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August 30, 2009

What Would I Buy?

What Would I Buy?

I often wonder when a buyer asks me what “I would buy” if given the existing inventory.  I love this question and when we (my partner/sister and I) go out to broker’s opens to preview new inventory…we always play this game.  What was the best deal today?  Best house for the least amount of money in other words.  When we go to broker’s opens we can see many homes in several price ranges of course.  But it usually works out that one or two stand out on their own regardless of the other price ranges (meaning compared to that $2 million dollar house how was the $900K house?) 

“Which house holds the most potential?” is usually one of the questions that runs through my  mind when thinking this way.  “Potential” – what is does that mean?  Lots of things go into the potential-bag.  Location is one of the key items in my potential-bag,  Location is so important.  A good location will appreciate more in an ‘up-market’ and go down less in a “down-market.’  This is huge.  I’d rather have a smaller house that needs some work (cosmetic) in a better location than a nicer bigger house in a worse location.  This is a huge part of Potential.  No one wants a “dump,” but a dump can bring in more money in the long run if you are willing to put in some work.  Cosmetic dumps are what you are looking for.  A house with “good bones” we call it.  That means the floor plan is pretty good to start with (not having to move too many walls.)  Opening up a wall between the kitchen/family/dining room is no biggie…but re-arranging locations of bathrooms &/or kitchens is a huge biggie.  This is not cosmetic…now we are talking “structural” and that gets expensive – if you have to hire an engineer it’s not cosmetic. 

Potential also can mean comparing it to recent sales in the area and recognizing a good value.  There are some values out there right now.  When a house sits on the market for a while – as many have lately – they can start to get lost in the inventory of homes.  When agents see things that have high Days on Market, they often overlook them and forget about them.  This is often a good way to find a value.  When something has lingered on the market a while, it is much more likely that a buyer can negotiate lots of terms and price of course.  Terms are often as important to a buyer as price though. For instance if you are a buyer with a house to sell and you find a good house that’s been on the market a while it is certainly possible that the seller may consider a “contingent” offer (contingent on the sale of the buyer’s home.)  This is not something most sellers would consider when they first put their home on the market in most cases.  So looking for those homes that are “coming down in price” – most likely the reason they are sitting the market for so long is that they started with a high price that has to start dropping to get noticed.  Unfortunately for most sellers who start “too high” with their list price is that they end up selling for less in the long run for the reasons mentioned above.  (Bad strategy for a seller if you ask me.)

So in the end – I would buy the house in the best location and for the most money that I could possibly afford today without breaking the bank on the mortgage.  That house will most likely suit your needs for a longer period of time (it is expensive to buy and sell) so you don’t want to buy something that is going to feel too small in a short period of time.  Maybe a house that needs a little work but maybe a house that is done too (depending on the price.)  Sometimes “doing a little work” gets out of hand and ends up costing more that it should have.  Sometimes “done” is deal.

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