Do Newer Homes Benefit
From Quick Price Jumps?

Question: My husband and I recently purchased a newly constructed home and we are having major buyer's remorse. We would like to stay just long enough to break even on the investment (which includes closing costs and landscaping), but we don't know when this might happen. Do new homes appreciate faster than the average in an area -- at least for the first few years?

-- Megan, North Royalton, Ohio

Megan: Which appreciates faster -- a new or existing home? Unfortunately, there isn't a standard answer. In the distant past, new homes sometimes came onto the market at a price lower than comparable existing homes because they were located on less expensive land. In these cases, the first buyers often got a price boost when the value of the new homes caught up to the older ones. More recently, however, as land prices have soared, new homes usually come onto the market at prices higher than comparable existing homes, and sometimes languish as a result.

Ultimately, how quickly the price of a new home goes up often depends on its location. If the new-home tract is built in the direction of community growth, with accompanying new shopping, schools and other infrastructure included, then there can be a rapid price increase in the first few years as the area becomes increasingly discovered by and desirable to buyers. But if the new-home tract is simply tacked onto the edge of an existing community, particularly if the new homes aren't up to the standards of existing ones, the builder could struggle to sell the homes initially, and their prices could stagnate.

Of course, there also is the "newness" factor. Generally speaking, most people prefer a new home to an older one. It is nice to get everything brand new without having to worry about deferred maintenance and repairs. This commands a higher price. Unfortunately for subsequent owners, this premium is built into the price the developer asks for the home. But the extras that the first owners usually have to put into new homes, such as the landscaping you mention, fences and upgrades, often eat into any quick profit that might otherwise be made.

The good news is that residential real-estate values are rapidly increasing almost everywhere. It probably won't matter if your home goes up slower or faster than existing homes -- as long as it goes up!

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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