A home is one of the biggest investments you’ll make in your life, so the finding the best deal must be done with precision and adequate knowledge of the ins and outs of the housing market. This means being able to tell is a certain real estate deal is a good one or not.
First-time home-buyers may select a cheap deal without thoroughly inspecting the property, unaware that it would cost them a lot more in the future, when they realize that it is actually in desperate need of repairs, among other problems.
Thus, if you’re also an inexperienced home-buyer in pursuit for a nice place for you and your family somewhere in London, for example, one way to help you spot the best deal in such a posh city is working with a trustworthy estate agent from Putney or other districts. Contrary to what some people believe, a real estate agent can save you more money, thanks to their unmatched negotiation skills and a keen sense for a suspicious deal.
That said, let’s discuss how to distinguish a shady deal from a good one.
Bad Deal: Price That’s Either Too High or Too Low
The price is usually the first thing you’ll scan in your options. If you came across a handsome property with a price that’s too high even for its prime location, it could be from costly structural repairs, past-due taxes, zoning issues, or association dues that the seller intends for you to cover.
On the other hand, if the price is too low (below 10% – 20% of the fair market value), chances are the home is in poor condition, hence inspection is highly critical.
Good Deal: A Profitable Location
Location is the most important factor in determining a home’s value. A good location can make up for a property’s shortcomings, such as a small floor area, for example. Signs of a profitable location are as follows:
- low crime rates
- teeming with job opportunities
- efficient public transportation
- close proximity to commercial areas
- no zoning issues
- high population growth
- future developments
- booming tourism industry
- hardly affected by natural disasters
Research the real estate market of the location at both city and neighbourhood levels to determine if a deal is good or not. Some sellers can still take advantage of unsuspecting buyers by raking up their prices, so be observant.
Bad Deal: A Suspicious History
Even if a property seems to have a reasonable price, it would still be wise to find out its history. Why did the previous owner sell it? If it’s a rental property, why has the tenant vacated it? Check out the market history as well; how long has it been listed, and why hasn’t anyone bought it yet after so long?
Sellers are required to disclose a property’s history, but they may omit the details that can trigger doubt, so find out with your agent if you’re getting complete information.
Good Deal: Good Cap Rate
The cap rate is the ratio of a property’s net operating income to its purchase price. Look for a cap rate anywhere between 8% to 12%. You can calculate it through an online investment property calculator or with the help of your agent.
Bad Deal: Cosmetic Fixes
A cosmetic fix is a quick, shortcut fix that doesn’t really solve a problem, but only conceal it. An example is a coat of paint covering a water-damaged ceiling or a beautiful exterior that distracts you from the ill-maintained interiors. The home’s price may be irresistibly low, but you’d end up with shockingly high repair costs.
Good Deal: Low Listing Price and Repair Costs
Lastly, a good deal should have a listing price below its fair market value, with low repair costs if its a fixer-upper. If a home has all the signs of a good deal plus your agent’s approval, then you’ve just found a gem in the market.