Wednesday, May 26, 2010

Being a "Conformist" Can Maximize Your Home Value



Have you ever gone into a neighborhood and noticed a few homes that stuck out like sore thumbs? One might be much fancier than the houses surrounding it while the other might be a "dump" in comparison to neighboring properties.


This scenario illustrates the real estate principle of "conformity." The main idea behind this principle is that a house is more likely to appreciate in value if age, size, condition and style are similar to, or conform to, other houses in the neighborhood.


How Does this Affect Buyers?


This principle of comparison also extends to buyers. By that I mean that if you make your property more inviting than others in your neighborhood, you end up limiting potential buyers. Of course, the opposite is also true – if you don't take care of your property, you'll definitely have fewer buyers looking at it.

Conformity is closely related to two other principles - progression and regression. In plain English, regression means that high-valued properties often tend to suffer when located close to lower-valued homes. Progression, on the other hand, means that lower-valued homes will often see increased value when found amongst higher-valued properties.

This formal principle leads the informal maxim: "Buy the cheapest property on the block!” The higher value of the homes around it will, in turn, make it more valuable.


As A Buyer, How Can I Use the Principle of Conformity to My Advantage?


I've already mentioned one method - buy the least expensive house in the neighborhood! Once you do that, improve it, and you'll get most ‘bang for your buck’ on your improvements. Of course, take caution when looking at such properties (often called "due diligence"). Spend the money on a real estate appraiser so you get an objective evaluation.

Too Many Improvements is Bad News


Avoid any homes that need major fixes such as roofs, foundations, siding, plumbing, electrical work, etc. The last thing you need is a "money pit" into which you keep investing money and get little or nothing in return. Be sure to seek out sound properties, like homes needing only minor fixes such as painting, cleaning, landscaping, carpets, new appliances, etc.

If you're a buyer interested in real estate investment, purchase a home in a neighborhood that's just beginning a revitalization cycle. That way you can be sure values will appreciate.

You can also look for ‘under-improved’ properties such as single family homes which can be converted to residential income or commercial use, especially if such properties lie in the "path of progress;" that is, areas experiencing positive growth.


As A Seller, How Can I Use the Principle of Conformity to My Advantage?


As a seller, simply make sure that you maintain your home and lot on par with surrounding properties. Of course, if you've already done that, then invest in low-cost improvements such as new paint inside and out, landscaping, a professional cleaning job, etc. You might also want to add new carpets and/or new appliances if they are lacking.


Do It Yourself! ...if You're Good

All these actions will improve the value of the home in the eyes of potential buyers. If you're an experienced do-it-yourselfer, you should definitely tackle some improvement projects since they can cost less than half of what professional contractors charge.

However, notice that I emphasized “experienced!” An amateurish job on, say, cabinets or roofs can actually reduce the value of your home. So, unless you're really, really good at it, leave major home remodeling projects to the professionals.


Want to learn more about buying a home at best value or selling it at maximum value? Then, call me at 615.822.2003 x 186 right now or email me at bernie@berniegallerani.com!

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