The other day, an “06880” reader e-mailed me in an agitated state. She complained that because home buyers these days want only new houses, realtors only take clients to see those properties. As a result, they sell for premium prices.
She cited a new 5,000-square foot home with a $3+ million price tag. A “pre-existing” house of the same size, style and quality fetches “only” $2.2-$2.4 million.
The e-mailer said that everyone wins: builders for obvious reasons; realtors because of higher commissions; the town because of higher taxes.
Except, of course, the seller. She described a new home that sold for $5.4 million in 2010. It went on the market this year for $4.295 million. That’s down more than $1 million — and it was first built and sold in the middle of the financial crisis.
This new home in the Compo Beach area is 4,569 square feet, on 0.52 acres. It’s on the market for $4.975 million.
I could have an opinion on this. But it wouldn’t be based on anything close to actual knowledge or insight.
So I called 2 of Westport’s most experienced and respected realtors: KMS Partners at Coldwell Banker’s Karen Scott and Mary Ellen Gallagher. (Full disclosure: They are also good friends. And I coached their sons as Staples High School soccer players.)
The women said: Yeah. The e-mailer is right about the prices. Realtors often talk about this very subject.
However, they said, there’s more to this than meets the eye.
The phenomenon is not the fault of realtors, they said. It’s driven by buyers.
When prospective home-buyers start looking at existing homes, they may not find every amenity they expect. Existing homes may have smaller rooms, or lack the open floor plan of new homes.
Once they see new construction, every “older” home — even relatively new ones — pales by comparison.
Buyers start yearning for a totally new home. Newness becomes more important than anything else — even a busy street, or small lot.
The reality, Karen and Mary Ellen said, is that most buyers today understand they will pay a premium for new construction than a lower price for an already-lived-in home — even one that’s been lovingly maintained.
This Green’s Farms area house was built in 2006 — 10 years ago. It’s 3,993 square feet, sits on 0.51 acres, and lists for $1.799 million.
But here’s the catch: New homes are not the “piggy banks” home buyers believe they should be. Homes are a commodity. Their market value is driven by various economic factors and market conditions — for example, supply and demand.
Think about a new car. The moment you drive it off the lot, it starts to depreciate.
It’s the same with new construction. The moment the first owners move in, it’s no longer “new.”
Unfortunately, Karen and Mary Ellen noted, some owners of new homes don’t realize that fact until they put their no-longer-new home on the market.
Realtors are in a tough spot. They may try to explain the reality of new-vs.-older construction. But many buyers — bedazzled by new homes — don’t want to hear it.
They figure they’ll enjoy their new home, and deal with the resale price many years down the road.
And, Karen and Mary Ellen admitted, builders would not be building at the rate they are if buyers were not buying.
So the next time you see a perfectly good “old” house torn down, and a brand-new home going up in its place, understand the reason: There’s a demand for that new construction.
Until it’s time to sell.
