Jul. 9, 2009 - "Bad" Neighborhoods - Where NOT to buy

Where to live; where not to live...that is the question. Finding homes on the internet is great...but let's talk about how the internet can "hurt" you.

One of the reasons some neighborhoods appreciate more than others, is largely due to the fact that free information seems to stop short of "don't live THERE". Consequently word of mouth draws a large portion of homebuyers to the same neighborhoods, and those neighborhoods appreciate more than others as a result.

You can google thousands of real estate agent blogs and thousands of articles written by the real estate sections of area newspapers. But rarely will you see a list of "live here - don't live there".

The reality is:

1) You have to listen very closely to what is NOT being said.

It is no surprise (or shouldn't be) that you can get more home or a better home for your money in an area that is deemed to be inferior for some reason or another. Could be crime, could be inferior schools, could be lots of things no one is talking about out loud. Consequently when you spend too much time sorting homes via the internet, you may be targeting the worst areas and neighborhoods, as they will have the "too good to be true" values.

If you are getting too much for your money...there has to be a reason...right? Finding that REAL reason is easier said than done.

A real estate agent will not sit you down and give you the facts of life about where NOT to live. Reality is they often can't, for a lot of reasons we won't go into here. A good agent WILL point you in the right direction, but they will do that without harping on the reasons WHY where they are NOT going, is the "wrong" direction. In fact. if you ask them why, they likely can't answer. If you press the subject, they will bring you "there" against their better judgment". Don't pay high commissions, and then push an agent to give you bad advice by forcing them to go off their best judgement and best advice path.

Put your list of homes together. Then without showing the agent your list, simply ask the agent to come up with a list of the 5 best houses on market. They can't do that online, as in our mls there is a rule against openly discussing other agent's listings, even if you are saying good things about those homes. It is considered "advertising another agent's listing" and makes the agent subject to a $5,000 fine for EACH of the homes they talk about on the internet.

5 homes = $25,000 fine. So DON'T expect agents to be listing the 5 best homes on market on a blog or website. All they can give you is their own listings, or their friend agent's listings (with written permission from friend agent). So publicly available info is really just an ad "best home on market".

We're not allowed to tell you the REAL "best home on market", unless you are our client, and even then, we can't do it publicly. So if you see those words on the internet, it is obviously an "ad" vs. a true unbiased observation.

2) You have to choose an agent that you trust to represent your best interests, and then trust them to "DO" vs. "SAY".

When the agent gives you the list of the 5 best homes as noted in point 1) above, look for the homes on your list that match the homes in their list. Those are likely the best of the best. If there are no matches, go out to see your top 5 and the agent's top 5. Then after seeing them all, ask the agent to list THEIR top 3 before you give the agent YOUR top 3. Let them DO what they do best, without directing them to move away from their best advice. Often if you do it this way, why they picked theirs vs the ones you picked, will be somewhat obvious...sometimes not.

Most often when we finish, the top 2 or 3 houses come from my list vs. theirs. If you hire an agent to ONLY show houses that YOU pick vs. ones THEY pick, you are leaving lots of value on the table, and paying full commission for a lesser result.

3) You have to study the stats, and notice areas that sell well vs. those that don't sell well, and pretty much rely on "the crowd's opinion".

Since the items 1) and 2) above involve how to operate well when using the expertise of a good agent, I'm throwing in this third advice for people who don't want to use an agent at all, or who want to use an online agent who "shows homes" at a reduced agent cost vs. helping pick the ones they "should see" at a higher agent cost.

Google "Absorption Rate" as there are many sites that will give you this statistic for various neighborhoods.  You will see one area has a 2 month absorption rate and another has a one year absorption rate. Often this has to do with "price tier" vs. "neighborhood". But if you can get the absorption rate of all homes in the same price range in various neighborhoods, that would give you a better idea of which are the preferred neighborhoods and which sell much less easily OR have the most "issues".

Absorption Rate = the number of sellers trying to sell divided by the number of buyers buying "there". You may never be able to find the real WHY people are or aren't buying in various places, but simply knowing that is happening is of value, even if you never figure out exactly why.

Example:

42 people trying to sell "there" (Active Listings) in that price range; 3 people bought "there" in the last 6 months. 

vs.

12 people trying to sell "there"; 24 sold in the last six months

"The wisdom of the crowd" is a time honored principle. Yes, it would be great if "the crowd" would come out, and online, explaining all the whys of their behavior. But they really never do, so stop wishing so much for that.

It is much more likely that those having MORE trouble selling, will be speaking the loudest in places where you can see them, than the ones that have less trouble selling.  Think about that for a minute...and you may realize how very right I am on this.

The very, very best home on the internet...is more likely to be in the very, very worst location, making it appear to be the "Best Value", on a price per square foot basis.