For Buyers, For Sellers, Vacation/Investment Property

Why You Shouldn’t Buy The Most Expensive Condominium In The Building

I have always believed that when buyers are considering making a purchase, that they should not buy the most expensive condominium or home in a given neighborhood or building.

Why you ask?  Let’s say you fall in love with the best of the best in a particular area.  It has everything you could possibly want. You see that the sellers have obviously put a lot of time, effort and money into the property. It most definitely stands out as the premier unit in the building or home in the neighborhood.  Why wouldn’t you want to buy it immediately?

Before you get carried away, you have to take a look at the sales prices of comparable properties, “comps” we call them, in that area.  If you compare the comp prices to this stand out property, you should probably notice a pretty significant price difference. This difference should act as a wake up call to you. This property is undoubtedly selling for a price range far above the comparable sales.  You should be seeing warning lights at this point. I think you are going to have a problem if you purchase this most expensive home in the building or community. In fact, I think you are going to have two problems.

As I see it, the first problem is relative to the appreciation of the property. The appreciation on the property is always going to be dragged down by the homes around it. If you take a $800,000 beautiful property and put it in the area of $250,000 properties, the $800,000 value is going to come down a lot because the community will not support the higher price.  When you eventually decide to sell, new buyers are also going to look at the comps in the area and laugh at your asking price.

The second problem I see is something called “hemming”.  Your appreciation potential is seriously limited because you own the most expensive home in the area. This becomes an even bigger problem if you decide to remodel or in an way upgrade the property. Under normal circumstances, doing a remodel or upgrade would add value to your property. When you own the most expensive property, not only will it not add value, it may cut into your equity. Why? If you do a $50,000 remodel, you may see a $10,000 gain for your $50,000 cost. You’ve just lost $40,000.

Nobody can predict the future, and unless you can foresee what potential increases will be for your whole community or building, you shouldn’t be the one to own the most expensive property in a given area.  Your dream property could turn into a nightmare for you financially.