Six Things to Remember When Valuing a Newer Home in an Older Neighborhood

How do you value a new home in an old neighborhood? Here are six things I keep at the forefront of my mind when approaching this situation and choosing comps. What else would you add? I’d love to hear your take in the comments.

  1. Premium: There is usually a premium for new construction. Just as buyers pay more for that new car smell, buyers will typically pay more for a home that has never been lived in.
  2. Fading Premium: However, the premium for new construction fades VERY quickly. This is important to keep in mind because any premium paid when the house was built a few years ago may not exist in today’s resale market.
  3. Infill Location: If the newer home is part of an infill project, it might have a bad location since the best locations were probably already built out. Moreover, infill projects tend to have tiny lots compared to larger ones found with older properties.
  4. Quality: Sometimes newer homes may not have the same quality as older homes, which reminds us new is not always more valuable. Other times though new homes are far superior to the surrounding area.
  5. Conformity: Does the property fit in with the neighborhood in terms of design and size? Or does it stand out in a bad way? The principle of conformity is a very relevant dynamic in real estate, and whether a property fits in the neighborhood or not can impact its value.
  6. Neighborhood Acceptance: Sometimes neighborhoods go through a period of change where it becomes more acceptable for older homes to be torn down and newer bigger ones rebuilt (East Sacramento). Other times it is not common or acceptable, so a new home might look like a sore thumb.

When valuing a newer home next to older ones, it’s easy to automatically assume it’s worth more. Yet we have to ask, how does the market see this new property? Is the market willing to pay more for this or not? What are buyers looking for in the neighborhood? The proof is in the data, so often times we need to dig deep for comparable sales. It might even be helpful to search through the past several years of sales to find something else that was new. What was comparable to the new property at the time of its sale? Did it sell with any premium? Or did it sell right on par with other older homes? Be careful of course when interpreting new construction comps since sometimes newly constructed homes are loaded with concessions and credits, which can inflate the price.

Questions: What’s number 7? Any other thoughts or insight?

This article was originally published HERE for more articles from Ryan Lundquist you can visit sacramentoappraisalblog.com.

If you have any comments or would like to submit content of your own email comments@appraisalbuzz.com

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About Ryan Lundquist

Ryan Lundquist
Ryan Lundquist is a certified residential appraiser in the Sacramento area. Ryan runs the Sacramento Appraisal Blog, which is a top-ranking appraisal blog in the United States. He has been quoted in local and national publications and has been involved with the Sacramento Association of Realtors for nearly a decade. Ryan is also a board member of the Real Estate Appraisers Association of Sacramento. His clients include home owners, real estate agents, governmental agencies, attorneys, and lenders. Ryan also won the Affiliate of the Year award in 2014 from the Sacramento Association of Realtors.

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    1. I look for other newer in-fill home sales, even if I have to go back a year or go to a similar but distant subdivision.
    2. I just use comps in the neighborhood and make typical age or condition adjustments. I am surprised at how well this works, but unfortunately most underwriters do not like the excessive adjustments.
    3. Try to find a completely renovated home sale in the area.
    4. Lastly I use comps of similar age from a newer subdivision, and make downward location adjustments.

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