Five years ago, when a business executive in his 50s was hired as the CEO of a suburban hospital, his salary soared. To keep his commute short, he opted to live near his work, in a neighborhood of modestly priced homes. There, he and his wife found a vacant lot where they built the most opulent house for miles around.
The couple so relished the property that they continually expanded and improved it. They added several additions and ordered multiple upgrades. They also brought in expert landscapers.
But last year, after the husband's hospital was taken over by a larger one in a nearby city, he was given a new position at the acquiring hospital. Suddenly, his commute became exhausting, and the couple decided to move. So they called in a real estate agent to list their home, insisting - against her advice - that their house be priced high enough to let them recoup every dime they had poured into it.
The property has had numerous showings, and buyers are impressed. But all have recoiled at the price tag. As a result, the couple's moving plans have stalled. At this point, they're frustrated, angry and uncertain what to do next.
This true story illustrates the difficulties faced by folks seeking to sell a swank property located in a community of mid-level homes, says Sid Davis, a real estate broker and author of "A Survival Guide to Selling a Home."
"Unless you bite the bullet and price it right, a house that's over-improved for the neighborhood ... can languish on the market for many months or even years," Davis says.
"Sure, people will come through your open houses because they're curious to see that big castle on the hill. But unless you price fairly, they'll soon disappear, never to be heard from again," Davis says.
The reason owners of over-improved houses can't recoup their investment is that location - not size or features - is the primary determinant of a home's value, says Fred Meyer, a veteran real estate broker and appraiser.
"The principle is that in a strong neighborhood the big houses will pull up the value of a small house. But if the neighborhood isn't strong, the small houses will pull down the big house," Meyer says.
Why do some homeowners spend more to expand and upgrade their property than is warranted by neighborhood standards? Davis says the most common explanation is that they anticipate living in the property indefinitely. But life, as we've seen, often turns out differently.
Do you intend to sell a home that has topped out neighborhood standards? If so, these few pointers could prove useful:
•Avoid a "test the market" approach to pricing.
"Folks figure that if they start high, they can always come down later. Yet by the time they've cut to a fair price, their house is so stigmatized they can't even get market value. So they're punished in the end," Davis says
To avoid this outcome, he urges sellers to "bite the bullet from the beginning" with a price that reflects market realities and keeps their property from growing stale in the eyes of prospects.
•Consider seeking the counsel of a professional appraiser.
If your house is the fanciest in the neighborhood, it may be tough to calculate its realistic market value. That's because selling prices are typically based off recent sales involving similar properties in the same community. And your place could be in a class of its own.
To get a grip on value, Davis recommends you hire a professional appraiser. In order to peg the price of an over-improved property, appraisers often visit similar neighborhoods nearby, searching for information on what other over-improved homes have fetched in recent transactions.
•Seek to remove neighborhood eyesores.
Although it wouldn't help all owners of a high-end house in a modest community, Meyer says some sellers can benefit by assisting neighbors to improve a rundown property that's near their place.
Suppose, for example, that the home of your nearby neighbors is badly in need of a paint job or its driveway is filled with decrepit cars. In such cases, that property's shortcomings could be one factor holding down its value, and they should be addressed.
"It sounds like a bizarre solution, but it might make sense to pay your neighbors to fix up their home or to do the work for them. Explain to them how this could be a win-win solution for both of you," Meyer says.
•Highlight features that make your over-improved house a good deal.
As Davis says, many houses that have been upgraded over neighborhood standards feature sizable additions that greatly increase living space.
"Lots of times, the owners have bumped out the back of their place to double the size of both their kitchen and family room. Also, they often expand the master suite, putting in a super bathroom with all the bells and whistles," Davis says.
He says that such enhancements deserve to be highlighted in the marketing materials prepared by your listing agent. Also, assuming your over-improved place is priced realistically, it's wise to point out that your price per square foot is less than that for smaller homes that have sold recently in your neighborhood.
"Good marketing won't make up for an overly high price. But there's no harm in touting the positives. Go ahead and tell buyers about the top-of-the-line appliances in your kitchen, your fancy granite countertops and that gorgeous family room with that zebrawood mantel imported from Africa," Davis says.
Ellen James Martin, a former real estate editor at The Baltimore Sun, gives advice for anyone buying, selling or financing a home.