When looking at a house, someone is tempted to buy the best house in the neighborhood. Should you buy the most expensive house on the block? No.
Assume you fall in love with a house of work in a certain environment. It has everything you can dream of: a black bottom pool, marble, a fabulous kitchen, a topmost window, amazing brick work, and so on. The sellers clearly put a lot of time, energy, and money into the house. As such, it stands out as a pearl on the block. Why don’t you want to pick it up right away?
Before you start signing documents, look at the comparable home sales prices, “companies”, in the neighborhood. If you compare the price of a comp with your dream home, you should pay attention to the significant difference in prices. This difference must act as a metaphorical slap in the face or pour cold water on your head. The dream home no doubt sells for a price range far outside the company. The warning light must go out at this time.
You will have problems if you give in to temptation and buy the most expensive house on the block. In fact, you will have two problems.
The first problem is the appreciation of home values. Appreciation for the best home in the neighborhood will always be dragged by the surrounding structures. If you take a $ 900,000 home from a private community and put it on a $ 250,000 block of houses, the value of $ 900,000 will go down a lot because the environment won’t support it. When you finally sell, the buyer will look at the company in that neighborhood and laugh at the asking price of $ 900,000.
The second problem is “hemming.” Because you have the most expensive house in the neighborhood, your potential for appreciation is limited. This is a bigger problem if you want to remodel or add a house. Taking such actions will usually add value to the home. With the most expensive home, not only will it not add value, it can also reduce your equity. Why? If you make a $ 50,000 overhaul, you might see a $ 10,000 profit for your $ 50,000 fee. You just lost $ 40,000.
Dream or Nightmare
Unless you can accurately predict improved assessments for the whole neighborhood, you don’t have to buy the most expensive house on the block. If you do, the dream home can quickly turn into a nightmare.