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Bigger is better?

Posted by Rona Fischman June 12, 2012 01:49 PM

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Bill Kuhlman, CRS, who is the broker/owner of Kuhlman Residential describes how house resale prices change, based on changes in demand over many years. What kind of houses do you think will be most in demand in 20 years? 30 years?

Most of my clients, regardless of price range, have to make compromises of some sort when buying a home. Some will ask whether they should compromise on the house or on the location. That’s when I tell them the following story.

In late 2003, I started working as a buyer’s agent with an older couple---I’ll call them Ralph and Alice Moon---who had bought their home in 1974. A few minutes’ walk from Beacon Street and Cleveland Circle, they bought the 6-bedroom, 3.5-bathroom, 3,900-s.f. Brookline home for $74,000. This part of town was largely built up between 1890 and 1930. They were mostly grand homes of another era, with more than 3,000 square feet on 10,000—12,000 square-foot lots, in a picturesque area.

Their friends, Fred and Ethel Copa, bought in another part of Brookline that same year. This area was mostly built up after World War II and the homes and lots there were more modest in size and scope. They more closely resembled the then-modern concept of suburban life, where you lived away from the hustle and bustle of city life in a home that looked a lot like your neighbors’, and drove pretty much wherever you needed to go.

Having just gone through the Energy Crisis of 1973, people were becoming concerned with home heating costs, so the modest square footage and lower ceilings in Fred and Ethel’s house were seen as a big plus compared to the turn-of-the century energy hogs in Ralph and Alice’s neighborhood, with their extra bedrooms, open staircases, and 10-foot ceilings. So they bought their four-bed, 2-bath abode for $67,000, a mere bag of shells ($7,000) less than the cost of Ralph and Alice’s dinosaur.

Flash forward to 2004. Both couples sold their homes. The Moons sold their grand house for $1,575,000, while the Copas sold their nice house in the $700s. How did a 10-percent purchase-price difference become a greater-than-100-percent sales-price difference?

I was never in Fred and Ethel’s house, but Alice said they were similarly updated at about the same time. So condition wasn’t a huge factor in the difference. (In 2004, my clients’ kitchen was spotless, but still had its lime-green sink and bright-yellow Formica countertops.)

The biggest factor at play is that homes in neighborhoods which are perennially in high demand, where people choose to buy in good times and in bad, perform much better over the long haul. When the market heats up, these neighborhoods increase in value sooner. When the market slows down, they decrease in value later. The end result is that these “A-List” communities appreciate more and depreciate less with each cycle.

Go through multiple up-and-down cycles in the market over a 30-year period, account for inflation and for changes in perceptions of what’s desirable in a home, and that’s how you get such a huge difference in resale value.

Only you can make the right call of what’s best for you when faced with the choice between buying a nice house in your second- or third-choice neighborhood and a less-than-ideal house in your first-choice neighborhood. And if you’re only planning to be in the home for five to seven years, or so, the difference in resale value may be noticeable, but won’t likely be tremendous.

But if you’re planning to remain in the home for ten or fifteen years or longer, within a given price range, you will almost certainly be far better off buying an adequate house in a great neighborhood than the other way around.

As I’ve written before, you can always fix the house, but you can’t fix the location.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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