In a neighborhood where home prices vary, the lower priced homes will increase in value because of the higher priced homes. The more expensive homes raise the property value of the less expensive homes. This idea is called the principle of progression.
On the other hand, the more expensive homes ?go down in value? because of the less expensive homes. These higher priced homes will not literally depreciate in value because of the other homes. After all, real estate almost always goes up steadily in price. The more expensive homes in the neighborhood will still appreciate, but their prices will not go up at the same rate as if the homes were separate from the others. This idea that lower priced homes bring down the value of higher priced ones is called the principle of regression.
These real estate principles deal mostly with different home prices, but the same is usually true when comparing neighborhoods with different home types. Home types and home prices are often correlated. For example, single family homes are typically more expensive than town homes. If you are considering buying a condo or a townhouse, you may want to consider neighborhoods that also have single family homes. According to the principle of progression, your townhouse or condo should appreciate at a greater rate because of the single family houses around it. The real estate principles of regression and progression are a good example of how a home's surroundings can impact the home's value.
After reading about progression and regression, you may wonder why builders even combine homes of different prices and styles when developing a neighborhood. Wouldn't it better to just build a neighborhood with only single family houses (or condos) that cost approximately the same? No.
Other economic principles in real estate show that conformity can actually hurt property value. Home buyers do not like neighborhoods with houses that are all the same. These ?cookie cutter? neighborhoods are not good for resale. But, also keep in mind that a neighborhood should not have two extremes of houses, either. Try to find a neighborhood with a reasonable degree of conformity.
Many of the neighborhoods in Charleston, SC have drastic price ranges. If you're comparing different neighborhoods to live in the area, you may want to factor in the principles of progression and regression before making a decision. You can talk with your real estate agent about the price ranges in the neighborhoods you're considering. He or she should be able to provide you with pricing information directly from the Charleston MLS. Your agent should also be able to talk with you about which neighborhoods are expected to increase the most in property value for the area you're considering.
How Do YOu Sell An Expensive Home?
When discussing how to sell an expensive house, there are two scenarios in which the issue comes up. The first is you have a home in an expensive neighborhood, but one which you’re asking for a price comparable to similar homes around you. In such a situation, you should be able to sell your expensive house through traditional means, either as a FSBO listing or through a realtor. The home should be cleaned up and listed with a multiple listing service. Open houses should be undertaken as well as online advertising with photographs. In this current market, you should be able to move the home fairly quickly.
The second expensive house scenario is a bit more complicated. In this scenario, you have improved your home beyond a value supported by surrounding structures. This can often occur if you live in a home for a substantial period of time and make additions to the home such as new rooms, floors, renovated kitchens and so on. The homes in your neighborhood all appraise for roughly $300,000, but your additions should make the house worth upwards of $450,000. You have a problem because nobody is going to buy the most expensive home on the block.
What To Do?
You’re first choice is to hold onto the home and hope the neighbors get around to improving their homes. This strategy is rife with problems and should probably be avoided.
A better choice is to target market your home to a specific demographic. If you’ve added rooms to your home, you should create advertisements directed at families with multiple children matching the number of bedrooms you have. If you’ve gone nuts with improvements in the kitchens and fixtures, you should market the home as “luxury without the price." The point is to turn your problem into a unique selling position for the house. Trust me, there is a buyer out there looking for a solution to their problem.
Appraisal Problems
If you house is over-improved, every potential sale will fall through because the appraised price will make it difficult for the buyer to get a loan. The best way for dealing with this is to “carry a second" mortgage on the home. In essence, you agree to take a certain percentage of the price in payments over a certain time period. This allows the buyer to get into the house and you to get out. If you go this direction, make absolutely sure you use a lawyer to make sure everything is legal.
Trying to sell an expensive house can be a challenge. That doesn’t mean it can’t be done.
Both Keadle & Raynor James are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Keadle has sinced written about articles on various topics from Real Estate, Home Improvement How to and Real Estate. Lee Keadle is a full-time real estate agent in Charleston, SC. He specializes in Mt. Pleasant (