As much as the economy has changed over the last year, not much has changed in regards to people’s interest in finding a “Good deal”. People have always been interested in finding a good deal on a home. Today’s economy is no different. The challenge facing many buyers in today’s market is understanding what makes a good deal. It might be easy to assume that a bank-owned property or foreclosed property is automatically a good deal. That may or may not be true. Hopefully the following advice will help guide you as you search for your “Good Deal”.

Before we can outline the steps of analyzing a good deal, we need to define “Good Deal”. For the purposes of this writing, a “Good Deal” will be defined as: A home that fits the needs of the buyer in a location that is generally desirable to the new owner which is also conveyed in a condition fitting for the price.  
 

First and foremost, it is vitally important to remember that price is not the most important thing to a home. While I cannot overstate the importance of being able to afford the payments on a house, the price of a home does not necessarily qualify it as a good deal. Frequently, the first question asked about a house is, “What’s the list price?” Don’t be lured into the temptation of buying a cheap home because it’s cheap. Houses in Detroit can be purchased for $3,500—that doesn’t mean they are good deals. It just means they’re cheap houses.

“Wait” you say, “are you saying price doesn’t matter?”

No.

Price matters a lot. You can do the analysis on your own or a good real estate agent can analyze the prices of homes in a subdivision or neighborhood to tell you what is going on with prices and activity in a neighborhood. One thing to consider when looking at what are called “Comps” (comparable properties) are the number of houses sold vs. the number of houses available on the market. Depending on the neighborhood, you might not want to buy a home that is priced well for today’s market if there is a 5 year supply of houses that could drive down prices after you buy.  There are no great rules of thumb for the amount of supply you should be aware of. The primary thing you will want to be alert about is the reality that an abundance of properties on the market and slow movement of inventory will typically drive prices down.

The second major guideline for analyzing the degree to which a home is a “Good Deal” is a thorough analysis of the location. Major red flags to watch for in location are the presence of a flood zone, watershed, train tracks, or other industrial nuisances. Believe it or not, people will build homes anywhere. Houses have been constructed in the median of highways. So don’t assume anything. Take a look on Google Earth and drive around the neighborhood. Drive around the neighborhoods around the perspective neighborhood as well. Know where you are purchasing before you purchase anything.

The third major guideline for looking at a “Good Deal” is to make honest and fair assessments about the condition of the home. Typically, discounts are made more heavily for houses in need more substantial repairs. A loose doorknob or burned out light bulb do not typically warrant a substantial discount from a bank or a home owner under duress. Going into a house in need of repair might require the assistance of an experienced general contractor or a handyman depending on the amount of work needed. The most important thing to remember about repairs as a prospective buyer of a home is the fact that banks do not typically loan money for repairs of houses. Therefore, the repairs of the home will be paid for out of your pocket. It is also important to know that if the condition of the home is bad enough, there are certain types of financing that will not be available.  Do your homework before you start the work on your home and you might be able to stay in your budget.

The last piece of advice is the hardest. Think long-term. Don’t get too caught up in today’s economy and the prices today. Your concern is the future (unless you plan on flipping houses—which, BTW, is a bad idea right now). While the market analysis will hopefully protect you from making a bad investment today, the value of your home in 5-10 years from now if far more important. Predicting the future is a tricky thing, which is why no psychic has ever won the lottery. The following questions can help guide your thinking as you think about making an investment:

“Has the area generally been improving over the last few years?”

“How well are the yards kept in this neighborhood/area?”

“How desirable are the school districts?”

“What sort of neighborhood services are available/coming soon?”

“Are people like myself moving to or moving away from this area?”

“What kind of history of violent crimes does this area have?”

“Compared to similar priced homes, how does this home stack up? What about more expensive homes?”

 

There are no right or wrong answers to the questions above. The questions are meant to help you have focused thoughts about the location which you are considering. Two people might give two dramatically different answers to the same questions about the same home. 

The most important part of analyzing an opportunity to sell a home is to not get caught up in the price, take an honest assessment of the location and condition, and then to look forward into the future trends of the area. If you are able to do these four things well, you will make a good investment into a home that may pay dividends when the economy recovers.