Will The Home You Buy in a Hot Market Sell in a Slow One?

 

In a strong seller's market, buyers who are desperate to get their feet in the door of homeownership and after losing out on a few homes may resort to buying a home that has poor resale value, or even worse, not be able to sell it at all in a slower real estate market.

Is the home a diamond in the rough or is it just a lemon that will still be a lemon in five years' time when you try to resell it?

Homes that do not sell in the hot market are either because they are way overpriced or because there are some issues with the property. The price can always be adjusted, but major issues that affect the saleability of the home cannot always be fixed.

Almost all homes sell in a hot Market Harbor and for the ones that struggle to sell, you need to ask yourself, why isn't the home selling? And more importantly, will that home sell even sell in a slow market?

A strong seller's market is the ideal time for owners to unload homes that might not sell in other markets because sellers know that when the inventory is low and competition is high, buyers will overlook issues that they would normally shy away from.

Plan for the future and always be aware of the potential resale value when shopping for a home. Here are some things to look out for when considering buying a home and your chances of being able to unload the home when the market frenzy has cooled way down.

 

The home's sales history.

How the home has performed in the past will be a good indication of how it will perform in the future. It gives you an idea of the potential resale-ability of the home.

• How long did the home take to sell when listed previously?
• Did it sell for the original list price or require price reductions before selling?
• Did the home go pending inspection but then came back on the market because previous buyers walked?
• Or did it fail to sell after multiple prior attempts?

All of these should be red flags that the home has issues and that other buyers did not "love" the home. Is there something just inherently odd about that property that makes it a hard sell no matter the market?

Also, make sure to compare how the value of the home has trended compared to the immediate neighborhood. For example, if all the neighboring homes went up in value by 15% over the previous 3 years but the home you're looking at increased by only 5% and there's something odd going on.

 

A slower market does not affect all homes equally.

Even in a slow real estate market, the best homes will always attract a lot of interest. Even back in 2010 during the previous market slump, the best homes were still selling relatively quickly. However, many of the less desirable homes sat on the market with multiple price cuts with some just giving up and pulling the homes off the market.

 

The location and the immediate neighborhood.

While this is an obvious one and sometimes it's glaringly obvious as to why you should not buy a certain home it's not always that clear cut. Obviously, if the home is sitting right next to a gas station, a 24-hour convenience store, or beside a noisy highway, all of those are going to kill your resale value.

More subtle issues include the neighboring homes that do not take care of their properties. Is deferred maintenance the modus operandi for the street the home sits on? The opposite is what you're really looking for it; the worst home on a street of really good homes.

If most of the homes in the area are rental properties then that makes it a lot less appealing to future buyers who are trying to escape condos and rentals.

Does the area have a high crime rate? Everyone has different comfort levels so it's up to you to individually check what you are okay with. Your real estate agent cannot give you their personal opinion on their neighborhoods and is up to you to do your research.

If you are unsure about a home's neighborhood, it's a good idea to visit it multiple times before making an offer. Go see it at different times and days of the week, particularly if you are not familiar with that area.

 Most condition issues can be fixed in a home but you can never fix the neighborhood. It's not a mobile home you can pick up stick on a truck and relocate to a different area.

 

The home's layout

Does the home have a quirky or unusual layout? "Unusual" can be charming but bad layouts can affect your ability to sell the home in a slow market,

Here are some examples:

• two bedrooms on the upper level with no bathroom (the 2am walk down to the toilet).
• low ceilings basement remodel where you have to wear a helmet to protect your head.
• a toilet or bedroom directly off the kitchen 
• a badly converted garage (homeowner special) that is essentially useless square footage. Plus now there's no garage.
• the master bedroom is upstairs but all the kids' bedrooms are on the main floor.
• a tiny kitchen with no room to expand it. 
• too many bedrooms crammed into too small a space.
• unpermitted extension to the home !!! kink to post!!

 There's quaint and there's quirky and then there are just plain bad layouts. Avoid the latter when buying a home.

What is the condition of the home? 

Desperate buyers will eventually become more open to buying homes that may need a lot of work, some of them bordering on being fixers.

Buyers have consumed HGTV shows and seen how easy it looks to convert less-than-perfect homes into something fantastic. The reality is a long way from that.

In a strong seller's market, investors will snap up fixer properties, remodel them, put them back on the market in a few months, and turn a quick profit. So if investors are not interested in the home that should raise a red flag for a buyer. 

Buyers should be honest with themselves and be realistic as to whether they have the financial means to do all the needed upgrades and repairs and have the patience to deal with all the associated planning and chaos. Property investors can do the work in a fraction of the time that it takes a homeowner, and for about half the cost, because, well that is what they do.

How old are the major systems in the home including the wiring the plumbing and the heating systems and the roof above? All of these are large, expensive repairs. Some repairs you may have to take care of immediately and others you can do overtime.

Is the home a diamond in the rough that just needs some polishing or is it a money pit that you will never get money back on? One safety check that will help you from making a big mistake is that the home might not qualify for a mortgage because of the condition of the property or at best, you would need to qualify for a complicated rehab loan.

 

Home is in a badly run Home Owners Association.

If you are going to be buying a home that is part of a homeowner's association (HOA), particularly a condo then you need to be really aware of the risks of buying into an association with a poorly-run HOA. Condos are affordable alternatives for many first-time buyers. However, if you buy a condo with an upcoming special assessment, it could soon become a financial nightmare.

Don't be blinded by the affordable price tag and really do your homework to assess whether this is a good purchase or not. Ask anyone who's tried to sell a condo when there's a large special assessment or the building is covered in scaffolding. 

 

What's the zoning code? 

If you're looking to buy a house it is always a good idea to check the property's zoning. IFor example, if you are buying a house, is the zoning single-family only or something else?  If say you are buying a house in an area that is zoned multi-family, then eventually your house might be surrounded by condo buildings. 

Also, beware of areas where upcoming zoning changes have been scheduled to increase home density. Although the home might currently be zoned single-family, the city may have big plans for that area and explain why a lot of owners are selling and getting out. A house surrounded by high-rise condos has a lot less resale value than one surrounded by houses.

Speaking of zoning, make sure to check that the home is not sitting in a flood zone. That summertime babbling brook might be a raging torrent come the winter and spring months.

 

How long do you intend to keep the home?

If you buy a home that has potential resale issues, the length of time you intend to keep the home is a critical factor. In general, when buying a home, it's a good idea to keep it for at least 5 years to allow for any fluctuations in the market.

In addition, don't forget that as soon as you close, the home it's probably worth about 8% less because those are the costs to sell your home. Therefore, your new home needs to go up at least 8% in value before you can sell and at least break even.

If you are buying a home with known resale issues then you need to be keeping the home for at least five years and probably a lot more to get a reliable return on your investment or a guaranteed sale. The faster you fix the issues, the faster you can be ready for a slower real estate market.

 

What's the long-term market prediction?

To be honest, your guess is as good as mine! The guy in the pub's opinion will be just as good as a guy from the Department of Economics at Harvard. Some of the finest minds failed to predict to see the market collapse back in 2008. 

The local economy can have a big impact on future value. If you're buying into an area where a lot of people are moving to because that's where the jobs are, for example, high tech in Seattle, versus an area where people are deserting, then the former option is a lot safer bet in the long term.

Buying a home because it's more affordable in an area where everybody is relocating from could be a long-term financial albatross around your neck.

The economy is even more international and interconnected these days. The proverbial butterfly flaps its wings in China and six months down the road everyone can be affected. Nobody can predict with certainty what's going to happen. Historically, the real estate market goes in 7-year cycles but currently, we are in a 10-year cycle. Time to go back to the drawing board!

The short answer is that after closing, allow for some sort of market slowing, potentially a price drop, and then time for market recovery. That might never happen but allowing at least 5 years is a safe bet. Allow even more time for a harder-to-sell home.

 

Get yourself a GOOD Realtor who will be straight with you.

This is particularly important for first-time buyers who are new to the whole process and cab get google-eyed and fail to see the bigger picture and issues. A conscientious Realtor should be willing to talk you out of buying a bad investment.

After all, that agent wants you to call them in a few years when you are ready to sell that same home and they don't want to be stuck trying to hype up a lemon in a slow market!

 

Be honest with yourself and go with your gut... or your best friend's gut.

You need to be realistic even when getting beaten up by a competitive market. Step back and ask yourself, if that house that nobody else wants but that you can afford is a good idea compared to a not-as-fun condo? Are you buying something with genuine hidden resale value or a monster that is going to be financially all-consuming and hard to sell? What are your options if you can't sell the home?

If you need a second opinion, feel free to bring your most skeptical friend or family member to see the home and ask them to give it to you straight!