Before You Buy…Try This

Prior to your Real Estate purchase make sure to make the most out of your Realtor. Most people think the limited access they have to their local Multiple Listing Service (MLS) gives them a lot of information. In reality Realtors and agents using the system have access to information that can be worth tens of thousands to buyers. Before you purchase property make sure you do a statistical analysis of the area and property you are purchasing. To give you an Idea of the importance of this analysis I have included the information of an area I studied.

The neighborhood is known as “Phillips” it is South of downtown Minneapolis, Minnesota. My seller had tried to sell his home previously with two other agencies and after unsuccessful attempts a friend of his suggested he call me. After contacting me both the seller and I wish he would have called me before he bought the home. He had purchased the home with the hopes of remodeling it and making a handsome profit. The home was built is 1906 and had the fantastic character that you often see in Craftsman-style homes. There were beautiful maple floors with a walnut-inlay. The home was brought back to its original splendor. When I looked at the home I realized that the home wasn’t the problem. He had added new windows, vinyl siding, a new bathroom and a new kitchen with all new appliances. The home was priced well in comparison to other homes in the area. So it wasn’t the home or the price the problem was the current market conditions for the neighborhood.

I did some research on the MLS and found that 16 homes had sold in the area and 4 were pending a sale in the upcoming months. That was over the first five months of the year. In comparison 81 homes were pending in a similar neighborhood and over 200 had sold in that same period!

Even the neighborhood that had been known as the worst area to live in had ten times the number of sales as Phillips had during that time. These numbers were absolutely stunning to my seller. I was surprised by the difference between the what had been considered the worst neighborhood in Minneapolis versus the Phillips area that had been considered to be an improving area. There were a variety of projects in the area such as a huge condo-conversion that was supposed to be an anchor for the neighborhood.

A hospital had done a massive expansion and Franklin Avenue which was once a blighted area had received millions of dollars in new investment money to improve its businesses. The huge investments to the area had no affect on the housing market. In fact the number of home sales had slipped by about 50% during the past year.

With over 200 homes for sale in the Phillips neighborhood prices will certainly adjust downward. This information was all readily available to Realtors and agents, but no one advised my seller of it before he purchased the home. Worse yet no one had advised him of the poor conditions of the current market for his home.

Over a period of five years that same neighborhood saw prices increase three-fold so this quick decline in interest came out of nowhere. The area media will likely report on these changes months or years down the road. Usually, by the time the general public finds out about these types of changes it is too late.

Armed with this information we made the decision to sell his home for a small loss and move on to the next deal. Like any other investment investors need to occasionally take a loss. In this case the trend for the neighborhood prices and conditions were getting worse in a hurry. The prices in the neighborhood will likely continue to drop. Any time there is an overabundance of supply prices will drop. If only 16 homes sold in the first five months of the year it would take one year to sell a home on average and that would be if there were no new homes added to the mix.

Every month 20+ new homes were coming onto the market. So the likelihood of selling a home in the area is anyone’s guess, but the numbers don’t look good for the neighborhood.

When you are buying your new residence or investments make use of your agent by doing a similar study of the neighborhood your looking at investing in. Changes in crime levels, interest rate changes or problems with the local tax base are among the many areas that can quickly change the market in a neighborhood.

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