Purchasing a home is one of the biggest financial decisions one can make and certainly one of the biggest risks one can take. With the fragility of the national housing market, although there are signs of improvement, investing in real estate today is risky and must be approached with much caution and consideration. In this paper I will discuss the process my husband and I will utilize to plan the process, evaluate the risks and make the decision whether or not to move forward in purchasing our first home.
My husband and I decided that we were ready to buy a home. We understood we had to approach such a big purchase carefully, so we decided to weigh the risks before undertaking the 30-year financial commitment. The process we used to identify, rank and monitor the risks was the project risk management approach. The steps include: establish the context, identify the risks, analyze and evaluate the risks and treat the risks. (Cooper, Gray, Raymond & Walker, 2005)
The criterion was that the home has enough space for our family to grow with, that it be in a desirable neighborhood and at a good price. (establish the context) Furthermore, we want to find the “worst house on the best block” as we feel this would reduce some of the risk. After brainstorming, the risks we identified (identify the risks) are: unpredictability of future property values, unidentified major issues with the home, and ability to secure financing. Once we identified these risks, we ranked them from greatest to least (analyze and evaluate the risks) and identified options (treat the risks) to mitigate them.
The risk that tops the list is unidentified major issues with the home. This risk could be costly and cause us to overpay for the home. Fortunately, we have lived in the home for over a year and are familiar with any potential issues. We plan on having a thorough inspection and specifically requesting that certain areas be looked into in order to mitigate this risk.
The second risk is the unpredictability of property values. In our neighborhood, the median home value is $200,300 (Home Values, 2013) which is up from last year. Additionally, recently sold homes in the area have sold for approximately $84 a square foot, which is in line with the asking price for this home. Finally, this home is in a prime location and a desirable neighborhood…