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Before you buy, take the measure of the community


It's sunny, Sunday and you're feeling excited. Just back from a long afternoon drive, you and your spouse believe you've discovered a wonderful neighborhood to buy a house. Call the fictional community "Pleasant Estates."

But as nightfall settles, you begin to worry. Granted, the brick homes of Pleasant Estates are well-tended -- with scarcely a weed in a flower bed or a junk car in a driveway. Yet still you wonder. With the economy in transition, are the homes there destined to hold their value, go up or go down?

No one has a periscope for a peek into the future. But you can get darn good clues about the trend in a community. As real estate experts note, there are relatively easy ways to take the neighborhood's temperature -- to find out whether it's warming or chilling.

Asking a few good questions could convince you it would be a fateful error to buy a brick home in Pleasant Estates. On the other hand, it could cause you to proceed enthusiastically on the belief that values there are headed up. At the very least, the information you gather should help with bargaining strategy.

"You're going to get further and negotiate more strongly if you understand the market better," says Peter G. Miller of Silver Spring, the author of several real estate books.

Knowing that Pleasant Estates is a strong buyer's market could give you the confidence to ask a home's seller to pay extra points for you or guarantee replacement of the old roof, for instance, Mr. Miller says.

You'll want to know before you buy that Pleasant Estates has the economics to support good roads and schools, as well as police and fire protection. If a nearby military base is about to close and many homeowners are pulling up stakes, the property tax base could erode and basic amenities could be threatened.

On the other hand, if a big pharmaceutical company plans to expand its plant near Pleasant Estates, property values in the neighborhood could be rising and your investment could pay off handsomely as demand for the brick homes increases.

"Whether you're in the market for a car, vacation holiday or house, you should consider whether you are buying at the top of the market, the bottom or somewhere in between," says Gene Gallagher, broker-owner of an ERA Realty office in Bethesda.

Here are 10 ways to take a market's temperature before you buy:

* Scan the neighborhood for signs of sales.

While not a scientific survey, a drive through the neighborhood of your choice can tell you a lot. If few for-sale signs have sprouted, that means either that homes sell quickly there, or that longtime owners have found reasons to stay, or both. A market in which demand is strong is likely a warm market.

"A neighborhood with a lot of for-sale signs is in the throes of change, for whatever reason. Lots of inventory is always a negative," says Mr. Miller, author of "Buy Your First Home Now," published by HarperCollins.

* Ask your realty agent to pinpoint the actual percentage of for-sale homes in the neighborhood.

eyeball survey is good, but a computer search is better. With the help of your agent, you should be able to closely estimate the percentage of properties on the market.

As a broad rule of thumb, the market may be lukewarm or cool if more than 10 percent to 15 percent of its homes are for sale, says Mike Brodie, president of the Residential Sales Council, a realty education group tied to the National Association of Realtors.

* Look for signs of home improvement.

If neighborhood owners are adding rooms or renovating, that shows they have confidence in the area and feel the investment is worth it, Mr. Miller says.

* Look for indications of seller incentives.

Riders hanging from for-sale signs that indicate that the seller is willing to pay closing costs, provide seller financing or make other giveaways may be signs of a chilly market, Mr. Brodie believes.

* Check the classifieds for signs of seller desperation.

The notion of seller desperation has become a popular ploy to attract interest in a property -- even when a seller is not truly desperate. Still, if you encounter a large number of ads that convey panic, you're probably dealing with a chilly market. An ad that says, "Buy my house and you can have my Mercedes," is not a good sign.

* Find out whether rental units are prevalent in the community.

If many properties in the community have absentee owners, that could be a bad indication, Mr. Miller says. A neighborhood where owners have been frustrated by their attempts to sell at a decent price can easily become an area with many rentals. And generally speaking, tenant-occupied properties are not as well-kept as owner-occupied properties, he says.

* Determine whether the difference between list and sale prices in the neighborhood is widening or narrowing.

A sophisticated way to take a neighborhood's temperature is to see what portion of the amount a seller has sought is obtained when he closes. If the gap between list and sale price is widening, the market's temperature is probably declining. But if the gap is narrowing, the neighborhood is hotter than before, Mr. Brodie asserts.

* Ask your agent to check "days on market" for homes sold.

Realtors call this valuable statistic "DOMs." It relates to the number of days a house stays on the market before it sells. If the time to sell is growing shorter, the market is warming. If the time is lengthening, the neighborhood is cooling.

L * Look for signs of change in the economic base of the area.

Find out from your agent (or anyone else who knows) whether the neighborhood has lost a substantial employer or suffered another setback. The announcement that a auto factory, military base or other major employer is closing can turn a housing market very cold very quickly, Mr. Miller points out.

* Talk to folks who live in the neighborhood you like.

If you can summon the energy, taking a walk through the community on a Saturday afternoon to talk to a few residents can tell you a lot about whether the area is warming or cooling. Ask them the pros and cons of the community, and what they believe the future holds for the area. Whether the locals have a positive view of life in the community should become readily apparent, says Gary Suggars, a Coldwell Banker agent in Baltimore.

"Your best research tool is your shoes," he says.

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