New Construction in Development . . . Affect on Property Values?

[LintonCrestROAR]

Hi, sorry if this is long. I want to give enough background to get informed answers.

I'm in a subdivision in Virginia originally started by a developer (currently under Chapter 11 & restructuring). Homes originally built in the community (all within the past 3 years) were all 4+ bedrooms, over 2200 sq. ft. above grade (the wide majority between 2500 & 3200 + finished basements), very well appointed with nice exterior elevations - stone, brick, columns, decorative trims. It was marketed as a "Luxury Community"

The original developer has sold a number of lots to another builder that is building much smaller 3+ bedroom houses (1660 - 1944 sq. ft.) with few upgrades, unfinished basements and exteriors that are not comparable to what's already in the neighborhood - very plain. They don't even put drywall over the framing in the garages - which are two car with a single door, existing homes are two car with two doors - a very obvious visual difference. They look terrible and don't even sit as high as existing homes.

They put a 1800 sq. ft. house next door to a home that's over 3800 sq. ft. The new house total square footage is less than the main level of existing home so it's very obvious that the homes are not comparable. It's not as if the smaller houses are in a separate section of the subdivision, they're mixed right in among existing homes.

Existing homeowners are terrified that these houses are going to have a huge negative impact on our property values because the neighborhood just looks awful now. We've all taken six-figure losses in our homes due to the declining market and worry we won't recover as much when the market improves because our neighborhood will be less attractive to potential buyers.

Questions:

1. Are we justified in our concerns? Does the "look" of a community affect the values of our homes?

2. Would the addition of community amenities (pool, recreation spaces, tot lots, etc) help improve the values of our homes now that these eyesores have gone up?

Residents are very angry and currently organized to try to stop the construction of any more of these houses and considering pressing the developer to add community features. We're ready to take legal action and wonder if having appraisers come in would help our case.

Thanks in advance I look forward to all advice and opinions.

 

[AJL118]

Way too early for an appraiser. You don't have any idea of any legal recourse you have (if any), and you are going to have to engage legal counsel to do that. I would guess that once the discovery phase is complete you have no recourse. Sorry, but these things happen when a market tanks and you are sitting in the middle of a subdivision that isn't built out. Been there and done that. Also ended up handing my house keys to the bank.

Other opinions on the Forum may differ.

 

[LintonCrestROAR]

Way too early for an appraiser. You don't have any idea of any legal recourse you have (if any), and you are going to have to engage legal counsel to do that. I would guess that once the discovery phase is complete you have no recourse. Sorry, but these things happen when a market tanks and you are sitting in the middle of a subdivision that isn't built out. Been there and done that. Also ended up handing my house keys to the bank.

Other opinions on the Forum may differ.

Thanks for the time to respond. We already have an attorney working on things because we do not believe the new houses comply with the HOA covenants and the contract with the developer supposedly said comparable homes would be built.

We're not looking at a situation where the subdivision "isn't built out." We'd rather have empty lots for another year or two than the eyesores this other builder is putting up. We're certainly not handing our keys over to the bank because of this.

Could you (or anyone else) add more to my questions I posed -

1. Generally speaking, does having lesser (for lack of a better phrase) homes next to larger, upgraded ones affect the overall value of a community?

2. Do amenities in a subdivision increase the property's value (perhaps to compensate for the eyesore houses)?

Thanks to all for reading - I'd love to hear more opinions

 

[George Hatch]

It's pretty likely that the value and marketability of the larger homes in this mixed neighborhood will be negatively affected when compared to homes that are located in a more homogeneous neighborhood. This effect will be more pronounced during a down market because the buyers are in the drivers seat and can afford to be picky.

Buy that (probably) has nothing to do with your developer. I say probably because your developer probably didn't offer you any promises to the buyers in the first phases about building out the subsequent phases with homes of equal or better quality/appeal. Absent such assertions, you guys merely assumed that the remainder of the subdivision would get built out that way. If that's what is going on then it is apparent that your assumptions were incorrect.

If I owned two lots and developed one with a 3800 sf home I wouldn't anticipate the buyer of the larger home would have the right to assume that I had a responsibility to them to build the same sized home next door.

 

[GA Benny]

It's pretty likely that the value and marketability of the larger homes in this mixed neighborhood will be negatively affected when compared to homes that are located in a more homogeneous neighborhood. This effect will be more pronounced during a down market because the buyers are in the drivers seat and can afford to be picky.

I agree. If a potential buyer has the option of your house or an adequate substitute in a nearby subdivision that was completely built out with simiar quality homes, it is likely that they will choose the latter. You will probably first experience extended marketing times until you can offer additional discounts to make the neighborhood more appealing to buyers. The addition of recreational amenities may help but if the competing subdivision also has them then you are still at square one.

The problem with getting an appraiser involved at this point is that the amount of discount on sales prices will be difficult to prove until several homes have sold. Even with appraisals, evidentiary support is necessary, especially if the appraiser will be called to testify. This is of course unless it is becaoming a common occurance in your area.

 

[timd354]

I would suggest looking at the covenants for the neighborhood. Most large new neighborhoods in the Mid-Atlantic have covenants that require houses to have a minimum square footage and certain amenities (typically suc as a 2 car garage). If the newer homes meet the requirements of any such covenants, you may be out of luck. Even if the developer made some promises about the nature of future construction, seeing how the developer is already bankrupt and in chapter 11, there is little chance of any recourse against the developer. Your attorney would have to make the determination of your chances of gaining anything through a lawsuit.

To answer your specific question it is impossible for me to say for sure since I don't know the neighborhood, etc. However, I would not at all be surprised if this situation had a negative influence on property values in your neighborhood.

 

[Mike Kennedy]

1. Caveat Emptor

2. Owner/Poster - Sell Now

 

[AJL118]

At the risk of being accused of lawyering (which I am not qualified to do nor that knowledgable), as I understand it, when a company filed for Chapter 11 reorg and it is accepted by the courts, that's exactly what the judge is going to allow them to do. Reorganize. That includes cramdowns of debt, abrogation of obligations under contractual agreements and so forth. The court is allowing the company to try to save itself. In your case, it could be (although we don't know) that the judge allowed the modification of the covenants and minimum standards of your subdivision in order that the builder could unload its lot inventory to another builder. And the only way that new builder could make the numbers work was to reduce the square footage and cheapen the product. Why? Because the large homes like yours weren't selling and likely the reason that the original builder went in the tank in the first place. I don't envy you at all. As I said in my original post, I have been there and done that. Unless you can find legal counsel to take the case on a contingency basis, I certainly wouldn't engage an attorney to play Don Quixote jousting at windmills. It will get very expensive, and if I recall correctly, Quixote never won. I'm sure someone will tell me I don't know what I'm talking about, but it won't be the first time.

 

[Ken B]

As a qualifier, I appraised residential properties in the Fredericksburg area of VA for over 15 years.

What you have decribed regarding the development cycle of your subdivision is a pattern I observed in nearly every developing subdivision I have known.

Your Covenants and Restrictions should be recorded and they are a legal document. They should have a section which establishes minimum property standards regarding what can and cannot be built in the subdivision. Unless the covenants permit otherwise, no one can construct a smaller residence than that allowed.

Having said that, it is extraordinarily common that the "big homes" are constructed first and, after a certain point is reached, the smaller properties go in. The reasoning for this is expressed in your post. Those who would buy the larger and better quality property would be less likely to do so if those properties are located in a subdivision having smaller properties. However, the purchaser of the smaller property has no problems at all buying in a subdivision of larger properties.

All long as the smaller properties meet the requirements set forth in the Covenants, you will have little recourse.

 

[LintonCrestROAR]

THANK YOU to everyone who has taken the time to express your opinions & advice here for me. I truly appreciate the time you put into your replies.

It is so heartbreaking to have bought into a community with dreams that are now not turning out the way we planned. My husband is due to retire from the Navy in a few years. When we built last year, we thought this would be a great community to settle down in. Now, I would never build a home in this neighborhood. Many others share the same feelings.

Neither the original developer (who still holds a great deal of land in the development) or the new one seems to care what they have done to us. The frustrating thing is that the new developer has two brands of homes - the "starter" & the "luxury." They first came in and marked many of the lots under the luxury which were beautiful. Now they're changing many lots to their starter brand.

I've created a neighborhood organization (my screen name). So far we're almost 50 families strong in three weeks. This is out of 164 completed homes - 275 is the total development when complete. We'll be canvassing the rest of the subdivision in the next few days to drum up additional support. We're going to be protesting outside their sales offices and have signs in our yards. We hope that we can start affecting their potential sales in the to the point they'll have to listen to us. At least we can look back at all this and say we did "something."

We're going over our HOA & covenant docs with fine tooth combs and also putting together proposals to get a community center & pool built. We hope with a show of majority support to increased HOA dues for maintenance that we'll have more leverage.

Many of your replies give me a better feeling that we're not overreacting about what the "look" of the community is going to do to our resales. Two nearby subdivisions are beautifully developed (with community amenities) and just look so much more appealing than the mess we're in now Given two homes of the same price, I'd buy in one of them over this subdivision any day - Darn that 20/20 hindsight LOL!

Thanks again!

Erica
Linton Crest ROAR (Residents Organized Against {builder})