How to evaluate property

• Take you list of requirements.  When you enter a house remember it is not where you are going to retire, it is where you are going to live for a couple of years.  You don’t have to love it and you probably won’t.  This is where to start in home ownership and investing. 
• Itemize the house. 
• Price vs. condition as compared to the neighborhood .
• Type of fixing.  Cosmetic, addition, or major repair?  Are there any disclosures or reports?
• Capacity for habitability while working on it
• What needs to be done for you to live in it?  Close of Escrow 
• Prioritize the repairs.  What needs to be done to it in a month?  What needs to be done to it in two months?
• With each house look at all the houses on the street.  Rate the house and the street.  Does the house have any curb appeal compared to the rest of the street?  How many vacant properties are on the street.  Subtract $5000 for each one.
• Have your realtor find out why it is on the market.
• Take that list and go to the web and search for the costs involved in fixing and upgrading per each property. 
• Take a moment and look at the design of the home and neighborhood.  THINK ABOUT RESALE!  PRICE OUT MATERIALS AT THIS STAGE!  Make a list of the quality you like and judge it against the neighborhood the house is in and GO FOR THE MIDDLE!  Let me say it again, GO FOR THE MIDDLE!  If you cheap out the resale will be less, and if you too high end you will not get the maximum return.  GO FOR THE MIDDLE!  Except, if you did find the smallest house in the best neighborhood and there is no functional flaw to it then you can go high end.
• Pick two or three properties to make an offer on.  FACTOR IN YOUR LIKABLILITY TO EACH PROPERTY.  Look at each property as a rental.  Could you rent it with changes?  If you can’t imagine yourself living there even if you completely change the place – it is not for you no matter how cheap it is!  Likewise, if you can rent it for a short term then you could own it! 
• Now think about pricing.  This is the emotional part.  My recommendation is if the house is where you can happily retire then pay full price don’t even quibble.  What is $50,000 amortized over where you are going to happily live out your life.  You may always regret losing that property.  If you intend to live there for two years fight for every penny. 

Then take into account why the seller is selling. 

• If the seller doesn’t have to sell then don’t count on them lowering the price.  A very low offer to an unmotivated seller can diminish your negotiation power with them if you come back to that property in the future.   
• If the seller has to move yesterday and the house has been on the market for a while they will be willing to negotiate.  If the house is new to the market most sellers are less willing to negotiate. 
• Days on the market is only a factor for the seller’s motivation.  Usually, the longer it sits the more of a deduction.  If it’s a bank owned they maybe willing to negotiate however banks assume that they listed it at the bottom of the sales price range.  In a good market, a bank will not negotiate.  Banks usually do not go lower than 40% off list price.  That being said.  Right now, most bank owned properties are the cheapest. 

My recommendation is to avoid any short sales.  Wait for it to be foreclosed on.  Short sales are a minefield of problems that a buyer cannot control or influence.  If you have to have the property that is in short sale status my only recommendation is patience and be willing to have the bank not sell it to you after you have waited for months. 

Bank owned properties aka. foreclosures on the other hand are the gold.  The majority of these properties have a history of being sold at a higher price than what you’d be willing to pay for it.  Think about that.  Some one paid more than what you are willing to pay for it.  When you go to sell it in a couple of years after the market turns you have a minimum sales price to strive for.  Someone has already paid that for that house!  If you improve upon it in regards to that street then chances are likely that someone else will pay that price for it again.

Also, with bank owned properties they have moved out of the short sale status and the bank’s real estate department is now handling that property instead of the banks collection department.  These people will take into account comparative market factors.  There objective is to get some money for the property not collect the full debt (short sale).  These are the people that may do 40% off list.

At this point, you might be trying to get an inspection.  Take a breath and wait a minute.  Don’t waste your time and money on an inspection until you have a ratified sales contract.

Next: How to make an offer