Home Buying Guide

Market Pricing

Everyone wants to be ’safe’ knowing what they are about to offer for a house is fact the ‘market’ price minus some security cushion (the deal). There are no absolutes nor guarantees on price. What a buyer is willing to pay and seller accept is the current market.

There are resources out there to assist as a guide in this type of market. The aggregates of current market data, who attempt to lump everything together and slice up in many ways. The best at it is likely Zillow.

In addition to current there is also long term historical price and appreciation of homes. There are several ways to value the appreciation on a home, but they all start with the purchase price and the next selling price. The one I like best removes from appreciation:

Cost-of-living increases; Expenses for maintenance and renovations;  Net taxes paid

It’s basically a break even endeavor looking at the data from the late 30’s to today, even including the 2001-2008 anomalies. However, break even might not be the best descriptor. It’s not an investment on par with the stock and bonds where the tendency over time is to beat the cost of living. In some respects maybe having a place to live and keeping up with the cost of living is on par or better.

Again different studies will include more or take out less depending on what point they are trying to prove. But it is a good awakening to start to make sense of it all. The basic premise is over time everything returns to the norm—the cost to live.
So once the research on pricing is done consider taxes, expenses, location, neighborhood and design.

Taxes and Expense

Somewhat hidden from the ‘offered at’ price but should not be undervalued. Consider the following. For convenience having a $1000 mortgage payment and a $2400 a year property tax payment represents a 20% premium, $4800 a 40% premium. Keep in mind the historical appreciation numbers from above as it can make the difference.

Also consider utility expenses (gas and electric). Using an average bill of $100 equates to another 10% premium over the mortgage payment, $200 a 20% premium

If there are home owner association fees add them into the same expense bucket.

Beyond the return on investment or appreciation aspects there is day to day debt-to-income, the flip side of cost-of-living. What’s remaining in the budget to do the living side of life? Bottom line put them all together and be comfortable with the end result.

Location

Location is the old standby from the realtor community. A few more subtleties in this general category should be considered. How unique is the home’s identity from its peers. Think of the problems the certain communities (typically planned and suburban) are now. Try and come up with a ‘market’ price when there are 1000 homes, 200 are on the market, and 150 of them are too similar to differentiate in any meaningful way.

Also consider location of services. This consideration does not does not mean, how close to interstate 101 or strip mall abc, but how close to the everyday things, work, school, grocery, services (bank, gas, pharmacy, etc) and entertainment (restaurants and the like). Add walking distance to some or all and it positive impact on the other side of the cost-of-living.

Infrastructure

Over time everything major piece of the home’s mechanical infrastructure will be replaced. Examples include HVAC life span every 15-25 years, roofing 20-25 years, water heater 15-20 years. Consider the 15 year old home, everything ‘inspects’ ok, but never replaced. The first 5 years in the new home will mean quite a few hits on the ‘real’ appreciation value. At 20 years there is good chance everything has been replaced.

Building and design flaws should not be dismissed. Recall the stories of new homes owners and attempts to right the wrongs. One benefit of buying an existing home, if there were any flaws, chances are they have been delt with.

Kids

Good, bad or indifferent to them it says something about a neighborhood, in particular, in-city neighborhoods. There are some dependencies here, but if nothing else it says parents are finding the services adequate and neighborhood safe