An incredible house is always a welcoming sight when showing real estate. It could mean a larger commission for the agent, bragging rights for the new owner, and a “mission accomplished” for the seller who poured a great deal of capital into the property.
However, love is blind. Make sure to take a look around the neighborhood after the initial excitement wears down. If the other houses are shabby or in disrepair, and if the neighborhood is not exactly known as upscale, the house may be too expensive for its own good.
You may want to be the agent who keeps clients grounded and thinking of the big picture (resale).
Here’s what to keep in mind when buying or selling a client’s overvalued house:
The value of the house will only increase slowly
What’s pulling it back? The value of the other houses. Any improvements made on the home will not actually increase its value, since it’s already rated as the most expensive house in the area. It may also affect the home’s equity.
The resale of the house is going to be quite a challenge
In most cases, buyers will purchase homes in the midrange value of that area (not too high and not too low). This will reduce the stream of buyers considering your house. A typical opinion could be: “If I’m going to spend money on a house like this, I might as well move to a better neighborhood.” Also, if the house is surrounded by less attractive, less valuable-looking homes, it may discourage the buyer from moving forward.
The best house in the neighborhood is not necessarily a sign that the neighborhood is gentrifying
Some buyers want to get in on the very beginning stages of a gentrifying neighborhood. The most expensive house on the block may not be an indication of change. It usually takes more signs and clues: younger people moving into the area, all listed houses selling faster, an improvement in public transportation, and quirky shops and bars along the avenue. In fact, the neighborhood may actually be sliding into further disrepair and neglect, not evolving to a new level.
The house may not be seen as the showpiece that it was meant to be
Instead of the house being an oasis of upscale vision in a sea of monotony, it may instead be perceived as a monstrosity, a bad idea, or a laughingstock. It may simply be a bad fit into the neighborhood — no matter how much money was poured into it — and the good sense of the owners may be called into question. A house that looks shoehorned into the neighborhood may not get the respect the seller is intending.
The upkeep may be more than the buyer bargained for
Depending on what has been improved, it can affect the new owner’s wallets for years to come. Higher utility bills, unused rooms, more lawn and maintenance bills could make an expensive house not worth buying.
You may want to suggest to your client that they consider a more affordable house, where they can use the money they save on home improvements and pay down the mortgage faster. Also, a smaller, less expensive house has more of a chance to rise in value if other houses in the neighborhood improve in value as well.
If you’re already the most expensive property on the block, there is nowhere else to go. Advice like this may show your client that you are honest — not concerned only with commissions. And that could lead to client loyalty and referrals.
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