A couple in their early 30s -- a writer engaged to a federal employee -- spent months preparing to buy their first jointly owned property. They both clocked hours at second jobs to help build a substantial down payment. They perfected their credit scores and then met with a lender to gain mortgage preapproval.
Just hours after they left their lender’s office, they immediately happened upon a house they loved from the moment they stepped inside. It was a brick colonial with gleaming hardwood floors, an updated kitchen and an artfully landscaped patio. Excitedly, they made a nearly full price offer for the place, which pushed them to the top of their price range.
But will the couple in this true story later suffer buyers’ remorse? Despite their love-at-first-sight feel about the property, should they have done more comparison shopping before bidding on the first house they’d toured with their real estate agent? Should they have thought through the pros and cons of the neighborhood? Longtime real estate pros say only time will tell.
“When I hear buyers have fallen in love with the first house they visited, I cringe. That’s like marrying the first person you’ve ever dated. That person could be absolutely wonderful. But have you had enough experience to know for sure?” says Merrill Ottwein, who heads his family’s real estate brokerage
This year, many buyers are grappling with tight inventory markets, rising mortgage rates and competitive multiple-bidding situations in popular neighborhoods. This buying frenzy is also fueled by home values that are still rising.
Lawrence Yun, chief economist for the National Association of Realtors (realtor.org), predicts that the volume of home sales will drop slightly this year. But he projects that prices will continue to rise, which only adds to the sense of urgency among buyers determined to make a purchase in coming months.
“Realtors in most of the country continue to describe their markets as highly competitive and fast-moving. But without enough new and existing inventory for sale, activity has essentially stalled,” Yun says.
If you’re seeking to own in a place where demand exceeds supply, it can be tough to guard against a mistaken property selection. Here are a few pointers:
-- Search for an area where properties are selling quickly.
Obviously, those seeking to buy for appreciation potential should avoid neighborhoods where many homes languish unsold for a lengthy time. Indeed, evidence that available properties are snapped up quickly is a strong sign of the desirability of a community.
“You’re unlikely to experience eroding values in any area where homes are flying off the market,” Ottwein says.
How can buyers gauge the velocity of sales in an area they’re considering? He suggests they ask their real estate agent for statistics on “days on market” for homes sold in the area during the past two years or longer. The quicker the sales, the more coveted the community.
-- Screen for pride of ownership.
Though sales statistics and census data speak volumes about a neighborhood, subjective information can be equally meaningful.
Ottwein encourages buyers to stroll through any neighborhood they’re considering to look for signs that residents are committed to upkeep -- including the greenery that surrounds their homes.
“Pride is not an intangible when it comes to real estate. It translates into carefully manicured lawns, fresh paint and the absence of such unsightly clutter as junk cars and beat-up building materials,” he says.
-- Don’t rule out an up-and-coming city neighborhood.
Fred Meyer, a real estate appraiser and broker who sells property near Harvard University, says more Americans are becoming like Parisians in their preference for prime city and semi-city areas over communities deep in the suburbs. And that bodes well for values in popular urbanized areas.
“The outer concentric circles around metropolitan areas won’t appreciate as much in the future,” Meyer says.
One way to identify prime urban or semi-urban communities is to look at data from the U.S. Census Bureau -- available online -- which show where high-income people are living.
Why is a wealthier neighborhood a better bet for appreciation? Because over time, Meyer says, “rich areas tend to progress in value, while poor ones tend to regress in value.”
He advises buyers to choose the wealthiest neighborhood they can afford -- even if that means picking one of the smallest homes there.
“Want good clues to a city neighborhood that should hold and gain in value? See if there’s a Starbucks nearby, or pricey restaurants or an upscale department store. Those are very strong signals,” Meyer says.
-- Choose a home with both now and later in mind.
Ottwein says more purchasers now view real estate as a durable good -- like a car or a refrigerator -- that’s purchased for its utility rather than appreciation. But he says all buyers should also factor in a property’s resale potential.
“A home is the ultimate price-sensitive purchase. Buy it the way you would a growth stock. People who think only about lifestyle get hurt,” Ottwein says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)