iNest Newsletter

Uncharted Waters: New Home Values in Unfamiliar Places

Dena Kouremetis
A veteran of the homebuilding industry, Dena Kouremetis is the foremost real estate columnist specializing in new home issues, trends, products and designs. Her columns appear in the New York Post as well as other newspapers throughout the U.S.

Although I am not an advice columnist, I often receive questions from homebuyers and try to answer them in a "what would I do if I were in their shoes" approach. One of the most frequently posed ones is, "If I am moving to a completely different area, how do I find out whether the new homes I am interested in are priced properly?"

What makes these homes worth what they are asking, and how do you know you are putting your money into something that is a fairly safe investment?

The first and most obvious reason for buying a home is, of course, shelter; a safe, protected haven in which to live and grow. For the home's layout, property size, location, and nearby neighborhood amenities, you must get that overwhelming feeling that "this is the house I want to wake up in every morning." Once that feeling has overtaken you, you are probably 80% there, at least on an emotional level.

It is, perhaps, the emotions that can take over from that point, however, so it may be wise to conduct a little market research of your own.

You can find out what "like" (comparable) properties have sold for in the past six months through the local county recorder's office or a title company. This is public information and is usually available to any interested parties through the Internet, title companies, or the county recorder's office.

Let's take, for instance, the "Rembrandt" floor plan at XYZ Homes. It is an 1800 square foot single level home on a 9,000 square foot flat home site and its base price (with no upgrades) is $187,000. By checking county records, you determine that eight such floor plans have closed escrow over the past six months. The oldest ones of the bunch seem to have been priced significantly lower than the ones closing over the past two months or so, even though they all appear to have had upgrades added to the base price. What does this mean?

It may mean one of two things - (1) the builder raised its base prices for the homes gradually over that period of time, or (2) more upgrades were added to successively sold homes for one reason or another. Builders are usually happy to tell you that their prices have risen over a period of time, indicating that their homeowners' properties have ALREADY increased in value, and that the initial phases of homeowners now enjoy more equity.

Homebuilders usually don't hesitate to tell you the average amount buyers in their subdivision have put into upgrades of a particular floor plan, making it a point of pride that homeowners there are "sold" on the enhanced but personalized beauty of their new homes. For example, the "Rembrandt" plan most often closed escrow with an average of $8,000 in upgrades, making its recent closing prices around $193,000 to $195,000. Some may also have included lot premiums and architectural options that added to that amount, such as a three-car garage or fully-wired office instead of the downstairs bedroom set-up.

Public record may also reveal how many of the closed escrows in the new home neighborhood were financed, which in most cases, represent nearly all of them. Why is this important? Because all of these properties had to, at one point, become appraised for their final value in order to receive that financing. And if the lending institutions can justify the increasing values, your feeling of risk may be lessened in this type of investment.

If you've got the time and courage and the circumstances permit, however, a totally personal and eye-opening independent study can be conducted on your own in one brief Saturday or Sunday afternoon, when most people are home. Go to that builder's neighborhoods where people closed escrow long ago, even within the same community (oftentimes builder have several years of sales activity in a given area) and, armed with a legal pad and clipboard, do some door-knocking of your own.

This may sound like an intimidating way to get the information you want, but take heart. Many new homebuyers are happy with their purchases and want to talk about them. These veterans can tell you some revealing information if you straightforwardly pose your questions and let them talk.

For instance, established homeowners may tell you that someone across the street had to relocate and sell their home only eight months after moving in and got a great price for their home. At the same time, they may tell you how aggressively the builder fixes remedial walk-through and warranty items on the homes.

They can bust with pride at how much more house they bought for the money that you would spend on the same house now. But they may also tell you that another builder came in down the street and put up "minimalistically"- built homes on smaller lots for lower prices and this has limited the appreciation in the value of their homes.

Any and all of this information can help you decide whether this home is a potentially good investment. And there is a silver lining in this type of approach as well. You may be meeting future neighbors, finding out that they have kids the same age as yours and start to establish some new friends even before you become a permanent member of the neighborhood. You may be escorted into their backyards and behold their new landscaping, barbecue pit or pool. You may even get an invitation to the next pool party!

There is one more stop you may want to make on your journey to a new home purchase, however. That is a trip to the city planner's office. There, the city personnel can show you plans for the entire area surrounding the new home you are considering.

City planners can explain that that lazy little two-lane road running behind the property you are considering is slated to become a major 4-lane traffic-bearing road in about two years. They can show you the new commercial and retail areas that are zoned nearby - or not, which may find you perpetually driving for miles to the nearest supermarket. And they can show you where new schools are planned and give you insight into the expected growth in that area based on the number of building permits they issue each quarter.

Of course, no one has a crystal ball to tell you that any home purchase is a good investment. But with a little non-emotional super-sleuthing of your own, you may go into the purchase of your new house feeling you did all you could to maximize the opportunity to profit from what is perhaps the largest investment you may ever make.