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4 Factors Of Conformity That Affects Home Value
The principle of conformity is one of the most counter-intuitive laws of real estate.
It basically states that a house that seems out of place within a neighborhood can have a detrimental effect on the value of the house.
This is even when that unique house stands out as one of higher quality.
There are of course, exceptions. But for most of the time, the principle of conformity holds true when it comes to real estate.
Before we go on, it is important that there are 2 crucial elements of of conformity. Which is progression and regression.
They are best explained with examples.
Progression refers to a house in bad condition getting it’s value perked up due to it being in a good neighborhood. Regression refers to a house in premium condition getting it’s value depressed for being located in a bad neighborhood.
An unusual house that’s unique in a neighborhood can either benefit from or suffer from conformity.
Here are 4 factors to take note of.
For those who are contemplating snapping up a piece of land and building a new house on it, do take the surrounding environment into consideration.
Because if all the houses nearby are rustic looking older houses, the values of real estate in the area could be based on this unique characteristic of the location.
While this could be either a good or a bad thing, it is important not to ignore this factor.
Because should you build a modern looking house along a road of classic houses, not only will the new house look out of place, it will not be able to ride the wave of rustic reputation the area has enjoyed over the years.
This can seriously depress the value of the house… even though it is much more luxurious than others.
Let’s put it this way.
Buyers who are interested in a mature neighborhood are probably enchanted by the look and feel of older homes.
Why go against the grain and change for the sake of change.
This is a critical factor that can hurt the resale price in future when it’s time to sell.
Of all the puzzling factors with the principle of conformity, this is one that really boggles the mind.
Instincts would tell us that the better fixtures, furniture, and appliances a house has, the higher the value it would be worth.
But that is not always the case.
While it goes without saying that a house that resembles a dump would probably be cheaper to purchase compared to others in satisfactory condition, a house in mint condition can work against you in terms of value when all the surrounding houses are not in as good a condition.
I still can’t get my head around this. It almost seems illogical.
Yet it is a law of real estate that have proven to hold true time and again.
Sometimes when we drive along a residential street, we can notice houses that are HUGE compared to others in the area.
While a homeowner might feel proud to be the loudest house in terms of visual impact, if all the homes in the area are of 2 or 3 bedrooms, the big house can suffer from bad valuation if it is a 4-storey 6-bedroom home.
So while a homeowner might feel like a king on the street, from an investor’s point of view, such properties are not desirable in terms of returns.
Conversely, if a beat-down house sits within a neighborhood filled with luxurious homes, one can easy sprout up it’s value with clever remodeling and cosmetic renovations.
Just like older homes mentioned in point #1, certain neighborhoods have a charm that is unique to them that has been enhanced over decades… or even centuries.
When investing into such areas, it’s is better to ride the wave instead of against it.
A street filled with one story houses will completely make a 3-storey house look alien.
In the same sense, a neighborhood filled with resort looking designed homes will make a modern-styled home look like a clown in a museum.
With these points of conformity in mind, remember that it is actually not easy to make a house negatively stand out in a neighborhood.
It is usually fine to make changes to a house without getting out of line… unless you are hell-bent on making a statement.
And if in doubt, think about macro factors rather than deliberating on the micro when thinking about resale value.