There are many ways to watch out for trouble. One would be a disconnect between prices and the underlying value of homes, as measured by their market rents. This type of gap analysis can help determine whether the potential exists for purchasing an overpriced home. Another strong indicator that peak prices are forming is if home prices are rising much faster than rents. If home prices are rising while average rents are falling, peak prices have already been reached.

You can reduce your risk from purchasing overpriced real estate by keeping the following strategies in mind:

• Look for undervalued properties.

Even in the hottest markets, there are ugly ducklings -- flawed homes that others overlook. If the defects are fixable, you might be able to get a relative bargain and be in better shape than your neighbors should prices fall. I can help you scout for undervalued properties in need of cosmetic repairs.

• Purchase defensively.

Homes in good neighborhoods with good schools tend to hold their values better.

• Plan to stay put.

Find a home you can live with for awhile. The people who get hurt the most during real estate downturns are those who are forced to sell, usually because of a job change or because they couldn't really afford the home in the first place. If you can hang on to a home for five to 10 years or more, you improve your chances of being able to ride out a downturn.

• Choose a Realtor skilled in developing a Comparative Market Analysis (CMA) for the area(s) in your target purchasing locations.

This will help you lesson your chances of purchasing an overvalued home.

With the help of your realtor, purchase on the defense and you will find that you have made a choice that will bring you both comfort and value in the years to come.

If you would like to learn more about conducting a CMA, or need assistance finding your new home, please contact me.

Written by Jim Mcfarlane, real estate agent serving home purchasers and sellers in the City of Chicago and Northern suburbs.

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