So You Think Bigger is Better? Better Think Again

The misconception “bigger is better” is never more revealing than when the home buyer prepares to sell the house later down the road. Buying a bigger or the largest home in the neighborhood often proves to be a poor judgment call for the buyer.
When it comes to purchasing real estate, location, location and location should always be at the forefront in the buyer thought process. Even if you find the prime location and community, buying the largest home in that community may turn out to be a serious mistake.
In addition to location being a key factor in your buying decision, square footage is another consideration. Many home buyers, especially engineers, look at price per square foot of a home.
Let’s say a neighborhood community is made up of 100 homes. The area is a master planned community with parks, tennis courts, a good school district, close to shopping, and the airport. This description appears to satisfy the first parameter of location, location, location.
Now of those 100 homes, 75% are 1,200 to 1,700 square feet in size. Most of them are single story and have two-car garages. However, you may be looking for a two-story home. The other 25% of the homes are 2900 to 3100 square feet.
You have you eye on this beautiful 3100 square foot two story home with a 3-car garage. Wow!! To keep the math simple, let’s say your real estate agent runs comparable sales and there are 3 recent sales in the past 6 months of the 1700 square foot model. The 3 sales combined for an average sales price of $100 per square foot, or average sales price of $170,000. The 3100 square foot model is selling for $248,000 or $80 per square foot.
There are several principles to consider when buying a bigger home. An appraiser will never compare one home with another when there is a difference of 600 square feet or more between the two. The single level home is always worth more than the two-story home. The smaller home will always have a higher price per square footage in today’s market.
Generally, real estate has been a good investment vehicle over the long term. Is this a great home for your family? Perhaps it is. Is it a good investment? Perhaps it isn’t. Even if the smaller home makes more financial sense, you may need the larger home to accommodate your family. You will usually find the better price for the larger home in the neighborhood. If this is true today, it should hold true in the future.

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