Part 22 of an Insurance-Website Series on Economic Survival: Great Retirement Home Bargains

Feb. 12, 2009 – Home prices in popular retirement locales like Las Vegas and Phoenix have dropped by more than 30 percent since 2006, outpacing the national average of 23 percent, according to financial advisor Dan Kadlec, co-author of the investment guide for baby boomers, “The Power Years.” The significant decline in home values in traditional retirement communities means potential buyers can get a great deal if they do some legwork.

While home values have declined significantly across the nation and especially in retirement areas, they could go lower. Housing market forecasts suggest it will remain “soft” through 2009.

Despite the gloomy short-term forecast, Kadlec says the primary question for potential buyers of second homes and retirement homes isn’t what price the house could sell for in a couple years. Instead, they need a more long-term focus of about 15 years and decide whether the home will hold retain its value then.

Using a long-term barometer for prospective home values, Kadlec suggests market values in many areas provide sufficient reason to consider buying a retirement home or other second residence. But potential homebuyers must assess several factors to determine if now is a good time for them to make a significant financial commitment.

Before researching potential properties, prospective homebuyers must ensure they can meet the tightened requirements to buy in the current market. Obtaining financing has become more difficult and requires an excellent credit score of about 740 to qualify for the lowest mortgage rate.

Purchasing a second home is a bad idea for people whose incomes might be jeopardized by the current economic downturn and could be out of a job in the near future. And replenishing depleted IRAs, 401(k) plans and other retirement vehicles hurt by the recent stock market crash should be a higher priority than investing in a second home, according to Kadlec.

The recent housing bubble burst has depleted home values in all markets, and good deals are available everywhere. But obtaining the best long-term value means shopping in areas where home values have the best odds of holding their current value combined with a high potential for a long-term gain. Kadlec suggests focusing on locales that support growth industries, such as technology, health care and energy development.

And investors eyeing retirement homes will find the best deals in complexes completed more than five years ago. They won’t have the very latest amenities, but that is why their prices declined more than newer units. Many buyers prefer newer developments with on-site restaurants, spas and other recreational facilities according to Kadlec.

Avoid investing in housing projects that haven’t been completed, even if the developer offers free incentives. Many builders are struggling to obtain credit to complete construction projects during the poor new housing market.

When prospective buyers have one or more homes in mind, obtaining the assistance of a licensed real estate professional is important to ensure legal matters are met and to have a negotiations ally, according to Kadlec.

Real estate agents usually are legally bound to work on behalf of the home seller to obtain the highest value. But buyers can work with brokers licensed to represent them instead of the seller. The broker still collects a sales commission and benefits financially from a higher selling price. But buyers willing to walk away from a deal have a tremendous amount of leverage, and a smaller commission is better than none at all.

To negotiate favorable prices, Kadlec says buyers should learn what similar homes have sold for in recent weeks and offer sellers at least 10 percent less to compensate for additional market loss. Aggressive buyers could bid 20 percent lower than recent sales values as a negotiating starting point, giving in somewhat if the initial offer is declined and secure a selling price that still offers a great value.