Is buying a new home like buying a new car–in that, both immediately loses some of their value?
Buyers in any market are faced with the decision to buy a “used” home vs. a new one, of course. But it’s becoming a little more likely today that buyers will find brand-new homes from which to choose as well as pre-existing ones. Here are some things to consider when you face that choice.
Real estate generally appreciates
Any chart will show you that real estate values typically rise over many years. If you can commit to at least five or 10 years, don’t be overly concerned with your home’s resale value. On the other hand, in today’s highly mobile world, it might be more difficult to realize an increase in your home’s value if you sell too soon. If you’re not sure you can commit to a home, new or used, for at least five years, consider renting.
Does the new car theory ever apply?
If you’re selling a home that’s five to 10 years old, you might think such a property is still “new,” and you shouldn’t have a problem selling. However, a buyer choosing between a brand-new home and a “used” one may go for the newer one if they can afford it. So, given two homes with similar floor plans and locations, the newer one should sell for more. The owner of the older home, then, might believe the new car rule — that the purchase depreciates in value over time — does in fact apply to real estate.
But comparing your home’s value to a newer home isn’t an apples-to-apples comparison. Though your home’s value may be less than what a nearby new property sells for, it’s important to consider your original purchase price. When you bought your home, the price was based on the fact it was new, as well as the values associated with a new home vs. an older home. The bottom line: Though your home may not be worth as much as a brand-new, comparable home, it has most likely appreciated since you bought it, along with the larger market.
Maintenance of a new vs. an existing home
A new home comes with warranties on the appliances and systems, and often from the developer, too. A good developer will stand by his work for at least one year. Though a home warranty is always available from a third party, a buyer of a home that’s five years old likely won’t benefit from the original manufacturer’s warranties in place at the time the home was built.
Many buyers don’t want the headaches associated with a 50- or 100-year-old home. However, there’s some truth to the old saying that “they just don’t make them like they used to.” It would be nearly impossible, let alone financially unfeasible, for a builder today to construct an Italian Stick Victorian home or a Frank Lloyd Wright-style house. And so, there’s inherent value in owning a historic home. There are fewer of them, and their uniqueness sets them apart. When the buyer goes to sell, she may find the home is worth more than other comparable, newer properties. Conversely, if you’re selling a 2-bedroom, 2-bath standard floor plan home, you’ll probably be competing with other homes built with similar materials and within the same time period. You’ll need to do something to make your home stand out.
Home first, investment second
While it’s important to understand your home’s value over time, don’t obsess over it. If the home is right for you, it’s the home you should buy, whether it’s new or old. You’ll be spending a lot of time and making many memories there. Don’t forget: It’s your home first and an investment second.