New construction versus pre-owned? This is an age-old question when buying a home. Newer has its benefits: being the first to occupy; getting the latest in building standards and design trends. The negative is paying extra for those benefits.
Part of the price differential is also a result of last year's hurricane season Outside, siphoning off new construction material and causing the cost of supplies to dramatically increase. Lumber costs alone went up at least 25 percent, according to some builders.
Clearly new construction can be more expensive, yet pre-owned has its own concerns. Age of the home is one. One can look at age in two ways: the home's chronological age and its effective age.
A home's chronological age is based on when it was built. The majority of homes in the Anchorage marketplace were built between 1970 and 1989.
Of the almost 900 homes currently for sale within the Municipality of Anchorage, about 43 percent were built between 1970 and 1989. Of the almost 2,750 sales closed within the last year, over 51 percent were built in the same timeframe. Of these, over 31 percent were noted as updated and over 17 percent had been remodeled.
That leads us to discuss effective age. Just like a restored classic car has a different value than a junked one, the effective age of a home is how old it "appears" to be. In Anchorage, the Alaska Housing Energy Rebate Program (2008-2016) stimulated much of the updating and remodeling, with popular HGTV remodeling and home-flipping shows continuing the push.
While appraisers evaluate homes through a lens specific to their role, buyers in a real estate market may be considering the home's effective age. Here's a guide to helping your home appear to be the best value for its age:
First, did you do all of the necessary maintenance to the home during your ownership? Some owners are religious about maintenance and their attention shows when time to sell their home. Maintained homes have minimal marks on the walls, doors and trims. Maintenance shows in the condition of exterior trim, paint, decks, landscaping and driveway. The overall cleanliness of the home is a clue as well. Remember that buyers are in the perfect position to compare multiple properties during their house hunting, up close and personal.
Second, did you remodel or update the home during your ownership? Remodeling a kitchen or bathrooms, replacing the roof and heating system, or the replacing a private septic system – all these things increase the livability and add years to the useful life of a home. When comparing one home to another, buyers take into account if they have to begin immediately budgeting for major home improvements.
So why not reduce the price and just pass the improvement task onto buyers?
There are two reasons. First, what many sellers don't realize is that 100 percent of the cost to do the work is paid out of pocket by the buyers. If the work is already done, it brings a higher sales price and the cost is financed through the mortgage. Second, for the buyer, there is a fear of the unknown. The buyer may not feel confident that accommodations — such as a reduced purchase price or paying part of the buyer's closing costs — will cover the work and the potential "oh, by the ways." Few buyers are talented enough to do the work themselves, so the inconvenience factor enters the equation. In some cases, the potential buyer may be going through other major life changes in addition to buying a home. They may be relocating to Anchorage or starting a new job, or putting the kids in new schools. They may not know the suppliers and contractors here in order to deal with improvements to the home at the same time they are trying to get the family settled.
Remodeling can also affect your appraised value by allowing an appraiser to compare similar effective age homes, even though one may be chronologically older.
Third, what cosmetic improvements have you done to prepare for sale? Carpet and paint are typically the most cost-effective items to do when selling, but if these improvements are inconsistent with the overall maintenance and there's a lack of remodeling and updating, these cosmetic improvements feel more like a cover up – they can highlight the things not done.
Along with price and location, the three factors above are why some properties sell before others. If you are purchasing, keep the above in mind to maximize your return on investment. Owning a home is a hybrid investment; the work you do during ownership allows you to enjoy it immediately. When it comes time to sell you may still get credit for the work done that changes the home's effective age.
To those homeowners who have been able to change the effective age of their home, this work can pay off. Flaunt your efforts in your property disclosure and marketing materials!