3 Factors That Reduce a Home's Value

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:

Foreclosures

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.

For nationwide listings of homes in foreclosures, visit web sites such as RealtyTrac.com, Foreclosures.com, Foreclosure.com and Multiple Listings Service.

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).