Since 1995, or 1994 in some parts of the country, sellers have been living out the residential home market of their dreams.

Imagine being able to put an outrageous price tag on your home, and within a few hours of listing it receiving several offers over your original list price.

Well, those days are gone – or if they’re not going, the sellers market is taking a breather. Homes are sitting longer on the market and sellers are becoming nervous that the sky-high prices they paid for their homes five years ago may be their financial undoing.

But home buyers seem even more nervous. Prices are, on average nearly 40 percent higher than they were six years ago, and are continuing to rise in many parts of the country. If someone overpaid for a home five years ago, buyers think, what am I doing now? And, what will happen if the country falls back into a recession?

It’s difficult to know where home prices will go in a given year. And, it’s hard to know if you’re buying at the top or bottom of the market unless you’re looking at it a year later.

But real estate is a very local issue and even if homes are depreciating in value, according to metropolitan statistics, they might be rising in your neighborhood or the price range in which you’re looking.

How can you protect your investment? These suggestions will help you identify a home that has the potential to go up in value:

  • Buy in the best neighborhood and school district you can afford. Buying in the most desirable neighborhoods, which usually support the best school districts, gives you a leg up during recessions, when less popular neighborhoods and poorer school districts may decline in value. In addition to having great schools, popular neighborhoods also offer a wide variety of shopping, services, transportation and recreational options and activities.

If you have to choose between buying a bigger home in a less desirable neighborhood, or a smaller home in a better neighborhood, weigh the choice carefully. Homes located in better neighborhoods with better school districts typically appreciate faster.

  • Buy a fixer-upper. One of the best ways to ensure that your home will appreciate, or at least maintain its present value is to purchase a home that isn’t quite up to the neighborhood standard in terms of upkeep and amenities. For example, if every home on the block offers an eat-in kitchen, and the home you purchase does not, you may be able to buy the home at a reasonable price and, when you have the time and money, fix it up. Generally, homeowners who make such improvements get all of their money out of the improvement and more. Plus, they get the use of their renovations.

  • Buy a home with expansion possibilities. If you can’t afford a bigger home in the best neighborhood, consider buying a smaller home that offers room for expansion. When you have the money, you may be able to add onto the home and build in value. In the meantime, big yards are prized in good neighborhoods.

  • Don’t buy or build a white elephant. If you buy a home, don’t over-expand it. Don’t add more amenities to it than the neighborhood can support. If you do, you could find yourself with a property into which you’ve poured more money than you can recoup in a sale. That can devastate you financially.

  • Before you buy a home, think about how easy or difficult it will be to sell it. Think about the property’s location, relative to the neighborhood and block. Think about why you like the home. Think about what you don’t like and what others may not like. Consider where are the nearest environmental concerns, like municipal dumps, existing and past gas stations, dry cleaners, and possible sources of water contamination. Make sure a recycling center isn’t going in behind you, a factory isn’t being build in front of you, and that your property isn’t about to be condemned for a new highway exit ramp or airport expansion.

All of these things can make your home fall in value. Even if they don’t actually bring harm to you or the property, they can cause your home to depreciate in value. Future home buyers have to be alert to potential dangers.

Finally, don’t forget that perceived dangers (some people believe that nearby electromagnetic power towers can cause cancer) can be as damaging to a home’s value as real ones.

Nov. 4, 2002.