Value equals location plus much more
Originally appeared in Hills Publications, October 9, 2015
“The difference between successful people and really successful people is that really successful people say no to almost everything.”
– Warren Buffett
As a buyer, it is hard to say “no” in a seller’s market where it appears that waiting will cost you a lot because prices are rapidly rising. When working with buyers, I suggest they avoid properties with problems that diminish value. Although location is the key determinant of value, the pressure of the market allows too many other considerations to be brushed aside by buyers.
The following are some concerns that either cannot be rectified, or, even if they can, the cost would likely not make sense.
Major remodeling, e.g., new kitchen, bathroom, or an addition done without finalized permits, is a gigantic no-no that slips by buyers desperate to “win the race.” Aside from potential health and safety issues, the city or county, if they happen to inspect your home for something else and discover the unpermitted work, could insist on walls being opened or worse. When you sell, other buyers may not be willing to overlook this.
Poor floor plan
Some floor plans are clearly deficient. For example, a bedroom with access only through the kitchen is handy for midnight snacks, but is not a desirable setup. “Railroad car” rooms, one after the other, are also looked upon unfavorably.
Your excitement about a particular house may focus your attention away from the fact that it has a long flight of steps to the front door. You may think it is good exercise, but ponder going up and down numerous times a day, especially in the rain, and you will realize how big this liability is. There is no number written down in “The Book of Real Estate” regarding maximum number of stairs, but I tell buyers that more than about 25 is a negative.
Periodically, I run into a traditional, older home that has been bastardized with a modern addition that includes high, vaulted ceilings. Updating an entire home is fine; mixing styles and time periods is basic bad taste and is a huge real estate faux pas. Despite past interest by my buyers, I have always been successful in talking them out of these horrors. Remodeling out of character for the property impairs value.
In this type of market, many buyers will dismiss the disadvantage of having large houses and/or buildings overlooking the back yard. In some instances, the home may be surrounded by larger structures. This is unpleasant.
Additionally, privacy can be lost if the house is on a busy street where there is a constant flow of car and foot traffic. Likewise, living next to or across from a school, commercial building or condos impinges on privacy.
If the house next door or across the street is run down and poorly maintained, this makes a bad impression on buyers. More than one like that is really significant. This is unusual in top neighborhoods, but, sometimes, very elderly owners or those who have fallen on hard times have residences that are eye sores.
If you purchase a home with unkempt neighbors you might get lucky because the derelict property will be rehabilitated before it is your time to sell. If not, it could cost you. Regardless, you will have to look at these turnoffs every day.
Houses with level-out to a private, spacious backyard sell for a premium. Those with little or no outside space are less in demand. And then there are decent backyards that are two or three stories below the living level. A house is not simply somewhere to sleep. A lovely garden can be a great emotional as well as financial asset.
In speedy markets, purchasers pay a premium for tiny houses. Starter properties are generally two bedrooms and 1000 to 1200 square feet. I warn my buyers that buying under 1000 square feet is a bad idea because it tends to feel cramped and is harder to sell when the market slows down. This is especially true for one bedroom homes.
Lacking a garage translates to less safety and convenience. Parking expensive vehicles on the street is not a popular choice for most buyers, especially with so many car break-ins. If you buy a property without a garage, but pay a price equivalent to one with a garage, it could cost you when you sell.
Condition is mistakenly overlooked by far too many buyers. Pay particular attention to foundation, drainage, pest control and roof. One or more of these is generally the most expensive condition problem. Make sure to get reports from your own inspectors.
Time and again in this market, I have seen buyers bid hundreds of thousands over the asking price for properties that needed an additional $200,000 or more in repairs and upgrading. I wonder if they factored these further funds into their purchase price decision.
When you sell
Many of the above deficits may still be there when you sell. Problem is that they tend to decrease the selling price much more in a buyer’s market, when there is abundant choice, than in today’s seller’s market. Even in a “normal” market, you will probably still take a substantial price hit.
Do not let fear rule you. Despite a feeling of urgency to buy now, “just say no” to overpaying for a home with costly issues that seriously detract from its value.