As a homebuyer, how can you pinpoint a property that will gain value in the future rather than decline? Instead of relying on hunches, Allan Weiss suggests you take an analytical approach.
Weiss is founder and CEO of a new company he contends can help buyers (and sellers) avert costly timing errors. Called Weiss Residential Research, the firm was started to help Wall Street better track real estate values. But its reports are now available to consumers, as well.
"Before you buy any house, you want to be sure it's not weakening in value -- unless you're getting a tremendously good deal or plan to live there for a very long time," says Weiss, an economist by training.
Weiss is no stranger to the science of property valuations. He was involved in the development of a price tracker that's widely used to chart the direction of home values. Now known as the Case-Shiller Index, it follows pricing patterns in more than 5,000 U.S. ZIP codes.
In contrast, the new Weiss index seeks to provide more precise reports on individual houses. These are designed to predict if a property will rise, fall or stay the same for a period of at least one year into the future. In essence, Weiss, which now has 50 million homes in its massive database, offers an early warning system for what's ahead.
To make its predictions for a particular property, the new company draws on widely available data -- such as tax assessments and appraisal reports -- for like homes near the subject property. Weiss says that's a more precise approach than taking an average of varied properties within the same ZIP code.
"Suppose that within the same ZIP code you have some houses worth $200,000 and others worth $2 million. They're going to have very different supply-and-demand economics. You've got to watch out for averages, which can be very misleading," Weiss says.
For a $25 fee, you can purchase a trend report for a particular property through the Weiss website (www.weissres.com). This is designed to tell you -- in percentage terms -- how the value of the property has changed in recent years and what to expect within the next year or longer.
But as the company's founder acknowledges, a Weiss report won't give homebuyers a dollar estimate of the current market value of a house they're considering. To obtain that, he recommends they turn to a real estate agent who works in the area on a day-to-day basis.
"All real estate is local, so there's no substitute for a good buyers' agent from the neighborhood," Weiss says.
Here are a few other pointers for homebuyers:
-- Try to purchase for a long time horizon.
Merrill Ottwein, a former president of the National Association of Exclusive Buyer Agents (www.naeba.org), says more buyers now view real estate as a lifestyle purchase than an investment. But he says all purchasers should factor in a property's resale potential.
Though resale estimates aren't always entirely reliable, you can increase your odds of a good outcome by buying to hold rather than as a short-term purchase.
"If your time horizon is too short -- say just a couple of years -- you may not even recoup the transaction costs you paid to get into your house in the first place. In general, it's better to plan to stay for at least three to five years," Ottwein says.
"Select the property as you would a growth stock," says Ottwein, a real estate broker who heads his own family firm.
-- Buy in a neighborhood with a high velocity of sales.
Clearly, those seeking to buy for appreciation should avoid places where foreclosure signs abound. But evidence of a high velocity of closed sales normally indicates the desirability of a neighborhood, Ottwein says.
As a homebuyer, how can you find out about the speed of sales in an area you're considering? Ottwein suggests you ask your agent for statistics on closed sales for a period spanning at least two to four years. If sales volumes are increasing, that's usually a favorable sign.
-- Look to popular urban centers for potential price increases.
Fred Meyer, a real estate appraiser and broker who sells property near Harvard University, says more Americans are becoming like Europeans in their preference for in-town living. And that bodes well for values in popular urbanized areas.
"Many people are sick of long commutes by car. They love to live near work," Meyer says.
One way to identify up-and-coming city neighborhoods is to look at data from the U.S. Census Bureau.
"The best choice for buyers is often a less expensive house surrounded by more expensive ones. That way, you should eventually get an upward progression in value for your home," Meyer says.
Besides consulting census data, another way to analyze the income levels of a community is to see if high-end retailers have a presence there. That's because such retailers do lots of due diligence before entering a market.
-- Factor school data into your thinking.
Unlike singles and empty nesters, homebuyers with school-age children are usually highly attracted to close-in suburbs where playmates are plentiful and schools are well rated.
"For families, good schools are a hard qualifier --meaning they're at the top of the 'must-have' list," Ottwein says.
Even if they don't have offspring, he says buyers can't afford to ignore data on school quality. That's because houses in neighborhoods with top schools are much more likely to hold or grow value than are those served by mediocre schools.
What data should you consider when judging schools? Ottwein says it's wise to look at test scores and the percentage of graduates who go to college. Also, an increasing number of states and localities now issue comparative school rankings.
-- Search for an area with rising employment.
Though property values are expected to stay strong in many walkable city centers, Ottwein says you can also find property prone to appreciation in selected suburbs where high-tech start-ups are proliferating.
"Employment is what these start-up communities are generating. That's what makes them promising for homebuyers," he says.
-- Seek an area where pride of ownership is obvious.
Though sales statistics and census data speak volumes about a neighborhood, subjective information is also meaningful, Ottwein says.
In particular, he encourages homebuyers to stroll through any community they're considering to look for indications that residents are committed to upkeep --including the greenery that surrounds their homes.
"Rule out a neighborhood where paint is peeling and weeds are overtaking grass. And remember that even in a wealthy area, you could be hurt by an eccentric multi-millionaire who keeps junk cars in his driveway," Ottwein says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)