Now is the time to make trade up to dream house


December 30, 1990|By Ellen L.James

If you own a modest city Cape Cod yet have long wanted a big Tudor-style house in a distant suburb, this could be the perfect moment to trade up -- especially if you're moving within an area with a soft real estate market.

Granted, you may have to take a disappointing discount to unload your little Cape Cod. But, as realty experts point out, you'll probably get a still deeper price discount on the big Tudor house in the suburbs.

"If you're in a soft market, you're likely to take a small bath on the little property. But the seller of the bigger house takes a bigger bath, and you're the beneficiary," says Norman Flynn, immediate past president of the National Association of Realtors.

"There is a larger savings on a larger home than on a smaller one," Mr. Flynn observes.

It all has to do with the mathematics of trading up.

Obviously, the same percentage drop in prices will make a proportionately larger difference in the upper-end home than in the lower-end home.

Suppose that home prices in your area have fallen 5 percent in the last year. The Cape Cod you could have sold last year for $100,000 will have to go for $95,000, yielding you $5,000 less than you'd hoped for. But the big Tudor that would have gone for $300,000 a year ago might well go for $285,000, giving you a $15,000 discount on the new property.

"The percentages work in your favor as you buy up," says Brenda Flagg, sales manager at the Coldwell Banker realty chain in Towson.

In reality, the trade-up advantage could be even more substantial than the hypothetical example of the Cape Cod and the Tudor indicates. The reason is that in many soft market areas, prices on upper-end homes have lost more on a percentage basis than lower-end homes, Mr. Flynn says.

He estimates that prices on lower-end homes, which typically range from 800 to 1,100 square feet, have fallen 3 percent to 5 percent in soft market areas during the last year. This contrasts with upper-end homes, with more than 2,000 square feet, which have lost an estimated 10 percent to 15 percent of their value in the soft market areas, he says.

Upper-end homes are more prone to price drops in a difficult market because their sellers are usually affluent enough to have room for negotiation, says Ms. Flagg. At the low end, sellers are usually less able to be flexible, she points out.

While the current mathematics of trading up in a soft market may be easy to grasp, many people fail to catch on for emotional reasons, says Joseph Zick, sales manager at Century 21 H.T. Brown Real Estate in Columbia. Their egos are so tied up in their homes that they take a lower-than-expected offer as a personal affront.

"People have an emotional attachment to the homes that they wouldn't have with any other investment. It's a kind of pride type of thing," Mr. Zick says. "Some people get irritated that the buyer is trying to take advan

tage of their weakness, and they won't sell."

Anyway, sellers often make false assumptions about the value of their homes, according to Peter G. Miller of Silver Spring, the author of several real estate books.

"It's very difficult for people to be realistic about their own home. You see it through

your eyes, and in your eyes, it's Buckingham Palace. It's only someone else who sees the leaky roof," Mr. Miller says.

Of course, whether trading up now would be wise for you depends on a host of neighborhood variables impossible to factor into a hypothetical example. Any local factors that affect supply or demand have to be factored in when you consider whether the mathematics of trading up will work for you, realty specialists point out.

You may be firmly convinced that the recession will lift in 1991, that gross national product growth will soar and housing prices will rebound across the country. But if your community is losing jobs and facing declining income, prices there could continue to decline even after the economy as a whole recovers.

There are also personal variables to be factored into your decision on trading up.

If you're worried about the recession, fear you could lose your job or are convinced that home prices have yet to bottom out, this could be a poor time for you to make your

trade-up move, realty specialists say.

On the other hand, if your income is secure, if you feel the recession in housing will be short-lived and you have the cash and equity to make the transition to your dream home, this could be your moment to trade up, realty experts say.

"The negotiators are out there, and they're picking up some tremendous buys," says Annette D'Antuono, a National Association of Realtors vice president.

Admittedly, it's tough to get excited about a major housing move at a time when people are staying away from the real estate market in droves because of economic uncertainties and questions of war and peace.

But acting contrary to the masses could be in your financial interest now if you're seriously interested in trading up and have the wherewithal to do so, says Mr. Miller, the real estate author.

"The wealthy, by definition, act in a manner contrary to the rest of the population. That's one of the reasons they're wealthy," he says.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.