Choosing a House to Purchase

AMERICA'S favorite investment is still the family house. It is also by far the biggest investment that most people make. By mid 1989, the median price had climbed to $129,000 for a new house and to $93,200 for one that had been previously occupied. In little more than a decade, those figures had jumped from, respectively, $55,700 and $48,700.

As mentioned previously, chances are that prices will not soar in the early 1990s as they did a decade earlier. Still, today's smart buyers can expect to earn a profit when they sell. You probably will sell your home at some point, unless you feel sure that you will remain in it for the 30 years it will take to pay off the mortgage. Thus, when choosing a house, you should select one that not only appeals to you but also stands to be a worthwhile investment. Whether it's a small starter home or a spacious family dwelling, the same factors affect the resale value of a house:

Medium sized houses are better long term investments than very large or small ones. Those with three bedrooms are easier to sell than those with four or more. Houses in the strongest demand also have at least two full baths.

Houses are better than condominium apartments. Most people prefer single family detached houses. Of course, there are exceptions; condos or co ops are solid investments in popular areas of many cities, including New York, Boston and Washington.

Conventional styles sell more easily and for higher prices than do unconventional ones. In the East, conventional means split levels and colonials; in the South and West, contemporaries are more common; in the Heartland, a style known as Midwestern traditional is most appealing. Remember: Today's trendy style may be tomorrow's out of fashion oddball.

Standard interiors attract more buyers and higher prices than unusual configurations do. If you want to sell a pink Cadillac, you will have to find someone who dotes on pink Cadillac’s. Two rooms add the most to resale value: the kitchen and a second bathroom. The kitchen should have plenty of light and modern appliances. It does not have to be equipped for Julia Child, but it should come with a dishwasher and a garbage disposal. And even if you live in the Deep South, buy a house with a fireplace. Though wasteful of energy, fireplaces are romantic accessories that usually hold their value in all parts of the country.

The houses in a neighborhood should be of roughly equal value. Stay away from places where there is a wide disparity, because smaller, cheaper dwellings depress the prices of their more elaborate neighbors. If you do find yourself in a neighborhood where house values differ substantially, look for the ugly duckling on a street full of swans. Even if you do not improve the property, the neighborhood will lift its value. So remember: the least expensive house in a neighborhood is a much better buy than the most expensive one. The former will be pulled up by surrounding values; the latter will be held down by them.

Location is paramount. It's hard to beat a house in a neighborhood where the homes and lawns are well cared for. Check the zoning laws. You don't want to see auto body shops or mobile homes springing up among standard single family homes.

One way to pick the right neighborhood, as writer Robert Runde has observed, is to see how other buyers are voting with their dollars. A second gauge is the variation between asking and selling prices. In choice neighborhoods, the difference is small, often only 3% to 5%.

Another measure is how quickly houses have been selling. If the average length of time on the market is less than three months, the area is strong and in demand. Similarly instructive is the percentage of houses put up for sale that are actually sold within 90 days. In an undesirable place, or in an overpriced market, two thirds of all the homes listed with real estate firms might not change hands within that period or might even be taken off the market without being sold. To get this information, call either a local board of realtors or a home builders' association.

A smart way to start your search is to look for a community or part of the city that has superb schools, whether or not you have school age children. Parents are willing to pay premium prices to move to an area that offers excellent education. Check to see how much the community budgets for school expenses per child and compare that figure with other school districts in the area. Also find out what percentage of the high school graduates go on to college; 80% or more is excellent. Before you buy, be sure to visit a local school and speak with the principal. Simply by asking him or her what distinguishes the school, you can gain some valuable impressions. For example, if the principal boasts, "Our school is almost as good as Smithville's," you might then want to search for a house not in that school district but in Smithville's.

You also can make a sound investment by putting your money in a brand new tract house. Builders are very anxious until they get those first few houses off their hands and see that the development will sell. Savvy buyers can capitalize on those fears to knock down the asking price or squeeze such extras out of the contractor as better quality kitchen fixtures.

Before you buy a house anywhere, you may want to find out about the record and reliability of the firm that built it. One way to gather information is to call the nearest branch of an organization called Home Owners Warranty and get a list of its members to see if your builder is one of them. (To find the nearest branch, call 800 433 7657.) More than 12,500 builders belong to HOW. They are required to build according to approved standards and to carry a 10 year protection against major structural defects in the houses they construct. You can also get free brochures on how to protect your biggest investment, and what to do to maintain it or remodel it, by writing to Home Owners Warranty, 2000 L Street, NW, Washington, D.C. 20036.

How you buy can be as important as what you buy. The success of an investment depends largely on getting favorable financing. Put down as little of your own money as possible and try to get as much financing as you can from the seller. Ask for as long a term as the seller will accept. Assume the seller's mortgage if you can. You will normally be able to do so if it is a Federal Housing Administrationor Veterans Administration backed loan, or if the mortgage has been in effect for many years. In summary, here are some tips for selecting a home that will pay off:

The best way to buy a house is to buy the neighborhood. Look for a superior school system. That is what potential buyers will want when you sell your house.

If your house has one bathroom one of the best improvements

you can make is adding a second bathroom. Another profitable remodeling project is redoing the kitchen.

You stand to earn more profit in a new dwelling than in an old one. From 1980 to mid 1989, prices of new single family homes rose $101%, versus 50% for old ones.

If you want to build onto your house, do not plan an addition that raises the value of your property more than 20% over the value of other houses in the neighborhood. It will not pay in the end, when you sell your house.

When it comes time to sell, try to make the sale before you buy and move into another house. Empty houses seldom command their asking prices.