July 2, 2014

Why a lower price home doesn’t always mean a better value.

By Dan Dolan
Dan Dolan Homes


And what seniors should consider in making their housing choice.

We had some friends and family over to the house recently on the occasion of combined birthdays, anniversaries and a post-graduation celebration. So my wife asked me to drop by our favorite meat market on the way home from the office to pick up some hamburger. “Everybody enjoys hamburgers,” my wife said, and we needed a bunch of it. And by using hamburger, we might be able to stay within the budget that we set for the party. But when I got to the meat shop I learned that there was only a 79-cents a pound difference between the price of hamburger and the steaks that the butcher “guaranteed” would be tasty and tender. I know that “everybody enjoys hamburger,” but I was certain that the steaks
represented a better value and that the guests would really prefer them. The transaction only cost me $7.90 more than we budgeted, and I thought that reasonable overrun would enhance the party experience.

I have frequent opportunities to discuss housing trends, available new features and, of course, prices with prospects and buyers. Those who have done a little comparison shopping may sometimes indicate that they have seen lower-priced senior housing in the area, but they marvel at our higher quality in materials, design and construction. Features like our no-step access to the home and garage; 12-inch insulated concrete walls between homes; step-in master baths; hand-set tile shower options; ceramic entry floors; brick front exteriors; Pella windows; convenient locations, etc. And while our homes may sometimes cost a little more than some competitive offerings, ongoing lifestyle comfort, overall home quality, near-term operating costs and potentially more favorable resale represent major advantages and offsets.

It is also not uncommon for previous buyers to visit our new model homes on weekends to see current trends in wall colors, floor coverings, new features, etc. So I get a chance to visit with them and discuss current prices, as well. Often, the conversation gravitates not to what they paid for the home, but that the home represents an outstanding comparative value vs. “cheaper homes,” and that just maybe they should have spent even a little more than they did. The reason: To buy some of the features that would have added a little more “oomph” to the home, like some of the features we include in our new basic pricing—like hardwood floors, granite countertops, etc. Maybe even a full or partially finished basement.

When prospects visit for the first time with our Realtor hosts at open houses, the conversation eventually includes the difference between the estimated cash yield from the sale of the existing home and the projected cost of the new home. And except in rare instances, the new home nearly always exceeds the proceeds from the sale of the current home. The question then becomes how best to address that “gap.” And that answer can vary, depending on the assets and/or the income of the buyer. Typically, some cash equivalent assets can be liquidated to fill that gap. Often, buyers will consider a Reverse Mortgage for Purchase, where the proceeds from the sale of the existing home are used to make the one-time down payment, which tends to range from just above or below 50 percent of the purchase price, depending on the age of the buyer. In that scenario, after making the down payment, the buyer often has leftover cash from the sale of the existing home. One nice thing about that financing tool is that no ongoing monthly mortgage payments have to be made. The mortgage balance is liquidated when the home is eventually sold. And the estate or heirs do not have a residual obligation to pay off.

From what we’ve seen as a result of the new home sales we’ve been involved with, buyers may be surprised at the price of new homes initially, but after living in a new Dan Dolan home for a while they realize that the quality of life offered by the home is truly rewarding and well worth it.

The Realtor host at any of our weekend—or weekday—open houses will be happy to help you make the best choice for your new Dan Dolan home. Or, feel free to call me for an individual review of your new home needs. I can be reached at (563) 570-1460.

Filed Under: Finance