When sellers consider their home’s value, they often look at their own home and yard. After all, that is what the buyer is buying.
But buyers and lenders will also look beyond the seller’s property line. The familiar adage of “location, location, location,” can make a nice home less valuable or a not-so-nice home more desirable. In extreme cases, a home’s location can affect the buyer’s ability to obtain a loan at competitive rates – or obtain a loan at all.
“Lenders have criteria for which their investors are willing to lend money,” explains mortgage broker Rod Deily. “If the investors’ criteria is not met, the loan will be turned down.”
Deily says he has had some lenders with guidelines that steered clear of loans on some Oakland homes because of the city’s predatory lending laws. Other lenders might have restrictions about homes near larger apartment complexes, strip shopping centers, or businesses, particularly if the homes share a lot line or common wall.
Often, however, the specific reason a loan was turned down may not be clearly stated by the lender. “They may never come out and say the reason per se, although it’s often understood why the loan was rejected,” Deily says. “They’ll say, ‘It doesn’t quite fit the funding parameters.'” So buyers and sellers can usually guess the reason, but often aren’t provided actual confirmation that a particular feature of the home’s surroundings was a key factor.
But lenders aren’t the only ones who view surrounding fixtures with a critical eye. “People do make judgments,” says real estate agent Aparna Verma. And such a critical eye isn’t necessarily discouraged either. Verma explains that lenders are, and buyers should be, thinking of the next person to purchase the home. “We always tell the buyers, ‘Think of the buyer who’s going to buy it from you,'” she explains.
In other words, homes near a freeway, for example, will be tougher to sell in the future, as the number of buyers willing to live near a freeway is usually much smaller than for a home not near a freeway.
As a result, homes with less-than-desirable amenities around them might be tougher to sell. Nor does it always have to be something clearly detrimental. “Many people don’t want to be near apartment buildings,” she says.
Verma relates a story of a buyer who turned away from a home for that very reason. “He was looking at a home in a nice, newer neighborhood, and the apartment complex was in very good condition, but the buyer still turned away from the home.”
She has seen similar reactions when a home is near a highway or railroad tracks as well.
A home for sale with one or more homes nearby in poor condition can also make a home sale difficult. “If you have one home in shoddy condition, that deters many people,” Verma notes. “It can bring down the value of the street.”
Conversely, Verma says that buyers may want to look closely at poorly maintained houses in otherwise pristine neighborhoods. Not only will the home increase in value, but buyers are likely to have good relationships with their new neighbors. “I had one client buy a fixer-upper on a street where all the other homes were very nice. If you do that, your neighbors are going to thank you,” she explains, since their property values are likely to increase once the eyesore is renovated.
While some buyers may not be deterred by any of these factors, Verma says that the overall numbers show trends. “It’s a personal choice, but if you’re looking at numbers, I’d say, for example, a higher number of people prefer to be away from larger apartment complexes.”
But if you are a seller who has such a home, or a buyer desperately hoping to purchase the home, the situation isn’t impossible. “That’s one of the benefits of having a mortgage broker, since you’re working with someone who has access to many different lenders,” Deily notes, adding that a mortgage broker can steer a client towards lending institutions that will be less likely to penalize them for the type of home they are hoping to buy.
Even in particularly difficult cases, Deily says that a proactive stance can help buyers obtain a loan on a home with a less than desirable location. “If you really want the house, and there are issues at hand, it would not be unreasonable for me to request that the buyers spend $350 or $375 and get an appraisal.”
Deily says by doing so, it helps show lenders why the property is valuable, and likely to be resold in the future. “Instead of shopping for loans and being turned down, an appraisal allows us to find out all the aspects of the property,” he notes.
Deily also advises that a dose of reality is also part of the equation. “You can’t always have homes surrounded by residential neighborhoods and nothing more,” he concludes.