Choosing a home that has value: how to make sure you profit from life's biggest investment. (B.E. Guide To Homeownership--Part 2).

FIVE YEARS AGO, CHALMUS ENGLISH SR. LIVED IN A CONDO. "We had [maintenance] services there ... no snow to shovel," he recalls. So why did he go house hunting? "My wife wanted to have more room, for when the grandchildren come to visit."

English, who owns an accounting firm in Chicago, quickly discovered some of the perils of home buying. "The seller didn't live up to his promises," he says. "Appliances weren't upgraded [and] custom cabinets weren't installed." He had to invest $5,000 in repairs and upgrades after the purchase to turn the new house into a home.

Fortunately, this story has a happy ending. English, 56, and his wife, Wilma, bought their house for less than $127,000 in 1998. "Now, it's worth over $185,000, judging by sales of other homes in the neighborhood," he says. "Having a good location has helped the house gain value despite the problems we had in the beginning."

There is an old saying: The three most important things to look for when you buy real estate are location, location, and location. That's certainly true today and will be just as important tomorrow. Nevertheless, if you want to increase your chances of winding up with a home that will appreciate rather than depreciate, you also should pay attention to the following factors when shopping for your dream house:

* Choose an area that fits your lifestyle. Usually, this will be an area within driving distance from your job, but you may want to take other things into consideration. The area you choose should also be conducive to the climate and pace with which you feel comfortable. "When I was [retiring] from the Air Force, I was thinking of moving back to Texas, where I'm from," says James Lewis. "[But] my wife and children wanted to stay here in Florida, near Eglin Air Force Base, because they liked the lifestyle." As a result, Lewis, 69, wound up living in nearby Niceville, Florida.

Now, years later, lifestyle issues still make a difference for Lewis and his family. "When I bought my house 25 years ago, [having] five kids [made] living a block from the school very desirable," says Lewis. "Today, even though the kids are grown, we still like the area. It's near the post office and two blocks from our town's Main Street." That kind of convenient access to services has long-lasting value.

* Research your location thoroughly. "You want to know that you'll be moving into a dynamic, growing area where school enrollment is going up, and new businesses are opening," says Kathy Williams, a financial planner in Oklahoma City. "Pick a neighborhood where the homes have been increasing in value."

Williams says you can find information about communities on the Internet and that Websites such as MSN's House & Home (www.house andhome.msn.com), for example, give you the opportunity to research cities and specific neighborhoods. Once you've narrowed the field via online research, she suggests that you look around, personally, to assure yourself that you are not moving into a low-income, high-crime neighborhood. You may want to visit a potential community at night to determine its true character.

Beyond avoiding trouble spots, what makes a good neighborhood? "That's like asking what's pornography," says Ralph Rice, a realtor in Fort Walton Beach, Florida. "You'll know it when you see it. If you're near schools and churches, future buyers probably will look upon those as favorable features." Rice also says that unkempt lawns and nighttime noise are red flags.

Indeed, English credits his choice of neighborhood, in the South Shore area of Chicago, for his property's appreciation. "It has good access to rail and bus transportation. And I can walk to a golf course," he says. "Recently, homes in this area have become very popular."

Karen Anderson Baker, English's investment advisor, who has an office in Tinley Park, Illinois, stresses that location is paramount "They bought a house in a revitalized neighborhood," she says. "It's not far from his office, which they found appealing, and this convenient location probably will attract future buyers."

* Don't overpay for your home. If the house of your dreams is beyond your budget, be realistic. "I tell people not to pay more than two-and-a-half times their salaries for a house," says Williams. "What's more, you shouldn't spend every penny you have to buy a house. After buying, you should have an emergency fund of at least three months' expenses, in cash."

According to Baker, you should figure out what you can afford to pay and still have money left over for furniture. "Tell the agent what you can afford so you don't waste time looking at houses that aren't in the right price range," she says. There are many online calculators that can help you determine how much house you can afford. Try the GE Financial Center (www.gehomenow.com/Homebuy or Bankrate.com (www.bankrate .com/brm/calc/newhouse/calculator.asp).

* Look for features that will enhance value. You should not only look for a house you like, but one with features that will enhance its value when it's time to sell. "A house should have at least three bedrooms and two bathrooms in order to have good resale value," says Williams. "A two-car garage also is a plus."

English, for example, chose a spacious three-story house with a big yard to accommodate visiting grandchildren. Lewis needed an even larger house: "With five children, I bought one with three bedrooms," he says. "It had front and back yards, which we wanted. Even now, it helps to own a big house because we always have relatives coming into town." Those features, and the popular location he chose, have helped his home almost triple in value from $42,000 to $125,000.

In addition to size, the immediate surroundings of a home can be an important feature to consider. "Look around the surrounding area," Rice advises home buyers. "If the houses you see don't look attractive, don't buy. Some people think a house is a bargain because it's low-priced, but they neglect to look next door. A house might be beautiful, but if a rundown neighborhood is a block away, you won't get a good price when you want to sell."

Nearby houses definitely deserve some attention, according to Williams. "If you look out the window and see a bright orange house, you may have a problem when it's time to sell," she says.

Williams also suggests that areas with a neighborhood watch, or a homeowner's covenant that maintains standards of appearance and behavior, are desirable because those features ultimately help resale value. "If you're being asked to pay dues to a homeowner's association, that may be a good sign," she says. "It could indicate that the covenant is being taken seriously, with the means to enforce it."

* Hire an experienced home inspector before buying. When you are buying a home, go beyond a cursory eyeball examination to make sure it has been maintained and modernized. "From my experience, I would advise anyone about to buy a home to hire a home inspector," says English. "Be sure the electrical work, plumbing, and support beams are checked. Based on the inspector's report, tell the seller what the house needs and don't go to closing until you know it's been done." Alternatively, you can plan on making the necessary repairs yourself, but adjust your purchase price accordingly.

"Pay attention to the condition of the yard as well as the house," says Baker. "You should have an idea of what you'll have to spend on landscaping before deciding whether it fits your budget."

Even if the house passes inspection now, be wary of possible future expenses. "A frame house will suffer from termites," says Rice. "It's just a matter of time. A brick house, on the other hand, stays forever."

* Be prepared to negotiate on price. "To get an idea of whether an asking price is fair, ask realtors about [the price of] houses that have been sold recently in that area," says Rice. "The best guide to what a house is worth is the price someone just paid for a similar house in the same area."

When you negotiate the price you'll pay for a house, you should be reasonable. "Consult the realtor on an appropriate offer. Be aware that if you begin negotiations with too low a figure, the seller may refuse to negotiate with you at all because it seems that you're not dealing in good faith," says Rice.

* Consider building instead of buying. Home buyers may decide they'd rather build than buy a house. In that case, location is even more important. You can put whatever you can afford into the house, but its resale value, ultimately, will be affected by where you build it.

"We looked at the homes on the market and couldn't find what we wanted at the price we could afford to pay," says William Noel, 40, a sales representative who just moved into a newly built home in Oklahoma City. "The houses we saw didn't have as much space, especially yard space."

Noel's wife, Daisy, 38, says that they needed a large house. "We have three children, and we home-school them. So we decided to build a four-bedroom house with a four-car garage."

The first step, then, was to pick out a property in a location where they wanted to live. "We found a two-acre lot in an area where you can see stars at night and deer come into the back yard," says William. "At the same time, it's not far from a highway, which is important because my work requires a lot of driving."

Once they had a parcel of land selected, the home building process began. "We got plans on the Internet," says Daisy. Interested home buyers can go to a search engine such as Google and enter "home plans"; several sites will be shown. The Noels found their plan at Dream Home Source (www.dreamhome source.com).

"On the Internet, the architectural firm providing the plans is identified," says William. "We picked out a plan and spoke to the architects. Because we felt comfortable with what we heard, we went ahead and bought the plan."

The next step was to hire a local contractor to turn the plan into reality. "We got some leads by referrals and interviewed several contractors," says William. "Then we picked one who had experience with larger homes because we didn't want someone learning at our expense. We walked through a large house he had built and were very impressed."

The homeowner usually adds to the homebuilding plan. Some of the extras specified by William and Daisy not only add to their enjoyment, but also may enhance resale value. "Most plans call for carpet and tile, but we added hardwood floors," says William.

In addition, the Noels upgraded the heating system and used solar board rather than plywood on the roof, to improve energy efficiency. "We expect that heating our 4,000-square-foot house will cost no more than heating the average 2,500-square-foot house," says William. "We also installed four different phone lines. In the future, I believe more people will work out of their home so they'll find it appealing to buy a house that's ready for phone, fax, and cable."

The Noels' advice to others? "If you're going to build a house, you have to stay involved," says William. "You can't just hand a contractor $300,000 and say, 'Call me when it's done.' We looked at the job every day, to keep up with the work. We also established relations with subcontractors so we could make changes ourselves, if we couldn't reach the builder."

Although you may be able to save money by building a home instead of buying, not everyone will want to deal with the hassle, even if you wind up with the features you want at a lower price. Whether you buy or build, take the time to shop carefully and the payoff could be big. The promise of rising property values makes any home purchase much sweeter.

The Secrets of Agents

a competent real estate agent can help you find a home that meets your specific needs. However, you need to understand your relationship with the agent from the outset.

"Know who your agent works for," advises Holden Lewis, a reporter for Bankrate.com, in North Palm Beach, Florida. "The agent works for the seller, unless your agent has signed a contract, called a buyer agency agreement, which specifies that the agent works exclusively for the buyer. These contracts are popular, and you can confide in an agent who has signed such an agreement."

Without a buyer agency agreement, the agent showing homes to you actually represents the seller. If you say, "We would be willing to pay $100,000, but we'll offer $90,000," a seller's agent is obligated to pass along that information, according to Holden.

If you decide to hire a buyer's agent, read the contract carefully. Ideally, the buyer's agent simply will split the commission 50-50 with the seller's "listing" agent. That way, there will be no extra fees to increase the overall cost of the transaction.

Whether you hire a buyer's agent, or simply rely upon an agent who'll be paid by the seller, these checklists from www.ourfamilyplace.com can help you find the agent who best suits your needs:

Qualities to Look For in un Agent:

* an understanding of your needs

* A willingness to work with you until your needs are fulfilled

* A sense of professionalism

* Someone who is dedicated to the profession

* A familiarity with the area in which you have an interest

* A familiarity with the price range in which you have an interest

* Professional designations such as GRI (Graduate Realtors Institute) or ORS (Certified Residential Specialist)

* Strong references from previous buyers

Questions to Ask a Prospective Agent

* How long have you been in real estate?

* Are you a full-time agent?

* Are you familiar with the area in which I want to look?

* How many home sales did you participate in last year?

* What is the average price of the homes you sold last year?

* Do you normally work with sellers or buyers?

* How many buyers are you presently working with? How many sellers?

* Where do you feel your strengths lie?

* What three buyers can you give me as references?

Finding the Right Agent

Finding the right real estate agent may be the most important step in purchasing a home that will appreciate in value. The Website www.ourfamilyplace.com offers the following tips to make your search fruitful:

* Be aware that if you search for homes first and contact the agent who has a particular property listed, that agent will absolutely represent the seller--not you.

* Search newspaper and magazine ads for agents who advertise that they have experience in buyer representation.

* Ask friends, relatives, and co-workers about experiences--both good and bad--they have had with specific agents. Was the agent easy to work with? Did they feel that the agent was responsive to and met their needs? Would they use that agent again?