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Issue Date: March 2007


Your Best Investment: New or Used?

House-hunting is tricky enough without worring about what kind of investment the decision will prove to be several years later.

With the slight depreciation of home sale values in 2006, anxious sellers are scrambling to attract buyers, and shoppers’ choices have expanded. But potential buyers may harbor their own fears of future market downturns before jumping in. What can homebuyers do to minimize their risks? And while current prices for both look attractive, is there a major investment difference between choosing a new or existing home?

First things first
The type of home you choose  depends on what you’re looking for and where you want to locate, say several local real estate agents, builders and appraisers. But nearly all of them agree a home is primarily an abode that should fulfill lifestyle preferences.

If property values rise as they often do, and historically have done over the long term, then a home can also be considered an investment, but buying a home solely and specifically to boost investment stock isn’t always the most prudent way to shop.

“When you’re buying a home, you’re first and foremost looking for a place to live,” says Mike Fanous, chairman of the Cleveland Area Board of Realtors. “And next, you’d like it to become a good and safe investment. And usually you can expect it to turn into a good asset, but a home should foremost serve your needs and your family’s needs regarding the community it’s in, the school system, work commute, floor plan and all the other considerations that determine why you would buy it in the first place. And the relevance of whether it’s new or existing depends on the condition of the structure and what you’re willing to live without versus what you’d like your home to be.”
 
Fair comparisons

 Determining what a home’s value will do based on whether it’s new or existing is often a false dilemma, pitting features against amenities that just don’t realistically compare. And obviously there are significant differences between existing structures. A well-maintained century home in a flourishing community is a completely different animal than a fixer-upper in an older neighborhood. And each property appeals to a different buyer with different needs.
Nonetheless, if buyers are considering new homes, they can often expect to lay out a larger sum, especially if the property comes with a paved driveway and landscaped lot. But if that home isn’t in a location attractive to buyers, then chances are good it will sit without selling for a longer time. If buyers, on the other hand, are considering a fixer-upper home to save money on the initial purchase, then they should be realistic and look at all the extra money and work they’ll have to put into it.
“Often, people looking at used homes will see repair work in store, and cringe at the expense of things that a new home would eliminate,” says Cynthia Casto, a real estate appraiser and owner of Lake Geauga Appraisals in Middlefield. “But, what if that run-down home is in a very nice community? Then it may be worth it.

“When purchasers acquire their dream home, they’re often subject to the new/used car effect. As soon as you drive a new car off the lot, it’s not worth what you just paid for it. This is worth remembering when you go to sell your home,” Casto says.
“Yes, you want to see your property appreciate, but why should anyone buy your dream home when he can build his own? And it’s going to come down to price. If you have two similar homes, new or existing, with similar features in a comparable location, the lower-priced home will sell first.”

Both new-home and used-home sellers are often tossing in extras to attract buyers. New homes, for instance, may now include finished basements or decks. Used-home sellers may try luring buyers with freestanding appliances or custom deluxe swing sets. But if buyers don’t care about a deck or if they have their own washer and dryer, then these perks don’t mean anything.
It Really is About Location
What does matter in most cases is the location and style of the home. If you make the choice to buy new, you’re limiting your location, says David Sharkey, vice president of Progressive Urban Realty in Cleveland. “Certain styles of new housing are only being built in certain places. Maybe you’ll find a specific type of condo in Lakewood or Cleveland Heights, but you won’t find the four-bedroom colonial with a three-car garage that you’ll see in Avon.”

Sharkey urges buyers to consider other factors when buying a home than simply whether it’s new or used. “A lot of people want a certain feeling or character in a home and community,” he says, “and they’re willing to pay for it. Often, it’s these intangible attributes that help a community’s homes hold their value and appreciate.”

Nonetheless, Sharkey concedes a lot of new homes are well built and can duplicate many of the homey features of older houses, at a price. “There will always be more popular places, whether in a city or the latest cornfield in Medina to be developed,” he says. “But next to location, if you’re looking at existing construction, you have to ask yourself how well has it been maintained? Be realistic about how much work you’ll need to put into it.”
What Works
New homes offer many amenities that some buyers say translate into financial security. Chief among them are health and safety features. Eric Payne, vice president of Payne & Payne Builders Inc. in Chardon, lists the advantages of new homes in terms of minimized mold risk, built-in radon gas detection and built-to-code fire safety features. As far as financial investment considerations go, he says many of his customers turn a good profit after a couple years.

“You know exactly what you’re getting when you buy a custom-built home, and you can make decisions that will add to the home’s value when you go to sell it years later,” he says. But he also warns that although something may be important to you, it won’t necessarily translate into a value-loaded feature for another buyer.
“Just because you choose the $40,000 real-stone exterior over the $10,000 cultured stone alternative, doesn’t mean the next buyer will care,” he says. “Probably the biggest investment consideration for new-home buyers is to pick a smart design in a good location on a nice piece of property. Those are the biggest features that will sell any home. Also, low-maintenance exteriors are important to holding a home’s value. Buyers don’t want to purchase a home that’s going to need constant maintenance like painting and landscaping.”  
Remodeling a home is often a viable way to get the best of both worlds — a new room or addition in an older structure — and help sell your home when you’re ready to relocate. Rick Childs, president and owner of R.C. Carpentry in Mentor, specializes in residential remodeling, and says that investing in kitchens and bathrooms is a sound home investment.

“A good kitchen update with a modernized floor plan and top-end appliances may cost anywhere from $30,000 to well over $100,000,” he says, “but when that homeowner goes to sell that house, chances are good he’ll get it all back. Some things tend to hold their value, and kitchens and bathrooms are among the smartest ways to increase the value of your home.”
Maintenance Matters
With all the television shows lauding the merits of energy efficiency, the rewards of do-it-yourself home improvements and decorating, and the knowledge of what materials are available, today’s buyers are highly sophisticated. “Because consumers are so well informed, our jobs are often easier,” says William Mason, architect and associate at Michael Augoustidis Architects and adjunct professor of architecture at Kent State University.
“Our consumers know the benefits of the design and materials they envision for themselves. And what we’re seeing in modifications to existing construction as well as in new high-end construction is that people are choosing quality over quantity. ”

Regardless of whether a home is new or existing, the market forecast for 2007 is looking brighter for sellers. And as for the long-term investment scenario for any home, buyers should consider the level of maintenance they’re willing to put into their homes over a long period of time.

“It doesn’t matter if it’s 15 or 50 years later,” Fanous says. “For a home to hold its value, it’ll need to be maintained. You can’t expect an updated home to sell for the same price as one that hasn’t been kept up. But it’s not always wise to worry about the investment angle over the home angle. Your house is your home first; it’s a roof over your head and a place to come home to. It’s an investment secondarily.”

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