Defensive Buying – 5 Ways to Buy Smart in a Down Economy3 min read
Depending on where you live, your local real estate market may be experiencing a downturn. Historically, these market adjustments have served as a natural protection against runaway price inflation, and in the long-run can be very positive, but as a buyer in one of these markets you must buy smart to protect your financial future.
Here are 5 ways in which you can take advantage of a down market and protect your interests for the future at the same time…
1. Look at the local job market. Know who the major employers are in town and where their employees typically live. Read the papers and pay attention to the stability of these employers. If the company is in financial trouble, or is going to lay off employees, be careful about buying in areas heavily populated by their employees. Yes, you may get a great deal, but home prices may drop dramatically around you and cause you to lose money. Plan for that in your negotiations.
2. Research new commercial developments in your area. If you discover that a new retail / commercial center is going in near an area you desire to live in, take the time to find out what stores are planned for the development, and look at how things like traffic flow and access are going to be addressed. A bad plan can negatively affect area property values, but conversely a well-planned development can draw buyers like a magnet raising property values.
3. Learn about zoning. If you buy a home right next to land zoned for commercial development and you do not realize it, your property value could be negatively affected by the increase in traffic and the type of development. If you are looking in a fully-developed residential area this may not prove to be much of a factor, but be aware of any nearby open spaces and their zoning that could make access to your residential area more challenging. Again, good developments can be to your benefit, but consider how the changes could affect value in your negotiations.
4. Drive the area you desire to live in. Take a camera and a note pad to record what you find. Look for things like for-sale signs, blighted properties, new construction or residential developments, open lots and land, road construction and access, and the availability of retail services. Lots of ‘for sale by owner’ or real estate signs could spell trouble as numerous homes for sale could cause a price reduction war to sell. Again, it may be to your benefit, but you must consider this in your negotiations.
Blighted properties will reduce the value of homes in the immediate area, and new construction, or anything that increases housing density can ultimately reduce value in a slow market as inventory increases and the number of buyers decreases. Be wary of new developments without any noticeable construction activity as there may be financial issues that could affect the value of all of the homes in the area. Don’t be the sucker that pays top price for a home nobody wants.
Open lots and the availability of land can be a positive depending on the area you are looking in, but keep in mind that zoning can change and there are lots of commercial developers out there looking for any sliver of land possible to develop in many markets.
5. Negotiate strongly with the seller. I am a firm believer in homes being exchanged for fair market values, meaning the transaction should be a win-win, but that doesn’t mean you cannot, or should not attempt to negotiate your best terms. Do your research and come to the table armed with extensive, current market knowledge, and a willingness to set your final terms and stick with them. Be reasonable, but firm. Be aware of the long-term implications of your purchase and ensure you have an exit strategy in place. Most importantly, do not be afraid to stand your ground. If you have done your research, the numbers will speak for themselves.
I hope these ideas will help you make a smart purchase in a down market. You must keep in mind that even if you get a great deal on a home, the market can continue to slow down and negate your gains. Know your market well enough to withstand the fluctuations. Above all, secure competent, knowledgeable assistance from professionals in the real estate industry to answer your questions and educate you so you can buy smart in our current market.