What are the big "red flags" of real estate?

May 23, 2011

Years of observations and experience have demonstrated that these are real issues in the minds of a significant segment of buyers coming into the marketplace. In my opinion, most all property, regardless of its limitations, can be a good value if it is priced accordingly.

The Invisible Flaws Of Real Estate

Whether you are buying or selling a home, it is imperative you understand what influences price in the marketplace. I want to share some of the most important “red flags” to be mindful of when you buy or sell. The term “red flags” does not mean do not buy this property, or, I cannot sell this property. What it does mean is stop and consider the impact to you if you do move forward.  It is very important for you to understand the effect flaws have on the value of that particular home.

What Am I To Look For If They Are Invisible?

Years of observations and experience have demonstrated that these are real issues in the minds of a significant segment of buyers coming into the marketplace. In my opinion, most all property, regardless of its limitations, can be a good value if it is priced accordingly.  Below is a list of what we have defined as “red flags” or conditions that will influence the price a buyer will pay for a house in any marketplace.  This list describes some of the issues to look for when buying or selling a house.  While these are the major factors, there may be other issues that can affect the sale or purchase price of a particular house.

I encourage you to consider the effects of any red flag issues on a house you intend to buy and to realize that the same red flags that may allow you to buy a house for a “great price” will still be there when you sell the house in the future.

The Common “Red Flags”

1. Future of the Area – Are home values increasing or decreasing in the general vicinity? If values are  increasing, you may have more resale potential. Just be sure the neighborhood information you receive is accurate and current.

2. Local School System – Although you may not have school age children, investigate the schools in the neighborhood before evaluating a home’s value.  The school’s reputation may affect demand for your home in the future.

3. Economic/Other Factors – Local or neighborhood economic factors, like increased property taxes, labor strikes, plant layoffs, etc. can affect a home’s value.

4. New Subdivision – Before buying a home in a new sub­division, ask the developer to see specific plans for the development of the remaining lots.  Keep in mind developers sometimes have external factors that force them to sell, change, or abandon plans for the subdivision’s development.  Are there restrictive covenants?  If so, are they recorded at the courthouse? Always obtain and keep a copy of them.

5. Vacant Land and Oversize Lots – Vacant land always presents the risk of the unknown. Find out who owns the adjacent vacant property and what their plans are for it.  Remember, regardless of the owner’s intent that intent and zoning can change with time and circumstances.  Homes with lots in excess of the typical lot size in an area can affect the value.

6. Adjacent Property Features – The property next to, behind and across from a home may have a bearing on its future sale potential. Ask yourself if the price is consistent with neighborhood variables like condition, size, zoning compatibility, junk in the yard, etc.

7. Floor Plans and Amenities – Consider the layout and size of rooms when evaluating a home. Does a two-bedroom home fit into an area of mostly three-bedroom homes? A home with a bedroom that can only be entered through another bedroom should be evaluated differently.  Houses lacking a garage in an area where garages are common should be of concern. Unusual floor plans and over sized rooms may not work efficiently for some families. Further, missing amenities, such as no half bath in high traffic areas when most other homes in the area have them, can sometimes affect marketability.

8. Over Investing – Owning the most expensive home in a neighborhood is not necessarily the best move because the surrounding homes may not be able to support an above-average price range. Homes with luxurious and extravagant decor or amenities, or homes that are larger than the other homes may limit the value of the investment.

9. Flooding – Be aware that property on a lake, river or in a flood plain zone may be susceptible to flooding and problems such as re-occurrences of water damage, inconvenience, and danger, all of which can limit marketability.

10. Additions – Older homes with new additions or remodeling may not cause concern but should encourage questions and research about the project, with regard to floor plans and over investing.  Incomplete construction or incomplete remodeling can affect the value of a property and should be considered when making a purchasing decision.

11. Poor Construction and/or Condition – Keep in mind that cleanliness, upkeep, and outward appearance all affects the value of a home. Check the quality of building materials and workmanship like miter joints, door frames, mop boards, consistency in plastering, woodwork, and painting. Also, check major parts like the roof, off-brand HVAC systems, support beams and basement leakage. Also look everywhere for evidence of previous major water damage.

12. Extended Market Exposure – Be aware and take into consideration the length of time the home has been for sale. Why are people not looking at it? Or if they are, what is keeping them from buying it?  Is it just price? When you suspect a home has been on the market a long time, ask the agent for a copy of the property’s listing history for the past five years. A neighbor can also be a good source for information.

13. Negative Environmental Concerns and Hazards – Groundwater contamination, leaking underground storage tanks, asbestos, urea-formaldehyde foam, radon gas, waste disposal sites and even busy streets are generally a matter of known information in neighborhoods.  Ask your representative for help in determining the degree of concern and where you can find more information on the subject.

OK, So Now What?

To the potential buyer, I say weigh the factors above carefully if one or more are present in the home. The more “red flags” present, the greater effect on the value. Remember there is no such thing as the “perfect” home, also remember the seller may have already taken the “red flags” into consideration in determining the asking price.

To the seller I would say, if your home has a “red flag” be alert so as not to overprice your home. Remember that there is a buyer for every home. I have observed that objections seem to melt away as the price is reduced. The point is that money cures all defeciencies. The real trick is not to get excited and over react.

This list of “red flags” is not all-inclusive, yet potential buyers and sellers can utilize it  to raise awareness of conditions that affect a home’s value. This list creates awareness and points a buyer in the right direction. It basically calls attention and says be mindful of the items explained on the list. Any stories or thoughts to share on your experiences or other items I should include here would be welcome. Please contact me or comment below.

Ask me your questions and I will answer them.