When asked what the No. 1 rule in real estate is, the quickest and most accessible answer is almost always location, location, location. I know because I ran my own little poll this morning to a group of local business owners, and that was their answer. Gallup’s got nothing on me. However, I then followed up with the question, "What is the second rule of real estate?"
In reality, the location thing really covers the first three rules. Assuming this, the responses that I received concerning the follow up rule were as varied as the barbecue sauce at a super bowl party. Thus, I have taken the liberty to create my very own “second rule of real estate.” As a disclaimer, this rule is subject to change depending on my present weekly challenges. For now, however, it is this: It is rarely a good idea to purchase or build the nicest, most expensive home in the neighborhood. Which, in hindsight, really leads us back to rule number one — location.
Real estate is an investment. It is usually a very good investment. Ask Warren Buffett, or Sam Zell, or Donald Trump. As an investment, there is generally room to improve. Unless there isn’t.
Simply taking care of the investment with normal maintenance could be enough to increase value over time. Any other upgrades could have potential to increase value even more ... up to a certain point. Here’s the caveat; it is possible to over-improve for the area. For example, if the homes in a neighborhood were built between 1979 and 1986 and average 3,400 square feet, it would be difficult to sell a home in that same neighborhood that was considerably larger than that due to more recent additions, without having to literally “give away” some square footage.
On one hand, for a buyer, it’s a great opportunity to get some real square footage at a lower price per square foot than what you would pay somewhere else. On the other hand, for the seller, literally giving away the farm is never easy.
Once again, location plays a huge role. There are some hot spot areas right now in Salt Lake County that showcase such a variety of home and lot sizes, in the same area that this rule hardly comes into play at all. In fact, some of the older homes have been torn down and brand-new ones have cropped up in the same neighborhood that have more than doubled the square footage, yet, due to the location, will be able to maintain their value.
Having found myself on the selling end of more than one of these overbuilt properties, it is helpful to remind my sellers of this significant factor: This home served its purpose. The purpose for a home changes throughout the different seasons of life. To the people who have lived there, built the memories and made it theirs, it is always going to be worth more than one could ever place a monetary value on. Yet, there comes a time when we may not be wanting to maintain a large yard or several empty rooms and bathrooms. At some point, the meaningless work of unoccupied space maintenance becomes the very thing that you can’t put a price on. At a certain season in life, it becomes time and freedom that we value most.
Jen Kirchhoefer is an associate broker and Realtor. She can be reached at firstname.lastname@example.org or 801-645-2134.