How Buying a Home is Different from Buying a Stock

Purchasing a home should be an enjoyable experience. Interest rates are at historic lows, home values are either at or near the bottom of the real estate cycle and the economy is showing signs of life again.  If you've found a couple of homes that fit your needs but are unsure about which one is right for you, put them to the “stock market” test.

Here are some tips from Stuart Fraass, MSB, a mortgage broker with Coldwell Banker Home Loans.

1. Why is a stock so cheap?  There is usually a hidden reason. If it looks like a steal, research might uncover a problem, such as an unresolved class action suit. Homebuyers are in a similar position with a market flooded with short sales and foreclosures. There are deals out there but make sure you do your homework. The biggest mistake homebuyers make in purchasing homes with "warts" is underestimating the cost of repairs and the time it will take to purchase a bank-owned property. Unless you are a general contractor proceed with caution.

2. How well do I know the stock? Buy what you know. Warren Buffet never purchases a stock in a category or market segment that he doesn’t understand. Why would you spend thousands of dollars for a down payment and then become liable for hundreds of thousands of dollars more if all you know is that you like the house and that it's in a good school system?

3. What factors will cause the stock to go up (or go down)? If you had seen a chart of average home values in the U.S. and compared it to a chart of average earnings over the same time period, you would have seen a huge spread starting to develop in 2001. This spread simply could not be maintained. We ALL missed this one!

4. Keep emotions in check. Stock analysts look at hundreds of stocks and invest hundreds of hours in forecasting future performance. I asked a successful real estate investor how he buys property. He said he looks at an average of 100 homes before making an offer. The typical homebuyer looks at fewer than 15. The current market favors buyers so take your time. Don't buy on impulse!

 

 

 

 

 

 

 

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