Tuesday, June 5, 2012

Critical Elements of Resale Value

None of us have a crystal ball to predict the future, if we did, this entire housing mess could have been avoided, nobody would have been foreclosed on, and people would have bought within their means.  That being said, there is much to be said about controlling your own housing destiny by purchasing a home with tremendous resale value.

Resale value is often misunderstood and rarely on the "checklist" of new home buyers.  It's misunderstood because most buyers think that if they can buy low, that they'll be able to sell high.  If they get a smokin' deal on a property, they're bound to be able to get a reasonable return on their investment right?  Well, that's wrong in several cases which I'll go into.  Every home buyer should have an understanding of what "resale value" is, how to maintain it and what to look for in each and every home they're considering. 

If you're thinking of buying a home with consideration to resale value, you're going down the right path.  Typically, a home at or just below market value will be a good prospect for resale value because you won't be overpaying for a home.  Secondly, you need to understand why the home is priced at or below market value.  Most likely it will be one of three scenarios:  seller distress, curable defects, or incurable defects.  Seller distress and curable defects are good reasons to buy a home at or below market value because these are situational challenges you can overcome.  Incurable defects need to be looked at and scrutinized much more severely.  What are incurable defects?  Well, with real estate, typically incurable defects are locational issues such as being located near a busy street, an undesirable commercial or industrial property or worse yet, a commercial feedlot.  You'll never be able to change these locational defects and in the end, that assumed resale value will need to be discounted to lure a buyer in when it comes time to sell.

Ok, now we've gone through what to avoid in assumed resale value, now, let's understand what you need to be looking for.  Still, you need to be savvy understanding home values within your geographical search.  Still buying at or below market value will give you your best return, but beyond that, you need to understand what kind of "upward mobility" your home has compared to the remainder of the neighborhood.  Upward mobility is the difference between the highest valued home in the neighborhood and where your home is currently valued.  If the difference is high, i.e. you're living in one of the cheapest homes in the most expensive neighborhoods, you're in great shape because you have to ability to add value to your home to get it in line with higher valued properties.  Even without doing much work to your home, if the neighborhood remains desirable and prices continue to edge upwards, your home will rise in value at a greater clip then those in less desirable neighborhoods.  Remember, rising waters float all boats.  It's better to buy a $200,000 home where average home prices are at $300,000, than it is to buy that $300,000 home in the same neighborhood.

Resale value is all about appealing to the largest cross section of buyers.  If you can appeal to 80% of home buyers with a 3 bedroom, 2 bath, 2000 square foot home, then why would you purchase that 2 bedroom 1 bath home because it was a sweet deal?  If you're thinking about resale, you need to think about who will be most likely to purchase the home.  If you could see most average families living there, then you're on the right track.  Make sure the home you're considering has enough space, but isn't so large that it's unmaintainable.  Same goes for lawn and landscaping as well.  If you're the only lot on the block with a pool, it may appeal to some buyers, but others might see it as a maintenance nightmare.  Keep that in mind.  Functional obsolescense is a real estate term used to describe unique features that appeal only to a few buyers.  The fancier and more unique you get, the less an average homebuyer will be attracted.  Keep your upgrades simple and just above average, no need for built in marble statues, bidets, and backyard waterslides. 

When it comes down to it, remember real estate is all about location.  If you're in a desirable area, maybe close to schools, shops, churches, recreation, etc., chances are you're in a good spot to set up shop and watch your resale value climb.  Pride of ownership is another key trait for the best resale neighborhoods.  Check out the entire neighborhood to really see if everyone is on the same page.  Price of ownership doesn't happen overnight.  Lastly,  one of the biggest mistakes I see buyers make with consideration to resale value is buying a home that doesn't fit their long term needs.  If it doesn't fit your family and your needs, don't buy it just to see if you can make a quick buck.  Consider quality of life while you're watching that resale value climb.  If you're miserable, chances are you won't last long enough to really capitalize on your resale value.

Jared Reimer is a real estate broker with Prudential Rocky Mountain Realtors in Northern Colorado.  Real estate is his passion and he always wants to connect with like-minded and savvy real estate fans.  For more information or to get in touch with Jared, please visit his website at www.ReimerRE.com or email him at JaredReimer@ReimerRE.com

No comments:

Post a Comment