream home’ that’s actually a financial nightmare
Originally published at USA Today
by Adam Shell
When shopping for a home, doing some detective work can help ensure your investment is a good one.
Emotions play a big role in real estate decisions, and it’s easy to fall in love with a home at first sight. But it’s important to do some digging before you buy it. You want to make sure the property doesn’t come with any hidden negatives that could later cause its value and appeal to slip.
That means not getting too caught up with the fresh coat of paint or the newly renovated kitchen and bathrooms. And, instead, identifying anything that might “detract from selling the property down the road,” says Peter Murray, a realtor with RE/MAX Plus in Frederick, Maryland.
You don’t want to be blindsided, for example, by your town’s building inspector informing you the flipper you bought from didn’t get required permits for the renovation. Or later learn that the crack in the kitchen wall is due to a sinkhole. Or that your kid won’t be able to attend a top-rated school due to a redistricting plan you should’ve known about.
Donna Gola, a team leader at RE/MAX Elite in the Seattle area, says buyers new to her community can run into trouble if they don’t stay abreast of local issues that could impact a home’s value. Noise-afflicted towns like Everett caused by airplanes taking off and landing at the new Paine Field airport is one such homeowner headache. Others include newcomers whose property values might be affected by “slide areas” in rainy Washington state or neighborhoods where traffic is heavier, as is the case near a new ferry terminal set to open this fall in Mukilteo.
When it comes to resale, Gola says: “If there is something that bothers you about the house, that is going to bother someone else later on.”
To avoid buyer’s remorse, “research the living daylights out of the property you are buying,” Murray says.
That means scouring public data records for statistics on crime, home price trends and school budgets. Researching any coming zoning changes. And spending extra on a structural engineer if your home inspector suspects foundation issues.
“Even if you think it will be your ‘forever home’, you have to think about reselling — life happens,” says Angela Veselov, a realtor at Premier Properties of South Florida. “You want to make sure the value and appreciation potential is there and that there will be demand for what you invested in.”
Here are tips on how to find out the things that could turn your dream home into a financial nightmare.
Do research before a home purchase
Buying a home is often the biggest investment of one’s life. It’s not enough to do a home walk-through. Or take someone else’s word about how great and safe the neighborhood is. You need to see it for yourself.
“Take a ride into the neighborhood at different times of day,” says Veselov. “At rush hour. When the school busses come around. In the evening. And see if you like it.”
Compare comps on other home sales
Analyzing a home’s and neighborhood’s historical sales price data can give you an idea of whether values are appreciating or depreciating. A review of past sales that show a string of lower selling prices could signal that future appreciation is far from certain. “If it did take a dip, was there a good reason or a bad reason?” Murray says. “You’ll want to have an explanation.”
It’s also important to make sure the home you’re considering has the general amenities, in-home functionality, and architectural style that fits in with other homes in the neighborhood.
A home’s resale value could be hurt, Murray says, if you buy something that’s “super custom specific” or has “poor design.” Why? It will be less attractive to a broad pool of buyers.
The more functional the home is, the better. A home listing with five bedrooms might sound great. But if three are located in the attic and basement, or you have to walk through one bedroom to get to another one, the home’s value could lag those where all five bedrooms are located on the main living floors. Similarly, a home that has undergone many additions that don’t blend in seamlessly with the original house could also turn buyers off.
“You want to be very careful of buying a property with poor design or one in which you can’t utilize the property in the way you want,” says Murray.
And if research shows the top-priced comps in your area are $500,000 and you pay close to that, make sure you don’t throw $200,000 more into the house. So-called “over-improvements” should be avoided, as you’ll likely not get back the money you put in, says Veselov.
Get help from professionals
A home inspection performed by a licensed pro can alert you to potential problems. Foundation problems or mold-related issues are good examples. If your inspector says he “recommends further inspection” of something that’s beyond his expertise, spend the extra money on a specialist.
“Buyers should look at the inspection process as an investment in their future,” says Murray. “It’s no different than health care: you wouldn’t want your primary care doctor to give you specialized cancer treatment.”
Real estate agents can also help. Last year, Veselov recalls a client relocating to Florida who fell in love with a property near the water. But after learning their children would be attending school there, Veselov pivoted and found them a similar property in another waterfront community with a higher-rated school system.
Review documents at town hall
Public documents are rich with information. So, before you close on your home, go to the town hall and make sure, for example, that all the walls the seller knocked down to create that open concept was done properly and there are permits to prove it, Veselov advises. If any permits are pending, she adds, make sure they are all closed out.
Staying current on zoning rules or changes is also critical, especially when it involves rezoning, rules pertaining to septic tanks, or historical preservation rules. Murray says potential buyers should check in with their state, county, and local governments to see if any zoning-related changes are coming. “Are they planning to put a highway in your backyard, or take your home through eminent domain or allowing a cement factory to be built across the street?” Murray says.
Another red flag is if the home you’re eyeing has recently been added to a federal flood zone map or soon could be, as that could cause values to drop and higher costs for flood insurance.
Reviewing all relevant property documents also applies to condos, Veselov says.
“Make sure you look at all the publicly available information on a condo that you can get your hands on — minutes of condo association meetings, the budget, all those types of things,” Veselov says. Yellow flags include inadequate condo reserves, fast-rising HOA fees, and plans to charge unit owners a costly one-time assessment.