Building a new house in an old neighborhood: Home valuation

The way homes are evaluated by real estate professionals is usually pretty straightforward. They compare the home in question to other existing homes in the area that are similar in age, location, size, and design that may have been sold in the recent past. In most older neighborhoods, homes built around the same time period tend to share design elements and are around the same size, so this method works. But what if you’re building a new house in an old neighborhood? You may not have any comparable sales to help you arrive at a number. So what factors decide the home’s value then?

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Compare within and beyond the neighborhood

The first thing real estate appraisers would do is compare the new home to other homes in the neighborhood, and this would be a fairly easy process if the home was located in a new residential neighborhood. However, a new home in an old neighborhood is a different ball game.

If the property being evaluated is surrounded by older homes, then the next thing to do would be to widen the search parameters and look for a home of similar age, size, and features in similar neighborhoods situated in the surrounding market.

Premium rates

The next thing a home appraiser would look into is the ongoing real estate rates in the neighborhood, and if buyers are willing to pay premium rates for newer homes.

Ideally, newer homes ought to have a higher demand in comparison to older properties. It is only natural that a home buyer looking to purchase their dream home would be more drawn towards a home that’s never been lived in because that means the home has more modern materials and finishes and will need a lot less maintenance at least for a few years. 

The fact that the new home is already situated in a well-settled neighborhood as opposed to a newer neighborhood as opposed to a still-developing area ought to also add to the desirability of the property, and get the homeowner a premium price. However, it is noteworthy that those premium rates and demand will only last so long. The longer the home stays on the market post-construction, the lower the premium rates get.

Quality of construction

Logically thinking, a newer home should simply be valued higher than an older home because it’s newly constructed, using modern construction materials and techniques, and will be repair-free for the foreseeable future. Right?

Well, that isn’t necessarily the case. A lot of newer homes are built using materials that aren’t as durable as the materials used to build older ones. This is done to reduce the cost of construction, and results in homes that don’t really stand up to the test of time. This is why the quality of construction is scrutinized during valuation.

Read more: Tricks for building your dream home

Does it fit the neighborhood?

A new home in an old neighborhood is often a great thing for the health of the neighborhood. It breathes some new life into a stagnant scene. However, that is if the new house fits the neighborhood.

For example, a new mansion in a middle-class neighborhood would stick out like a sore thumb. Just because the mansion is new and huge will not mean it demands a premium value. In fact, quite the opposite might apply. Chances are, because of the demographics of the neighborhood, the mansion will sit unsold for a long time before it’s sold at a much lower value.

The important thing while building a new home in an old neighborhood is to keep in mind the fervor and flavor of that neighborhood, and conform to it wherever possible.

Read more: Solutions to common neighborhood problems

Written by Narayan Shrouthy. June 22, 2021

Narayan is a content writer for Kukun. With experience in both content writing and editing, Narayan mixes his writing and love for reading with his passion for music. As an active musician, He aims to be a key player in Kukun's content experience.