Risk and Reward: Real Estate Edition

The concept of risk has been weighing on my mind a lot these days. I’m not a risk taker. I never have been. In fact, I usually analyze every possible scenario until I identify whatever minuscule risk is involved, and then use that as an excuse to run the other direction.

Imagine my surprise then, when in a moment of reflection, I realized the following:

  • I bought my first house a year before market prices peaked in my community.
  • I decided to start a family in the middle of the recession.
  • I put my home on the market when existing home sales in my county were down 37.7% from the prior year.

To top it all off, I also decided to build a home at a time when local contracts for future construction fell 65% from one year earlier. Those sound like the decisions of a risk taker. I’m beginning to wonder the exact date and time when I was dropped on my head!

The last six months of working through a home sale and a home build have been some of the most stressful of my life. I think my aversion to risk is largely to blame, but the following principles have kept me grounded:

Do your research.
Zillow®. Yahoo® Finance. Local newspapers. Together, they all paint a pretty clear picture of the state of the current real estate market and local economy. Thanks to the Internet, I could run my own comps on homes for sale near my old and new neighborhoods, and general research sites gave me an idea of the going rate on home upgrades. Pricing my current home accurately helped contribute to a speedy sale. Informed research gave me the leverage to negotiate a substantial discount on my new home.

Get it in writing.
I liken new construction contract negotiations to a root canal – not my idea of a good time. But there is a lot of opportunity in the process. Explore all the options of your new home and use negotiations to score a great deal. It is one of the key advantages to building during a time of low demand. Keep in mind – be as specific in your requests as possible. “Upgraded patio French doors” and “Andersen 400 Series Frenchwood® Hinged Outswing Patio Doors in Sandstone with Newbury Door Handles in Antique Brass” result in very different outcomes.

Stay involved.
Building a new home is hardly a hands-off process. Just because a contract is signed doesn’t mean your work is over until you back the moving truck up to your new abode. Once ground is broken, keeping a watchful eye on the building process is key. Trust your instincts. If something doesn’t seem right, speak up! Identifying and addressing issues up front, while they happen, will make for a smoother closing in the end. And your physical presence in the process sends a message that cutting corners or hiding mistakes isn’t an option.

Know what you are capable of.
After reading articles about the economy on Yahoo Finance, it can be easy to become paralyzed by fear. While you can’t and shouldn’t bury your head in the sand, you also have to tune out the pundits and economists for enough time to reflect on your own situation. Research, number crunching, talking to your banker, talking to your spouse/family and being upfront and honest about what you can and can’t handle is the key to making an informed decision.

Buying high and selling at the worst time in decades. Starting a family in economic uncertainty. All concepts that seem steeped in risk. Thanks to being informed, focusing on good communication and knowing my limits, I made it through in one piece so far. In the end, I sold my house for a profit in less than three months, and thankfully my family made it through the recession relatively stress-free. Late July will reveal the outcome of my new house build. The path I’ve taken isn’t right for everyone, but I can finally see that it was right for me.

Just don’t ask me to go sky-diving with you. My tolerance for risk has been all but drained.

(Zillow is a registered trademark of Zillow, Inc.; Yahoo is a registered trademark of Yahoo! Inc.; and Frenchwood is a registered trademark of Andersen® Corp.)

[del.icio.us] [Digg] [Facebook] [Google Buzz] [Twitter]
Tags: , , .
Posted in Financial Education, Mortgages and Homeownership.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>