Buying Most Expensive Home On Block

Added March 19, 2007 by Ilyce R. Glink

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Summary: Everyone knows they shouldn't buy the most expensive home on the block but what if it is new construction? Most buyers want a new construction home and the competition upon selling it will be homes even newer than the home you want to purchase now. It's tough to tell how homes will appreciate in a new construction neighborhood.

Q: My husband and I are planning on buying our first home in Carson City, NV. We are interested in a few new construction homes that are being built in the midst of an older, more established community of houses that are 5 to 15 years old.

The average price of these older homes is $450,000. These new construction homes are selling for close to $600,000. Is it wise to buy a new home for that price when older surrounding homes have a property value that's so much less?

We're planning to stay in this house for just 3 to 4 years, and we want to at least break even if we sell then. Will the property value of these new construction homes decline in few years because neighboring houses are older and valued much less than these newer homes? This community is near a golf course and has a homeowner's association.

Thank you for your help and look forward to hearing from you soon.

A: I can't tell you where home prices will be in Carson City in 4 years. Prices in Las Vegas, Reno, Tahoe and other parts of the southwest, rose quite dramatically over the last few years and now seem to be either falling just as dramatically, or at best, drooping.

In general, most buyers want a new home and the true competition you'll be facing in a few years isn't from the older homes but homes that are even newer than yours -- and might cost the same or less than the $600,000 you'll pay now.

It truly is an unknown whether home values will appreciate over the next 3 to 4 years in the area in which you're looking. If the area is attractive to newcomers and the older homes continue to be sold, or, in some cases, torn down and new homes continue to be built, you may find that your investment pays off.

Overall, for many buyers, if they find the best school district with a terrific selection of older homes and they find one that they can fix up so that it looks brand new, those buyers tend to make more money when they sell because they build in value to the home.

While I'm not sure if you'd build in value with only a 3 to 4 year time horizon (although that's the general idea), at least you'll do what you can to protect the cash you've spent.

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