Wikipedia indicates “Yin and yang can be thought of as complementary (rather than opposing) forces that interact to form a dynamic system in which the whole is greater than the assembled parts. According to this philosophy, everything has both yin and yang aspects (for instance, shadow cannot exist without light)”. Oddly but predictably I was prompted to think about the psychology that morphs in the minds of all participants in a Real Estate transaction.
Like light and shadow the market for old and new homes metaphorically exists in complement with one another not in opposition, competition or in a vacuum independent of each other. Absent the choice the typical buyer and seller would not have the opportunity to analyze the pros and cons of the other. In the void, certain imbalances and inevitable excesses would dominate and likely disadvantage one or more participants. The ability to compare the costs of renovating vs. new construction is integral in valuing both options (Yin and Yang). In our Ponte Vedra Beach, Florida market area new home prices are throttled by the availability of the alternative and used home prices are in turn influenced by the proliferation of new homes. When one option exceeds acceptable affordability thresholds the other presents as a clearer choice.
Sometimes referred to as the acid test, replacement cost is one reliable measure of the lowest likely price a willing buyer and willing seller would be agreeable too. This of course is a generality without regard to an exhaustive debate. That being said a buyer entertaining an older home in need of upgrades would be more motivated by a purchase price that allows for the necessary improvements (accounts for the tangible and intangible value of buying new) and in the aggregate reflects fair market value. This is especially true if the home is located within a market of predominately higher valued homes, areas with limited availability of developable vacant land and historically stable or increasing property values and that may also enjoy good proximity to a highly desirable amenity. So it is this relationship between the aggregate and the option to buy new that affects the marketability and price of both.
By another observation a new home in a more desirable area, as defined above, can sometimes present as an over-improvement (super-adequacy) and still be considered a calculable value. As well, a renovated home whose costs exceed fair market value may also satisfy the value equation for a particular user. Either way the relationship and economics between old and new still exists.
The current local market conditions in St. Johns County, Florida are particularly sensitive and influenced by and its participants are keenly focused on the science of these relationships. New homes have the edge at present largely due to adequate availability and much greater land banked developable parcels. Existing older home owners are feeling empowered pressuring the upper end of their value ranges. Additionally a critical lack of tradesmen available to developers is even more pronounced in the renovation/home improvement side of the equation further pressuring the older home option. However the inevitable and persistent price increases by developers (largely in response to Wall Streets quarterly myopics) on new homes will tend to once again tip the scale and shed “light” on the alternatives.
Every plan large or small should recognize the value proposition outlined herein as to ignore it is to dismiss
the role it has influencing almost every Real Estate transaction. After all “money goes where it is treated best”.