Jan 312012

As we’ve poured over listing after listing, looking for that ideal next home, I believe I have recognized a trend that once again places us in the minority. No surprise there. Unfortunately, this trend not only makes it harder to find a place we like, it also makes it harder for us to secure funding. Here’s why.

According to Susanka in “The Not so Big House“, there are three key components to designing a home: Quantity, Quality, and Cost. You can fix any two of them, but the third must be allowed to adjust. It appears to me that the U.S. housing market prefers to focus on Quantity and Cost, and to maximize those, Quality suffers. This appears to be the case on through about 3500 sqft and $500k, after which there are options where Quality and Quantity are fixed, and the cost increases. Unfortunately for us, we would prefer to sacrifice Quantity for Quality, and, as is the case for most people, we have access to a limited quantity of dollars. Finding a well built home with quality design, fixtures, mechanicals, cabinetry, and finish carpentry in our price range has proven difficult – not because such a house couldn’t be built for the price, but rather because the market is flooded with larger lower quality homes.

The second fallout of this priority inversion is that securing a loan to expand our own home or fix-up a new one is made more challenging. These loans, such as the 203k, are based on the future appraisal value of the home after the renovations. Just as quantity trumps quality in the available inventory, it also wins out in the appraisal (no surprise again). Adding on to a house achieves a higher appraisal-increase-per-dollar-spent ratio than does improving the quality of the home.

So where does that leave house-snobs like us? Well, I suppose it leaves us in the position of needing to save even longer to be able to renovate an existing home (either ours or another of suitable size and location) so that we can bring more capital to the table. Save more? Borrow less? That’s down right un-american. So… the minority… again… still.

  3 Responses to “Real Estate Priority Inversion”

  1. There is only one way to balance those three categories – build it yourself. Anyone who puts the kind of work and care you have put into your deck is prime for building a house. (Note: a large proportion of house-building is far easier than finish woodwork!) Not that I would advocate homebuilding to anyone – it is insane. But in our case it was slightly less insane than coping with other people’s notions of quality, design, location, etc.

    • We would love to build our own. Unfortunately, this tends to conflict with our location preferences. Around here it is very difficult to find land to build on that has good schools and provides any sort of neighbourhood feel. We’ve looked at builder lots and “scrapers” alike, but either the costs get too high or we end up with unacceptably diversified housing. We’re still looking, but while the kids are in school, I don’t have high hopes of this working for us.

  2. I SO hear you. We saw this problem too. Schools were our top priority. Our mediocre solution was that we found a very “builder’s grade” home so that we weren’t paying for any extras we didn’t like. This allows us to customize to our own quality tastes to some degree. Over time we intend to upgrade, but it sure takes a LONG time in both $ and free time.
    On the flip side, my sis is building a home here in the area. The contractors they have brought in are very critical of her attempts to customize. It’s a very small space but that doesn’t mean it can’t have thoughtful details!!! UGH.

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