BEFORE PLUNKING DOWN your life savings on a home, consider that the current owners and even the home inspector probably can't tell you everything you need to know about the property.
Nearby foreclosures, crime and environmental threats can end up costing a lot more than mold in the basement. Living close to a landfill, for example, can knock up to 15% off a home's value.
While sellers in some states are legally obligated to disclose information that might affect a buyer's decision to purchase a home, they often won't know, say, that a registered sex offender moved in across the street last month.
Ultimately, it's up to buyers to look into factors that go beyond the front yard, says Leslie Sellers, vice president of the Appraisal Institute, a Chicago-based trade organization. "People will spend days and weeks researching a used car and kicking tires, but when it comes to a home, if the decor suits them, they're ready to buy right then," says Sellers.
"Before you make an offer, walk the neighborhood and talk to neighbors," advises Sid Davis, a Farmington, Utah-based real estate broker and author of "A Survival Guide for Buying a Home."
Here are three value-draining factors worth investigating:
Just a few years ago, home buyers barely considered the impact of foreclosures on a home's value. But as the rate of foreclosures climbs ever higher the number of homes facing foreclosure in April rose 65% year over year, according to RealtyTrac it's now an undeniable part of the equation.
A study co-authored by Geoff Smith, vice president at the Woodstock Institute, a policy group in Chicago, found that each foreclosure within an eighth of a mile of a single-family home results in a 0.9% decline in the home's value. Although the research only looked at data in Chicago between 1998 and 1999, the researchers contend that the overall findings still apply today. "If you were to replicate that study now, you'd probably find a bigger impact because there are more foreclosures and they're bringing down the housing market overall," says Smith.
Foreclosed homes often fall victim to neglect and vandalism, explains Stephen Fuller, director of George Mason University's Center for Regional Analysis. A concentration of foreclosed homes only magnifies the effect and undermines nearby property values, he says. Depending on the scale and duration of the problem and the lack of countervailing forces such as good schools or park land, the damage to a home's resale price will likely be significant, says Fuller.
Also, scan the real estate listings to see if a large number of homes are for sale in the area or if rental properties are on the rise. It could signal a more transient and therefore troubled environment, Fuller says. Also, look for short sales when the asking price is less than the mortgage balance "that's a sure next step to foreclosure," he says. Buyers can ask their realtors to look up short sales in a particular ZIP code or area. (Realtors have access to the data, which is provided by the Multiple Listings Service that is not made public).
You've monitored for radon and tested the well water. Everything turns up clean. But do you know how far that landfill or abandoned manufacturing plant is from the front door? If they're too close it could lead to serious health issues and weakened resale values.
A home located within a mile from a landfill, for example, will likely see a 10% to 15% reduction in value, says Robert A. Simons, a professor of urban planning and real estate at Cleveland State University and author of a 2006 study on the effects of environmental contamination on real estate values. Property within two miles of a Superfund site (a government-designated hazardous waste site) could suffer up to a 25% reduction in value (compared with a home that had no threat of environmental contamination), says Simons, who also wrote "When Bad Things Happen to Good Property."
Nuclear power plants, on the other hand, have a mixed impact on home values, he says. While perceived as scary, they offer some benefits such as a high tax base and high employment. An added bonus: "There's a huge buffer around those plants with lots of park land," he says. However, live too close say, within half a mile and the nearby plant starts taking a toll, Simons found. "Then you get into air emissions, pollution, and are you downwind or upwind," he says.
Consumers can search for Superfund sites near their homes on the Environmental Protection Agency's web site. The EPA also has a searchable database that tracks toxic chemical releases reported by certain industries.
Looking into the crime rate of a prospective neighborhood is a no-brainer for most home buyers. But it won't tell you that a registered sex offender lives two houses down.
"I encourage people to presume that there will be registered sex offenders nearby," says Tara-Nicholle Nelson, a San Francisco-based real estate attorney and broker.
The closer a home is to a registered sex offender's, the greater the impact on its value, according to James Larsen, a professor at Wright State University in Ohio. Larsen's 2003 study of home sale prices in Montgomery County, Ohio, found that, on average, homes within one-tenth of a mile of a serious sex offender's residence saw a 17% drop in value, while houses between one-tenth and two-tenths of a mile sold for 10% less.
In order to search for addresses and pictures of registered sex offenders, go to Family Watchdog. The site also offers email and cellphone alerts if a registered offender moves into your neighborhood. For other crime statistics, AreaConnect lets users compare crime data for more than 8,000 cities.