With real estate prices depressed, this is a tempting time to buy a home, but it’s only wise if you know how to spot value. Making a critical evaluation of a property is the real challenge.
New homebuyers tend to trust agents to guide them to houses where values are fair and the trend is upward-moving. But can you trust the agent? Not always. Some agents simply don’t know the facts about an area; others may be more interested in getting an offer on their listings rather than someone else’s.
Most agents are going to do their best to help you find the best home possible. Even so, you can learn a lot in a simple drive-through of a neighborhood. It is difficult to locate the best area for yourself if you are not familiar with the city or town, which is why it could make sense to rent for a few months until you know your way around. If you think you know the area where you want to look for a home, drive through the area and ask yourself the following questions:
Are there a large number of empty lots and for-sale signs?
When a neighborhood is in bad shape, it is unlikely that new houses will be built. So when a house is destroyed by fire or falls apart, lots may be cleared but left empty, perhaps for many months or even years. This is a very negative sign; it means property values are not high enough to justify new construction.
If an excessive number of homes are for sale, that’s another danger signal. People are trying to sell and leave. The same applies if you see a lot of those signs with the word “foreclosed” on them.
Are houses and yards being maintained?
This is a telling sign. When you see pride in ownership in the buildings and landscaping, it means the owners are proud of their investment. When you see run-down buildings and land, it means a high number of rentals or owner-occupied homes whose owners don’t value their properties.
Is there a lot of mixed use, or are single-family residential areas distinct?
If the neighborhood mixes single-family with apartment buildings, corner stores, gas stations, and other businesses, it is a sign that the zoning is not strictly single-family. Worse yet, it could mean zoning rules are on the books but not being enforced. Some controlled mixed use is a positive trend, but we all know the difference when we see it.
What’s the condition of the school grounds?
The condition of school buildings and grounds is just as revealing as education statistics. You cannot always tell the whole story by believing what you read in the papers, either. You need eyes on the school grounds. Are they maintained and kept in good shape? Or are they run-down? When schools are not physically maintained, it is a signal that they are not the best schools for your children.
Are you comfortable walking the streets at night?
Check out the “theme” of the neighborhood. Some areas are completely different by day and night. Crime statistics don’t tell the whole story, either. Look for graffiti, people standing around on street corners, and get a sense of whether the streets feel safe or dangerous. Make sure the neighborhood where you want to buy is safe and secure.
It is easy to judge a neighborhood using common sense. Many homebuyers look in areas not suitable for them because they trust someone else and fail to do their own investigation. You learn so much just driving around; that could be your best first step in neighborhood evaluation.
Michael C. Thomsett is author of over 60 books, including Annual Reports 101 (Amacom Books Press), Trading with Candlesticks (FT Press) and the recently released new book, Getting Started in Stock Investing and Trading (John Wiley and Sons). He lives in Nashville, Tennessee and writes full time.