In most neighborhoods, the most expensive house on the block is looked at as the crown jewel of the area. It probably dwarfs the other houses in the neighborhood, and it likely has been well maintained both inside and out.
This is the house that every buyer is naturally drawn towards. But buying it could be a critical mistake that adds years of work to your financial plan, so be careful!
Buying the most expensive house in the neighborhood is one of the most common mistakes that many homebuyers make. Let’s dig a bit deeper and break down some of the reasons that buying the most expensive home on the block is never a good idea.
Every neighborhood has its own specific price range, and every price range has less buyers at the very top of that range than it does in the middle. Regardless of price point, if you are shopping at the very top of the range for a particular place, you are in the minority.
What does this mean for your home? When the time comes to sell, there are going to be less buyers for your home than any other home in your neighborhood.
What happens when you have a larger than average mortgage with fewer than average buyers and you decide that you either want to sell or are forced to sell for some reason?
Sometimes nothing…because this is the type of situation where many homeowners end up trapped in their homes because they cannot sell them for the price they paid.
Another downside to buying the most expensive house in the neighborhood is that the comps used for any appraisal on the home are going to be less expensive homes.
Appraisers don’t care that your house is on par with the houses in the fancier neighborhood. They are still going to be comparing it to houses down the street. If those houses don’t stack up, that’s not their problem.
If your appraisal doesn’t go well, then you are going to have a heck of a time getting a mortgage for your new house. Even with a substantial down payment, banks are going to be hesitant to loan money on a house that struggles to appraise for the price you are paying.
You could also run into issues with home equity loans, should you ever need one down the road.
Less Room for Appreciation
The goal for most homebuyers is for the value of the home they buy to increase during the time that they own it. But if your home is already the most expensive home in the neighborhood, the upside there is extremely limited.
On the flip side, buying the least expensive home in the neighborhood and making a few improvements is a popular money maker for many homebuyers.
Keep in mind, there is nothing wrong with wanting to buy a beautiful house at a high price point.
However, after doing some research, you might find that you are better off buying a middle-of-the-road house in a nicer neighborhood than the most expensive house in a less-impressive neighborhood.
But despite all of those pitfalls, if you fall in love with a house and want to raise your family there, that is what you are going to do…but even then you can use some of these arguments to negotiate a better price on that expensive home!
Contact your local Carrington Real Estate Services agent for advice.