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Before you are very far into your house-hunting, someone will tell you the oldest real estate joke that the three most important factors in the value of a house are (1) location, (2) location and (3) location.
It's true, too. A house costing $600,000 in Beverly Hills might sell, on a comparable lot in the suburbs of Peoria, for $100,000. Never in the history of this country have locational differences been so marked. Closer to home, you know yourself that a modest home in the most expensive suburb is worth much more that the identical house in an inner city neighborhood.
From a buyer's point of view, there are two ways of looking at this locational preference, which appraisers call situs. The classic advice is to buy the modest house on a more expensive street. Such a house is easy to resell, and it's value will hold up well, for there are always buyers eager for the prestige of that particular neighborhood. Remodeling or adding to it is possible too because alterations won't push it out of the price range for that area.
On the other hand, the most luxurious house on the street won't ever repay the owner for the money invested. No matter how elegant it may be, buyers with money to spend will aim at another, fancier neighborhood.
In one way, then, an over-improved house represents an opportunity for the buyer who wants lots of space and luxury features and isn't worried about resale value. If you think you will live in the house for a long time and you like the area, you may be able to pick up a great deal for your money. Where then are the bargains?
- Sloppy houses, otherwise well maintained
- Family situations of stress: divorce, death, illness
- Property over-improved for it's neighborhood
- The modest house on a prestigious street
The last is, perhaps, not so much a bargain as it is a classic good investment.
This Homebuyers Tip was excerpted from:
Buy Your First Home Now, by Peter G. Miller
ISBN# 0062733966
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