Why it’s important to think of new homes just like new cars

A couple years ago my family bought a 2012 Camry. Let me tell you, being a guy that is 6’0″ tall, it sure is nice to have more leg room compared to a tiny Sentra we also own. Though I’ll admit I gave up my truck when we got the Camry, and it’s just not the same thing trying to transport 2x4s in a sedan from Home Depot for my building projects.

A Relevant Analogy: Anyway, I have an analogy to share today about new homes and new cars. As new construction has been taking off again in the Sacramento area and many other places, I’m finding some home owners and even some real estate agents aren’t in tune with the difference in value between new homes and ones that are even just one year old. Let’s take a look below.

new construction and cars - by sacramento appraisal blog

As you can see, there is a striking difference in value (price) between a brand new Camry and one that is just two years old. Just as buyers pay less for older cars, the same is true in real estate. The moment a house is built and occupied, it loses that fresh “never been lived in” premium that buyers pay more for.

A Conversation About New Construction and a “Low” Appraisal:

Owner: I live in a new neighborhood and I’m frustrated the appraisal came in low at $360K. I was expecting it to be $400K.
Me: Tell me about your situation.
Owner: The appraiser didn’t use the newest comps. I even walked over to the sales office and there are several recent sales at $400K. My house is only one year old and we spent about $10,000 in rear landscaping too. The 2013 models don’t even have rear landscaping.
Me: What are 2012 models like yours selling for? That might give you a good picture of value.
Owner: [ Silence ]
Me: Real estate is sort of like buying a car. The moment you drive the car off the lot, it depreciates in value. You just cannot sell a car built in 2012 for as much as a brand new model. Just as buyers pay more for a car that has never been driven, they also pay more for a home that has never been lived in. There is usually a striking value difference between brand new homes and model matches that sold even one year ago. The value difference can sometimes easily be 10% or more.

If you’re in a similar situation, I hope this helps give some context. At the same time, if you think the appraiser still got your value wrong, check out how to challenge a low appraisal. On the other hand, if your Assessor is valuing your home at the same level as brand new homes, it may be worth appealing your property taxes.

Question: Any thoughts, insight or stories to share? I’d love to hear your take.

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Comments

  1. Jas says

    Hi ,

    I bought my brand new house 3-4 months back and wanted to refinance. Is it a good idea? My concern is i may get lower appraisal value. I bought it for 490K and zillow also shows around the same price.what is your suggestion on this. I heard that first 6 months to 1 year the price does not change.

    thanks

    • says

      Hi Jas. Thank you for reaching out. It’s a tricky situation because your house is now lived in. If you were buying all over again, would you pay the same amount for a house being sold directly from the builder as you would for a house that has been lived in? Granted, we are only talking about six months, but can you see why this is an issue the appraiser has to deal with? In an ideal world the appraiser would find a house that is newer but just sold again on the resale market. This would help us see what homes are worth that aren’t selling from the builder. Yet the appraiser will likely also use comps from the builder too since we are talking about a very short period of time here. There is no such thing as a rule that says the price does not change for 6-12 months. In 2003, for example, prices were rising exponentially and in many cases about 10K per month. So the price really wasn’t the same after it was built. In 2007 prices were declining big-time, so prices were way different month to month. I wouldn’t put any weight on what Zillow says. The key is what actual sales and pendings are doing in your neighborhood.

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