One of the lesser talked about real estate and housing topics is the topic of overbuilding the neighborhood. However, that doesn’t make it unimportant. Let’s dive in.
What is Overbuilding the Neighborhood?
This means that you have a house that doesn’t fit into what the rest of the houses in your neighborhood look like. You might live in a part of town that has all 3 bedroom, 2 bathroom, 2-car garage homes. But if you decide to build or add onto your home a fourth and fifth bedroom, an extra bathroom, and a 4-car garage, you will have overbuilt the neighborhood.
This is because people who are home shopping in your area are most likely looking for a 3 bedroom, 2 bathroom, and 2-car garage home. Not the monstrosity that you have. If they want a huge house like you have, they will look in another area of town.
The danger of overbuilding the neighborhood is that even though you think your house is worth a certain dollar amount, it is actually worth far less because the people who are shopping for a home are not looking for a giant home like you have.
Additionally, even if potential buyers might be interested in buying the giant home that you have, an appraiser will likely not appraise it for that much more than the average house in your area.
And if it doesn’t appraise for that higher amount, then the buyers will likely not be able to get a mortgage to buy it. And you’ll be stuck with your giant house.
Example
You live in a neighborhood that all of the houses sell for $200,000-250,000. They are all 3 bedroom, 2 bathroom, 2-car garage homes.
You purchased one of these houses but later decided that you wanted to upgrade it.
You decided to put in:
- Rainforest granite countertops
- Gold plated bathroom fixtures
- An in-ground swimming pool
- A backup generator
- Commissioned murals
- A hand-laid brick driveway
- Etc.
Also, you decide that you want to add on:
- 2 additional bedrooms
- 2 additional bathrooms
- 2 additional garages
- A sun room
Your house was worth $200,000 before you did all of these upgrades. And to pay for all of the upgrades you forked out another $200,000. So you think the house should be worth $400,000, right?
Wrong!
The houses in your area don’t sell for that much. So most likely at most, your home will be worth $250,000 (which is the top edge of what your neighborhood is worth).
Ouch.
Don’t do that.
Final Thoughts
This is more of a niche article than I typically write. However, it is really important if you are thinking about buying a house, adding onto a house, or renovating a house.
Do it within reason and stay within the bounds of what your neighborhood is worth.
If you need the extra space or want the upgrades that your current home cannot contain, you’ll need to move to another area where the houses are more expensive and the homes are more likely to have those amenities and/or extra room.
Be careful!
I am here for you! If you want other helpful articles on housing, owning a home, etc. check them out here!
You can do this!
Until next time!
0 Comments