subject: Home buying and the principle of progression [print this page] Home buying and the principle of progression
One of the main considerations when purchasing a new home is the prospect of selling it for profit in the future. Of course, no one can predict exactly what will happen in the future to home values, and you may even decide to stay in the home permanently because you love the neighborhood so much. Even so, it's good to assume you'll want to sell the house at some point, and you should try to purchase a home that has long-term potential.
One important rule regarding home values is the principle of progression. While it is not a rule set in stone, it is important to keep in mind. The idea is very simple and states that less expensive property can have its perceived value enhanced simply by being close to more expensive homes in the same neighborhood.
For example, if most of the homes in a given neighborhood cost somewhere around $250,000, you might find that the least expensive home in the area sells for only $175,000. At first glance, this may seem like a great way to follow the principle of progression, since the home's perceived value may may be enhanced by the more expensive houses in the same neighborhood. Your home could sell for a higher price in the future should you choose to sell the home.
However, you should also keep in mind that there may be some significant flaws in the home which explain the lower price. If so, the main thing you need to ask yourself is whether the flaws are curable or incurable.
Curable defects
The home may be considered a bargain because its defects are relatively easy to fix. Perhaps the home simply needs to be repainted, or maybe the landscaping needs some improvement. You might also need to modernize the kitchen or bathroom, and you may also have the option of converting a garage or storage area into another bedroom (which can significantly raise the overall value of the home).
Incurable defects
On the other hand, the home may be far less expensive than others in the same neighborhood because it is simply not a good property. The house may have multiple issues such as a bad foundation, roof, plumbing, and/or other issues. It may also be located adjacent to an ugly tract of land or a garbage dump. There are many other possible flaws that you should investigate. Some of these deficiencies may technically be curable, but the cost of improving the property may simply not be worth it.
