When is it smart to buy the biggest house in the neighborhood?

weedyacresSeptember 17, 2013

I toured a house today that is probably the nicest in the neighborhood. It's completely updated, large master suite added over the garage, move-in ready. Asking $180K, 3500 sf.

The rest of the neighborhood is same vintage (late 70s/early 80s) and all the comps this year have been 1500-1900 sf and sold for $93-108K. 2 houses currently on the market in the neighborhood for $120-130K. I don't know the condition of the houses that sold, but the 2 on the market are moderately updated.

Comps sold for $63-75/sf. This one is listed for $50/sf.

This is the cheapest listing with 3000+ sf. The other options for this much size are newer and 220-250K (in the $60s/sf)

So when is it NOT a bad idea to buy the biggest/nicest house in the neighborhood? I understand that when you go to resell you'll get less, but if that's true on the buy, does that negate the advice? How much cheaper does the "biggest house" need to be to make it a smart thing to do?

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Depends on if the other houses in the neighborhood have the potential to gain too. New master over garage.... was it an addition? Will others be added on?

Plus, how long will you stay there? Any way I look at it 180k for 3500sqft house is CHEAP! (We are in an area where we are looking at around 220/sqft; not 50). So, how much can you afford to lose?

    Bookmark   September 17, 2013 at 10:03PM
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Sophie Wheeler

If you can get it for the same price as the one in the neighborhood that recently sold with the largest square footage, then it's worth buying, At the price they're asking, you will be lucky to see enough appreciation in 5 years time to not lose money. Comps will drag the price down now, and in the future. Except in the minds of the person who wants to put up a SOLD sign.

    Bookmark   September 17, 2013 at 10:51PM
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I just want to know where in the he11 you can buy a 3500 sq. ft. home for $180,000! :-)

    Bookmark   September 18, 2013 at 12:08AM
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I can think of a couple instances :
There is 'building up' in surrounding neighborhoods and others around you are likely to improve their property so that it will match or surpass yours in value in the forseeable future.

You want it and money is not as important as what you will get with this house, or whether you take a loss if you have to sell it at any point. best wishes

    Bookmark   September 18, 2013 at 8:25AM
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kirkhall: Yes, this was an addition, and other homes could be added onto. Not hugely likely in the near term. This is a small town with a low median income and median home price. I have no idea how long we'll be here, but will guess 5 years.

terricks: in a small midwest town with a low median income and median home price where last year only 1 house sold for >$200K (getting better this year).

egbar: I agree with those generalities about value increase, but they're not likely to happen in the near term due to the makeup of this town, as expressed above.

I guess I should modify my question a bit. I'm not necessarily looking for "which house will get me the greatest return while I'm living in it" in which case you'd always buy the smallest one in the neighborhood. I'm looking at this from a primary residence perspective, where ROI isn't my only concern. My concern/question is more along the lines of "how do you best determine value and not overpay?" or "what's the discount you apply to the biggest house?" similar to what you'd do if looking at a house on a busy corner: how much less is it worth than houses on the interior of the subdivision? If we go with this house, and I don't know that we will, I just want to make sure we don't pay more than we'll be able to get out of it later when we sell.

holly's given me a concrete answer of "no more than the highest price anyone paid for a house in the neighborhood." And while I'd love to only pay that, and it's a "safe" price, isn't that a bit extreme? After all, an appraiser would find comps in the neighborhood and adjust this one up for square footage. So maybe that's what I need to look at: what are the numbers appraisers use to add sf to comps.

    Bookmark   September 18, 2013 at 10:51AM
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I think its also important to know how the square footage is being used. And how it (here comes that word...) FLOWS.

If a 3500 sq ft house has 6 bedrooms and 2 baths it might not be quickly resellable, when a 4/3 with a nice family room would be.


    Bookmark   September 18, 2013 at 12:58PM
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Make sure the home in question is already upgraded and in date, because if you have to do it, you will not see any of it back. The upgrades and "WOW!" factors will be of no value in the largest home in a neighborhood.
It really does not matter what is being built up in the neighborhood down the street neither... the appraiser and the buyers will look at comps in the subjects neighborhood, always.
I think Holly is on the right track, but I do not agree that it is only worth what the most expensive home has gone for. I would, rather, figure the $/sq. ft. of those most expensive homes, and then use this # as a guide. But remember that if you are comping out a 3000 sq. ft home (the Subject home), against a few 2000 sq. ft. homes, and the avg. $/sq. ft is $100, you simply can not multiply 1000 sq. ft. times $100!!! Common sense will tell you that the subject home is not worth $100,000 more just because it has 1000 sq. ft. more. What you do (and what appraisers do) is take this # (100,000) and divide by 3, to get you $33,333. This would be a fairly accurate adjustment IF the subject home was not the largest home in the neighborhood by sooooo much. Why? Because the smaller homes will sell for a higher $/sq. ft than do the larger homes. Just like shopping at Sams Club as opposed to shopping at the local corner grocery store. The prices at the Sams Club where you buy in bulk will always be cheaper than the local grocery store where you buy in smaller quantities. The same phenomena is happening here, in this neighborhood.
SO, in my example, the extra sq. ftg. of the subject home is worth a bit less than the $33,000 that the straight math lends us to believe. So, how much less than the $33,000 is it worth? HAAAAH! This is where a good agent is worth their salt. And w/o knowing your area really well, it is inpossible to say. A good agent, and maybe even you, should have a gut feeling on what this should be. But, at least this example will give you a good place to start. Take my example and plug in your real world scenario and report back to us what you come up with and we can take it from there.
Again, this home should be decked out with upgrades, at least, if not more than the other top winners in the neighborhood. This will ensure that when it comes time to sell it, these "free" upgrades will be what motivates someone else to live in a neighborhood where they are the top dog.
Hope this makes sense.

    Bookmark   September 18, 2013 at 1:48PM
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Yes, the house is updated to current. There are about 3 things I'd change, and a few things I'm not in love with (living in weedy acres has spoiled me), but it's a very satisfactory house. It's a 5/3.5 with a good flow. It's blah on the curb appeal side, but that's 1982 for you, and we'd want to figure out what we could do to enhance that before we decided to make an offer.

Here's the math, NC:
Comps avg $64/sf (not factoring in condition, which is unknown)
Adjustment factor = 64/3 = ~21/sf.
House with 4/2 sold for $108K, 1584 sf
3538-1584 = 1954 x 21 = 41K
This house worth 108+41 = $149K

Wow, that seems shockingly low. It's $42/sf, which is what fixers go for around here.

    Bookmark   September 18, 2013 at 6:33PM
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WOW! The subject house is 3538 sq. ft. and the rest of the homes are about 1584 sq. ft? The difference between the two is way more than the avg. size home in the neighborhood! I can not recall the last time I ran into a situation where the largest home was sooooooo much larger than the rest.
The math is what it is... What is the sales history of the home? This may clue you in as to what is a fair market value. And again, it will probably be a property that takes its sweet time to find the right buyer, as was with your current home.
Also, call the listing agent and ask for the comps that she/he used when valuating the home.
I personally would not want to be THAT much out of line as compared to the rest of the neighborhood. But then again, I do not know the local market.

    Bookmark   September 18, 2013 at 9:08PM
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The other homes aren't all 1500, that one comp is. Sold comps this year are 1500-1900. Driving around the neighborhood, it's a mix of ranches, 2-stories and split levels. So the largest (original size) ones are probably 2000-2500.

This one probably started at the top end of that range (2600), then added a master suite that's 650 sf plus a 250 sf sunroom, which pushed it over the top.

I'll ask the agent for the sales history and comps used.

    Bookmark   September 19, 2013 at 6:08AM
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Don't forget that NY home prices are depressed bc the taxes here are so high. Been that way for years. You can find a bargain on cost, but pay more than anywhere else for your taxes.

    Bookmark   September 19, 2013 at 12:59PM
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I am not exactly excited about the taxes here but when I see home prices starting at $400K, I'm pleased that I have my NYS home for around $17/sq. ft.

    Bookmark   September 20, 2013 at 1:50PM
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A friend showed me a list of "ten secrets to true happiness" and it included "live in the nicest house in the neighborhood so you do not constantly feel the need to keep up with the neighbors" something like that. It really helped me make a decision to buy a larger than average home in a mixed single family home and townhouse community.

The old real estate idea of buy the worst house in the best neighborhood was previously my belief.

Because my house has more square footage it outprices the neighborhood homes if the price per square foot is the same.

We feel like we got an amazing deal on a great house we love. It is the biggest house in the neighborhood, but it was not the highest priced home sold here. In fact it is the cheapest $/SF.

If previous buyers had been willing to pay the original list price it would have greatly outpriced other homes by more than 100,000$. So the seller had to keep lowering til they found a buyer.

When we sell, we need to remind ourselves not to make the same mistake of trying to price this larger than average house by square foot and keep it more in the price range of the other big houses in the neighborhood.

Just remember if the house is having a hard time selling, you will likely face the same concerns in buyers when you try to sell.

Is the neighborhood somewhere you do want to live?

I did buy the biggest house in my neighborhood, so I am biased.

    Bookmark   September 20, 2013 at 9:42PM
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lafdr: That's an interesting take on things ("you're happier if you're not tempted to keep up with the Joneses"). Good food for thought.

    Bookmark   September 24, 2013 at 5:32PM
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robo (z6a)

I bought the largest, most expensive house that had ever been on the market in my neighborhood. It felt a little weird! We had the advantage of knowing the real estate market in the area intimately. These things made us feel ok about offering close to asking and snapping it up within 24 hours of listing:

1. It's a good neighborhood (no location factors to depress prices)
2. It's an up and coming neighborhood and close to a very hot neighborhood. The most common complaint is that the houses here are too small -- not a problem with our house.
3. The house offered a lot of amenities that upscale buyers find attractive and aren't common in our city, like master ensuite (the housing stock here is oooold and dumpy)
4. Our honest and commonsense realtor admitted we had no good comps but still thought it was a good deal.
5. Perhaps most importantly, we had the money and don't plan to move any time soon.

We were rewarded quickly, first by a gratifying open house where 30 families in Lexus and BMW SUVs stampeded through the house we'd just bought, and second, a smaller, updated house on our block just sold for $100K more than we paid. Mind you we'd have to put in $50-70K of updates to make our house as nice as theirs. But it still felt nice to see it go!

    Bookmark   September 24, 2013 at 5:34PM
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robo (z6a)


This post was edited by robotropolis on Tue, Sep 24, 13 at 22:19

    Bookmark   September 24, 2013 at 5:43PM
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robo (z6a)

Now I do have one neighbour whose house is so big I thought it was an apartment building! It's easily 3-4x as big as the community average. I cannot imagine he'll ever get his $$ back out of it, but I guess he's enjoying it. He had to get a variance from the city because his house sq footage is like 1.5 x his lot square footage, it's supposed to be half that.

I should mention there are a few houses in my neighbourhood around my size, just never have been to market.

    Bookmark   September 24, 2013 at 5:52PM
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I found out the price history of the house.
In 2002 it was 2262 sf and sold for $84,000.
Those owners added the master suite.
In 2004 it was 3200 sf and sold for $128,000.
Current owners presumably did the kitchen remodel, put hardwood throughout the downstairs, and enclosed a porch to become a 4-season room.
Now listed with 3500 sf, asking $180,000.

So maybe the $150K value isn't too far off. In any case, Mr. Weedy looked at it with me last night and it didn't speak to him. So it's off the list.

    Bookmark   October 2, 2013 at 7:21AM
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