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What makes a house recession-proof ?
Good homes sell even in a
bad market -- and here are a dozen principles the experts watch
for when evaluating a potential sale.
By Marilyn Lewis
Article from MSN
Money
The
real-estate
bust has
stripped
all the
smoke
and
mirrors
from the
housing
market.
In the
starkest
way
possible,
it is
revealing
which
homes
hold
value in
a
recession,
and why.
"Even in
this
market,
there
are
certain
things
that
will
sell,"
says
real-estate
agent
Michelle
Sandoval
in Port
Townsend,
Wash.,
where
it's
difficult
to sell
homes,
although
prices
haven't
dropped.
"Even in
this
market,
I've had
things
sell for
over
full
price.
There
are
always
bulletproof
properties"
that
hold
value
better,
Sandoval
adds.
Certain
upgrades
can help
recession-proof
your
house,
but your
home's
price
resilience
mostly
depends
on
choices
you made
when you
purchased.
Since
most
homeowners
buy and
sell
several
times in
their
lives,
you're
likely
to have
a chance
to use
these
bulletproof
principles
the next
time you
buy.
Location,
location,
location
You've
heard it
before
because
it's
true:
Location
matters.
It
matters
most, in
fact,
when it
comes to
holding
value
under
pressure.
Why?
Because
houses
are
replaceable,
but land
is not.
If
you've
got a
spot
everyone
wants,
your
place
will
sell
faster
and for
a better
price
than a
similar
house
elsewhere.
Take
Punta
Gorda,
Fla.,
where,
at this
very
moment,
house
prices
are
sliding
so fast
you can
almost
hear
them
sink.
"Everything
is
depreciating,"
says
Cady
Rowe, an
agent
with
Coldwell
Banker
Morris
Realty
in Punta
Gorda.
However,
Rowe
adds,
how
deeply
your
price
depreciates
depends
on where
"your
dirt"
is.
"If your
dirt is
sitting
in Punta
Gorda
Isles on
the
waterfront,
it's
going to
be worth
a lot
more
than
dirt
somewhere
else
with a
thousand
lots
just
like
it,"
Rowe
points
out.
A
December
study by
Moody's
Economy.com
predicted
price
declines
in Punta
Gorda
will be
the
worst in
the
nation
-- down
35.3% by
the
second
quarter
of 2009.
And
that's
not
accounting
for
inflation.
That
makes
Punta
Gorda a
laboratory
for
testing
the
effect
of
location
on the
durability
of
prices.
Appraiser
Charles
M. Polk
III
agreed
to do
some
informal
research
for MSN
Money.
Polk, an
appraiser
with 20
years'
experience
and
advanced
credentials
in
valuing
residential
and
commercial
property,
is also
an
attorney,
a
real-estate
agent
and a
magistrate
who
adjudicates
county
tax
appeals.
In
December,
Polk
compared
the
sales of
59 homes
of equal
size and
quality
in Punta
Gorda
Isles
and the
nearby
inland
development
of Deep
Creek.
Location
makes
all the
difference,
he
found.
Although
all
Punta
Gorda
real
estate
lost
value,
Punta
Gorda
Isles
homes
didn't
lose as
much.
Based on
square-foot
prices,
Punta
Gorda
Isles
homes
had seen
a 22%
drop in
sales
prices
since
the last
half of
2006,
compared
with a
32% drop
in Deep
Creek
prices.
More
than a
view
Location
means
more
than
just
views
and
water
frontage.
Other
elements
include:
Neighborhood.
In some
cities
-- San
Francisco
is one
-- the
durability
of home
values
varies
from
block to
block,
says San
Franciscan
Dick
Lepre,
whose
blog,
The
Economy,
covers
real
estate.
Lepre, a
broker
with
Residential
Pacific
Mortgage,
says of
his
town:
"It's
very
much
neighborhood-dependent.
If you
take my
house
and move
it a few
blocks
up the
hill,
it's
worth
another
$300,000.
And, if
you move
it down
the hill
three
blocks,
it could
be worth
$300,000
less. In
that
sense,
(affluent)
Pacific
Heights
or my
neighborhood,
called
Market
Duboce,
tend to
be
recession-proof
because
people
always
want to
live
there."
Schools and safety. These make or break values. In some Bay Area communities, overseas investors buy homes sight unseen based on the value of the city's public-school rankings. Questions about schools and safety are the first out of buyers' mouths, says Furhad Waquad, an agent in suburban Detroit. He refers them to local police departments for neighborhood information and to the free Standard & Poor's school evaluation service, SchoolMatters.Culture and public services. Buyers favor homes near libraries, parks, playgrounds and revitalized or charming commercial areas with shopping and coffee shops and theaters. An easy walk to light-rail terminals and bus lines is a plus. In communities full of retirees, proximity to hospitals and doctors' offices is valued.
One caution: Watch out for noise. It's good to be close to an elementary school but not next door, and it's good to be near a main street with bus service but not directly on it.
Infrastructure. Although the fringes of hot cities are popular locations when prices are rising, interest falls off quickly in a downturn. City sewer and water service help hold up prices compared with an identical home on a septic system and well water. Cities with fatter tax bases may boast quicker fire department response times, better-maintained streets and stronger schools, all of which sustain demand.
Take the simple matter of sidewalks: Waquad points to the wealthy communities of Bloomfield Township and Bloomfield Hills, originally built without sidewalks. He credits their recent decisions to install sidewalks for helping hold up sale prices in the Detroit area's severe down market. "Now, you see mothers and nannies with prams and strollers, people exercising, running. It has made a world of difference," Waquad says.
Principles of durability
Location is just one piece, albeit a big one, of recession-proofing. When buying, these principles matter, too:
The "progression" principle. This rule of thumb says better homes bring up the value of a not-so-great house nearby. (And lesser homes subtract from nearby property values.) The lesson: Don't buy the best house on the block.
George Baker, an expert in residential and commercial appraisals with Vestor Realty Consultants in Wilmette, Ill., knew this when he purchased his 2,400-square-foot home surrounded by 5,000-square-foot palaces. "Its value is enhanced by the fact that it's on the block with better, larger properties," says Baker, who is also a real-estate broker.
Single-family homes rule. Condominiums lose more value in a down market, and they lose it faster than single-family homes, says Terry Bernhardt, a Portland, Ore., home appraiser. In part that's because builders tend to throw up too many condos when a market is hot. Also, it's because more buyers want single-family homes than condos. In Portland, Bernhardt says, "middle market" houses hold value best because even in a downturn, more people want them.
Some trends endure. In Bernhardt's market, the craze is Craftsman bungalows. He thinks it's a durable trend. Craftsman homes have charming, slightly nostalgic designs that include covered porches, a mix of indoor and outdoor living areas, higher ceilings and lots of architectural details, including moldings trim, stair rails, and built-in nooks and bookcases.
"It's a warm, attractive design that everybody seems to like, and it prices up substantially," Bernhardt says. Don't bank on a trend, however, without doing plenty of research into what sells in your particular market.
Low carrying costs seal a deal. Buyers may face a shock when confronted by the real cost of a home, in addition to the taxes and mortgage payments. The carrying cost of a house -- including homeowners insurance, utilities, upgrades, deferred maintenance and, in some markets, landscaping and snow removal -- can make a deal unattractive.
Homes that have these costs under control retain value when buyers compare them with homes that have higher yearly carrying costs, says Baker, the Wilmette appraiser.
Market peculiarities matter. As with politics, all real estate is local, so learn your particular market inside out. (Before you buy, get an education as you interview prospective sales agents. Ask each one what's selling and why.)
Apply this knowledge by keeping the home's next owner in mind when you buy or build, says Sandoval, the owner of Windermere Port Townsend. In her small city -- a somewhat remote waterfront community attractive to retirees -- single-level, low-maintenance houses are weathering the market slump best. The town's many beautiful Victorian homes no longer fetch premium prices because these empty nesters shun the upkeep responsibilities.
Market peculiarities even vary by neighborhood. Take suburban New Jersey, where large communities of observant Jews obey the biblical proscription to avoid work on the Sabbath. That includes walking, not driving, to religious services. Thus locations near conservative and orthodox synagogues hold value extremely well in places such as the Highland Park and Edison municipalities near New Brunswick, says Justin Footerman, a broker-associate with Prudential Fox & Roach Realtors in North Brunswick.
Remodel to support value
When you're thinking of investing in upgrades, you can build in more enduring value by following these rules of thumb:
Broad appeal. In a shrinking universe of buyers, homes with the broadest appeal hold their value best. The homes most in demand are three-bedroom, two-car-garage houses with at least two bathrooms. Keep this in mind when you're thinking of remodeling. When comparing the wisdom of adding a new, high-end kitchen, for example, versus a bedroom addition to your two-bedroom home, the addition is probably your best bet for durable value.
That's why, when Port Townsend agent Sandoval and her husband built their home, she vetoed his idea of putting the kitchen and living areas on the third floor, with the best views. Such "reverse floor plans" appeal to too few people, she says. He also wanted to forgo installing a dishwasher. He made a good point: They didn't use one. But "if you built a house uniquely for yourself, with no dishwasher, four levels and concrete floors throughout, there are going to be fewer people likely to like that house," Sandoval says.
Attractive bathrooms and kitchen. These rooms, with all their costly plumbing, wiring and cabinets, have the highest value per square foot of any in the house. Investing in their upkeep props up a home's price, says Portland appraiser Bernhardt. Extravagance isn't helpful. Buyers are simply looking for well-appointed, updated rooms with good layouts and appliances.
"Purchase decisions on residences are typically made by the woman of the house," Bernhardt says, "and they are going to go with where they have to spend the majority of their time."
Upgrades for energy efficiency. Improvements to a home's energy efficiency promise a lower cost of upkeep, so buyers pay attention. Good investments include highly efficient windows, beefed-up insulation, new siding and appliances.
On the other hand, highly personal investments such as lavish kitchen remodels, swimming pools, game rooms and media centers may even detract from a home's price, at least in Portland, Bernhardt says. That's because few buyers may share your tastes. A new owner may see your swimming pool as a liability or a nuisance that must be torn out at great expense.
Published Jan. 9, 2008
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