10 reasons NOT to buy the most expensive house in the neighborhood

I recently talked with a mother who was concerned about her daughter purchasing a home in the Sacramento area. She wanted to get my perspective on the neighborhood to see if it was safe and generally okay, but more than that she was worried the price was too high for the area. Look at the graph below and let me know how you would feel about your son or daughter making a purchase at $280,000 in this neighborhood.

All Sales in Neighborhood Trend Graph - Sacramento Appraisal Blog

There is only one sale above $280,000, which makes it understandable why the mother was worried about her daughter purchasing at the top of the market. I am not saying that it is a mistake for the daughter to pull the trigger on this house, but before moving forward it’s worth thinking through some reasons why NOT to buy the most expensive house in the neighborhood.

10 reasons NOT to buy the most expensive house in the neighborhood:

  1. You won’t get the more immediate benefit of higher sales to boost your value.
  2. There may be a smaller market of buyers for your property, which could hurt in the resale market.
  3. Neighbors will laugh at how much you paid compared to how little they did. 🙂
  4. Is the house overpriced?
  5. If your house is the largest in size, do buyers really expect such a large house in the neighborhood? Is it overbuilt?
  6. There tends to be a larger pool of buyers in the middle-range, which helps these homes be more marketable.
  7. There won’t be anyone to compete with for the best house in the neighborhood. It’s no fun if you can’t at least try to “keep up with the Joneses.”
  8. If the market shifts after you purchase, you’ll be stuck at the top.
  9. Are the features of the home appealing to a wider audience or are they strictly something very personal that you prefer? (like a yard with a Star Wars theme and golden Yoda statue).
  10. What might you be able to afford in a better neighborhood at the same price?

largest house in the neighborhood

Question: Any stories to share? What other reasons would you add to the list?

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Comments

  1. says

    I think you have made some very valid points, especially when it comes to home values and the smaller number of buyer’s when it comes time to resell. Your points about the neighbors were also funny, but important. Relationships with #neighbors really influence quality of life. You can read more on that on my blog. There are some situations when buying the largest and/or most expensive home in a neighborhood may be worthwhile. For example, if a family has a home based business, like a day care, or something that requires space, then the space will more than pay for itself regardless of the comparables, as long as the business is lucrative. If the home is in a neighborhood that is being pursued by developers, there is a also a good chance for appreciation. I will say that the home in the picture is a bit of an eyesore… I doubt that I would encourage clients to buy it, unless they could justify a way to offset the price.
    Nicole M. Williams
    Good article – I enjoy your posts

    • says

      Thanks Nicole. I appreciate it. You made a great point, and I definitely agree. It’s not a bad deal to purchase a huge home or something with incredible upgrades. It’s okay to own the house that is the biggest or most expensive too. It’s just worth considering the marketability of the property in the resale market.

      The same really holds true when it comes to upgrading a home. Obviously an owner doesn’t want to overbuild for the neighborhood, but there will definitely be some things where owners simply make their house into a home – whether the resale market loves the feature or not.

      I’ll have to check out your blog. Thanks Nicole.

  2. ricardo villanueva says

    Hey Ryan:

    The monstrosity in the photos is one house? Looks like the Winchesters had family in Sacramento. I’d advise the daughter to steer clear of any house in a market that supposedly just increased 30% in value over the last year.

    • says

      Yes, Ricardo, it’s surprisingly one house. It’s as if an entire other house (2X as big) was added on to the small older ranch-style home. Clearly a paint job is still needed as well as some cosmetic work on the exterior, but it’s definitely a beast and a future candidate for biggest (or maybe most expensive) house in the neighborhood.

      It sounds like you read the SacBee today in light of your 30% increase comment. http://www.sacbee.com/2013/07/23/5587395/sacramento-area-home-prices-jump.html This 30% is something many readers may take literally and try to apply to their own property, but in reality it may not actually work out to mean their properties are 30% more valuable this year compared to last. I know you are aware of this, but for any onlookers I wanted to throw in two cents for discussion.

      When you consider that foreclosures have declined by 20% over the past year and short sales have declined by 8-9% during the same time period, this definitely plays into a huge increase in median price level. The market has definitely increased in value, but when there are vastly less beater properties at the bottom due to less foreclosures) and then more flips at the top, it makes a huge impact on the overall median sales price. Yes, the 30% stat is accurate, but it also comes with an important context to sift.

  3. says

    I’ve heard of people justifying such a purchase by stating that “this is the house we are going to die in”, meaning that they will never move so resale doesn’t matter, but sometimes unfortunate circumstances cause us to change plans. It’s always a good idea to at least consider the possibility of what you could sell the home for if you needed to so that you will know what to expect and you will not be surprised.

    • says

      Well said, Tom. I think you’re right. It’s still understandable to make such a purchase because we want to make wonderful homes, yet there is some fodder for discussion here too. Life sure does change. It rarely ever turns out the way we think it will. 🙂

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