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The Real Estate Adviser

Don't worry about home's resale value

Dear Steve:
I recently have been hearing, "Don't buy or build the biggest house in the area." Is this statement related to zip code or to individual developments? I recently purchased a custom house in a new subdivision. I picked one of the seven builders on a list and he is building the house I want (3,300 square feet). Most other houses in the development going up on spec are being built around 2,600 to 2,800 square feet.
Maximum Bob

Dear Maximum:
There's an old saying: Better to buy the worst house on the best block than the best house on the worst block. And most real estate agents and home investors fall in line behind this maxim because they are always thinking "resale value." That's their job.

The rationale is that if you have the most grandiose, expensive house in the neighborhood, it will not hold its value nearly as well as a similarly large house in an area surrounded by other big homes. That is, people who are in the market for a $300,000 home want to be surrounded by other $300,000-plus homes.

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Ergo, the value of your neighbors' dwellings might put a damper on yours when it's time to resell, the line of thought goes.

But before you kick yourself or anyone else, Bob, consider your reasons for buying. Your decision, no doubt, was driven by the location, neighborhood and prospects for an idyllic life and the pursuit of happiness, etc. (Am I wrong in assuming your spacious new abode will be resonating with the pitter patter of little- to mid-size feet?) And if you're going to be ideally situated in relation to schools, parks, shopping, work, church, restaurants, etc., then you're probably where you ought to be. Whatever made you instinctively choose the location was probably a good impulse.

Unless you really plan an abundance of bells and whistles in your custom home, the value disparity between it and others on your block does not appear to be outlandishly disproportionate and you probably won't be exceeding neighborhood standards inordinately. Most experts say avoid homes that cost 50 percent or more than your neighbors' homes. But your planned home appears to fall well under that range.

And, hey, it may not hurt your ego to be the biggest kid on the block.

It is true that for optimum investment potential, it's wiser to purchase a modest-sized home in a neighborhood of larger ones, because the neighborhood will then tend to add value. But people buy homes for other reasons, as we both know.

Your home will maintain that "new" glow for several years. Should you need to exit unexpectedly in the near future, it shouldn't be too tough of a sell should the real estate market continue its current course.

Good luck and happy nesting.

-- Posted: May 15, 2004

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See Also
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Can you cancel? The right of rescission
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Track prime rate/other leading rate indexes
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