As real estate markets change, it’s important to keep asking questions that will help you figure out whether buying a piece of property is a good idea or not. Last week, I suggested you answer two questions before putting in an offer to purchase: how long do you plan to stay in the home and how desperate or anxious is the seller.

This week, I have three more questions you should ask – and answer – before making your offer:

  • Is the local economy stable, improving or declining?

Recently, the Commerce Department revised downward its estimate of the U.S. during the first quarter of 2007. The Commerce Department said that the economy grew only 0.6 percent during the first quarter of the year. That’s the worst performance since the brief recession of 2002.

When economic growth is anemic, most metropolitan areas will feel it in some ways, although not all. But asking yourself whether the local economy is stable, improving or declining is important because projecting where the local economy is going can have a profound impact on whether your new house will appreciate and how long it may take to sell down the line.

For example, the state of Michigan has been in an economic downturn for the past several years. Detroit, home of the U.S. car industry, has been fighting Japanese and other foreign automakers for some time. Thousands of people have been laid off from good-paying jobs as the major car manufacturers struggle to get their companies turned around. At the same time, the state’s tourism has been declining, and higher gas prices aren’t helping.

If you’re buying a house in Michigan, you have to think carefully about whether your local area is stable or is in a boom or bust mode. Michigan’s economic problems appear to be longer-term and it’s unclear to most housing economists how the state is going to work itself out of these issues. Buying a house may mean taking an outsized risk, if you’re not planning to be there for 10 years or more.

On the other hand, if you’re buying a home in Phoenix, life looks a little different. Although there is a glut of homes on the market for sale, the economy in Phoenix continues to hum along. Most people are moving to the state than are leaving it, so housing economists believe that that the buyer’s market and local economic slowdown are temporary.

  • Is this neighborhood stable or is it in flux?

After nearly 15 years of continuous growth, many real estate property owners had forgotten that markets can change on a dime. And, in fact, it’s almost as though the real estate market starting moving in the opposite direction overnight.

But while it does appear that we’re taking a breather in terms of sales, it’s important to take a hard look at what’s going on locally. Look for clues that a neighborhood is stable (lawns and homes are taken care of, schools are good, and businesses thrive over the long run) or is in flux (buildings are either being remodeled or are dilapidated, there’s an effort to clean up areas or you’ve noticed more garbage on the streets, etc.)

Talk to local residents, school officials, and local business owners. Walk the streets during the morning and evening commutes and during the day. The only way you’ll really see what’s going on is if you’re there, in person.

  • What are the big negatives to this property and can I live with them?

Often, when we look at real estate, we start to lose our ability to be objective. It starts to get personal and the closer we get toward finding the right property, the more personal it becomes.

The truth is no property is perfect. But if you don’t to recognize the major problems with your property ahead of time – that is, before you make an offer – you’re going to have a tougher time selling down the road.

Once you’ve identified all of the negatives attached to the property, you have to think about whether you can live with them, and whether there will be enough people who can also live with them so that you’ll have an easy time selling.

Don’t be afraid to look at the negative aspects to the property. You can always adjust what you’re willing to pay to compensate.