Don’t Buy the Most Expensive House on the Block

December 8, 2009 No Comments »

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Buying a home isn’t easy. There are a number of things that can and will go wrong, from the financing falling through, to the appraisal coming in low, to seeing your offer on that dream house get trumped by another buyer.

Adding to the difficult and sometimes competitive process is timing the transaction. Is now the right time to buy? Are home prices still falling? When will they rise?

While it’s nearly impossible to time your home purchase perfectly, there are a few things you can do to minimize your downside risk.

One tip I’d like to highlight has to do with functional obsolescence, which is essentially home price depreciation caused by a loss of building utility.

Specifically, if the property you purchase doesn’t look like the others around it, if may suffer in value.

Don’t Build a Palace in the Suburbs

You’ve probably seen a street in your neighborhood or somewhere nearby where one home stands out above the rest.

Perhaps it has been completely remodeled, or has features that aren’t the norm for the area; stuff like ornate marble pillars and/or a huge iron gate surrounding the property that make it look like the Taj Mahal.

Whatever it is, the home doesn’t look like the others, even though it may be much more aesthetically pleasing and seemingly more expensive.

These characteristics are known as over-improvements, because they’re too lavish for the surrounding area.

As a result, the property value will be dragged down by those nearby, because you’re only as strong as those around you.

Conversely, if you buy a property that isn’t as picture perfect as those close by, but the amenities are fairly similar, you should see a value boost as a result.

So keep that in mind if you’re thinking of buying a property or remodeling your current home (see best and worst home improvements).

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