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Buying in at negative equity…
One of the things that a buyer has to watch out for, especially with new build houses, is whether or not they are buying in at too great of a negative equity position. Builders always seem to price a little higher than the sold price averages of existing homes in the current market would dictate. Some of that is attributable to the “new factor”. Everything is new, so there should be little in the way of maintenance or update costs for several years. That certainly justifies a premium of some sort; but, it is that premium that is contributing to the negative equity of the property.
Equity may be defined as the net value of the house as an asset – it’s sales value less the cost to payoff whatever the remaining mortgage balance is at the time, i.e. what you put in your pocket after the sale is closed. Prior to the recession there had been a commonly accepted notion that equity in homes always went up; sometimes slowly and sometimes rapidly, but always in the same positive direction. If the quick run-up during the housing balloon period that led to the Great Recession is taken out, the historic appreciation curve ... more
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