As a homebuyer, how can you pinpoint a property that will gain value in the future rather than decline? Instead of relying on hunches, Allan Weiss suggests you take an analytical approach.
Weiss is founder and CEO of a new company he contends can help buyers (and sellers) avert costly timing errors. Called Weiss Residential Research, the firm was started to help Wall Street better track real estate values. But its reports are now available to consumers, as well.
“Before you buy any house, you want to be sure it’s not weakening in value – unless you’re getting a tremendously good deal or plan to live there for a very long time,” says Weiss.
An economist by training, Weiss is no stranger to the science of property valuations. He was involved in the development of a price tracker that’s widely used to chart the direction of home values. Now known as the Case-Shiller Index, it follows pricing patterns in more than 5,000 U.S. ZIP codes.
In contrast, the new Weiss index seeks to provide more precise reports on individual houses. These are designed to predict if a property will rise, fall or stay the same for a period of at least one year. In essence, Weiss, which now has 50 million homes in its massive database, offers an early warning system for what’s ahead.
To make its predictions for a particular property, the new company draws on widely available data – such as tax assessments and appraisal reports – for similar homes near the subject property. Weiss says that’s a more precise approach than taking an average of varied properties within the same ZIP code.
“Suppose that within the same ZIP code you have some houses worth $200,000 and others worth $2 million. They’re going to have very different supply-and-demand economics,” Weiss says. “You’ve got to watch out for averages, which can be very misleading.”
For a $25 fee, you can purchase a trend report for a particular property through the Weiss website ( www.weissres.com). This is designed to tell you – in percentage terms – how the value of the property has changed in recent years and what to expect within the next year or longer.
The report won’t give homebuyers a dollar estimate of the current market value of a house they’re considering. To obtain that, he recommends they turn to a real estate agent who works in the area on a day-to-day basis.
“All real estate is local, so there’s no substitute for a good buyers’ agent from the neighborhood,” Weiss says.
Here are other pointers for homebuyers:
• Try to purchase for a long time horizon. Though resale estimates aren’t always entirely reliable, you can increase your odds of a good outcome by buying to hold rather than as a short-term purchase.
• Buy in a neighborhood with a high velocity of sales. Closed sales normally indicate the desirability of a neighborhood, says Merrill Ottwein, a former president of the National Association of Exclusive Buyer Agents. Ask your agent for statistics on closed sales for a period spanning at least two to four years.
• Look to popular urban centers for potential price increases. More Americans are becoming like Europeans in their preference for in-town living, says Fred Meyer, a real estate appraiser and broker who sells property near Harvard University. That bodes well for values in popular urbanized areas.
• Factor school data into your thinking. Houses in neighborhoods with top schools are much more likely to hold or grow value than are those served by mediocre schools.
• Search for an area with rising employment. Ottwein says you my find property prone to appreciation in selected suburbs where high-tech start-ups are proliferating.