Buying a home is one of the most exciting moments in life.  It can also be one of the scariest. The question in every buyer's mind is: "How Do I make Sure that I'm not paying too much for this house?"  In today's market, this is a valid concern.

I was doing some research on line today.  Today it's not unusual to see homes which had been reduced tens of thousands of dollars...I'm talking between $20,000 ~ $30,000 and still remained unsold!  In the higher price ranges, the downward shift was even more bone chilling...$100,000 ~ $150,000 or more. That kind of depreciation can feel like you're watching your money burn.

Inventory levels are at an all time high.  If no additional homes were listed in Grand Rapids, Michigan the current rate of sales would take the homes currently listed about a year to sell.  This is what real estate agents refer to as the Absorption Rate...the rate at which homes are being absorbed in the current local market. 

The absorption rate is important to follow.  When it begins to fall or rise, it foreshadows a turn in market conditions. For reference purposes, a healthy rate of absorption is between 4-6 months of supply.

So, what's a buyer to do?  There is a risk to purchasing and paying over market value for a home.  But there is also a more insidious issue...the FEAR of being so cautious about making a mistake that you miss a deal that's literally "dancing across your eyelids" in the hopes that you'll blink and take notice. 

You see, every market has its' great deals and its' lousy deals. It's not so much a function of the market as it is in knowing when you should hold on to an asset and when you need to let it go.  AND everything hinges on HOW you buy the asset in the first place.  Buying an over valued asset guarantees that money will be lost...your money.  The key is identifying when this is about to take place.

Correctly discerning when money is going to be lost in a real estate transaction is a skill that requires precision, attention to detail and the wisdom of experience. In truth...there's also an element of luck involved. There are some situations which no advance preparation can completely protect against. Life happens...devastating financial reversals in a local economy can wreck havoc with pricing and subsequently a community's home values. 

Nevertheless, there are some simple steps that can help you to assess what to pay for a particular home.

1.  Know Your Market~

• Contrary to conventional wisdom, I do think that home buyers have a responsibility to do their own independent research.  Go on-line and look at homes, visit Open Houses and model homes and talk with friends who have bought homes.  When you do these things AND talk with a competent professional real estate agent, you are much more likely to understand WHAT questions you need to ask AND to understand the implications of the counsel that you are being given.  So often, I see clients who are given excellent information not follow it because they don't know enough about the issues at hand to make a good judgement.

2. Interview more than 1 Agent. ~

• According to data compiled by the National Association of Realtors, most people will only interview one agent. This is not wise.  There are significant differences in the service and experience levels offered by real estate agents.  Most people would not buy the first car they looked at on a lot or forgo having a second opinion when facing a major medical decision.  Purchasing a home correctly is a hefty financial obligation.  Give yourself the benefit of comparing your options.  Choosing the right real estate agent greatly increases the likelihood that you will have the information necessary to make the right offer.

3.  Insist on a Comparative Market Analysis AND a Neighborhood Analysis.

• At a time when prices in some locations can plummet as much as 25% within a six month period, it's important to have as much information as you can prior to making an offer.  A properly prepared Neighborhood analysis will enable you to make comparisons across different neighborhoods.  If you are not constrained by a school district, this can afford some incredible opportunities to purchase a good deal.  When you compare similar homes in different areas, it is possible to identify which areas are holding their value. 
• A Comparative Market analysis is the traditional vehicle for determing a home's value.  Often this is ONLY made available to home sellers.  As a home buyer seeking to protect your investment, you should INSIST that you are given access to this valuable information.  A good real estate agent will modify the Comparative Market analysis to ensure that as a home buyer, you are obtaining the information which allows you to make an educated decision about a particular home purchase.

At Audu Real Estate, we provide a number of specialized services to clients who are interested in making a solid investment. We understand that the Value of a Home can never be reduced to simple monetary terms. However, we know that for many home buyers, the prospect of making a poor decision is daunting. Our goal is to put our considerable experience and resources to work for our clients and assist in facilitating a transaction which enables your dream home to remain an excellent investment. 

Photo courtesy of Johannes photo stream on flickr.com

Copyright 2007 Audu Real Estate  All Rights Reserved

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