Rule that could kill housing market

If you know anything about real estate, you know that location matters most.

A house in a nice neighborhood is worth more than the exact same house in a sketchy area. A good school district adds value, while struggling districts detract. A house on a quiet street is worth more than one on a busy thoroughfare.

But there are other factors that can significantly affect the value of your home that aren't so obvious. Such as:

Your house sticks out like a sore thumb. If your house is dramatically different in style or scale from its neighbors, its value could suffer.

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A contemporary-style house in a neighborhood full of colonials, for example, may not get the same value as it would if it were in a neighborhood of similarly modern homes, said Don Boucher, a senior residential appraiser in Washington, D.C.

Likewise, if your home is 3,500 square feet and neighboring homes are typically 2,000 square feet, you also won't get full value, Boucher said.

Liz Weston
"People who want a 3,500-square-foot house are generally looking in other neighborhoods," Boucher said. "People tend to congregate in homogenous groups . . . they want to be in a neighborhood with bigger homes."

This can come as a shock to someone who poured a small fortune into adding rooms or upgrading the kitchen and bathrooms far beyond the general level of the neighborhood. If you add too much square footage or "over-improve" your home, compared with your neighbors' houses, "you're not going to get your money back," Boucher said.

That's not to say your outsize or fancy home won't be appraised for more than your neighbors' houses. But you'll likely get less per square foot than comparable homes receive. When it comes to real estate, bigger isn't always better.

"It's OK to have one of the smaller homes in the neighborhood," Boucher said.

If your decorating taste veers far from the mainstream, you also could wind up with a white elephant. Painting the house bright orange or lining the driveway with David statues isn't going to help get you top dollar when it's time to sell.

You're missing a bedroom, or a family room. Here's another area where conformity pays off. It's perfectly fine to have two bedrooms, or even just one, in a hip urban neighborhood that caters to singles and childless couples.

But if your neighbors all have four bedrooms, your house should, too. If you own one of the few houses in the neighborhood that has only two or three, Boucher said, your home value might get punished for that.

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Likewise, if family rooms or "great rooms" are the norm and your house doesn't have one, your appraisal could take a hit.

That doesn't necessarily mean you should spend the money to tack on a room. Most home improvements are money losers, returning less than you invest even if you sell right away. If your plan is to move within a few years, skip the remodeling, and let the next homeowner decide whether to add.

But if you're thinking of expanding your house anyway for your own enjoyment, bringing it up to the norm for the neighborhood can get you a better return when you do decide to sell.

Your house is a mash-up. Homes that are consistent in style and finish are typically worth more than those that are a hash of different influences, Boucher said. A real value killer: remodels that either don't get finished or that update only part of an area, said Daniel Fries, a senior residential appraiser in Cumming, Ga.

What is the first step in buying a home?

"If you say, 'Oh, my white appliances are fine, but I will get a stainless dishwasher,' (that's) not good" for your home's value, Fries said. "If you do renovate, do not get new counters, and keep the white appliances. (You) don't have to go nuts, but it's best to do enough so the appraiser can say 'new kitchen' or 'updated kitchen' and hope for that kitchen adjustment that could be as much as 10%, depending on how nice (the result)."

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Boucher recently appraised the home of a house painter who dragged home items that other people discarded in their remodels -- a corner cabinet here, an antique door there.

Some of the finds were "nice," Boucher said, but the overall impression was "a mismatch . . . the appeal of the house has to be consistent."

Your home isn't aging well. Hollywood isn't alone in being obsessed with youth. Young houses command the highest values, too. But you can boost the value of an older house by keeping up appearances.

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Appraisers have a rating system that takes in both age and maintenance, Fries said.

"C1 is new, C2 almost new or any age if recently renovated, C3 well maintained with no deferred maintenance, C4 adequately maintained with some minimal repairs, C5 livable but needs help, C6 severe defects," Fries said. "So if you (have) a 15-year-old home, you want to get a C3 rating, (because) a C4 could cost you a big adjustment. . . . A well-maintained home can often bring as much as 10% more than Miss Piggy's house around the corner."

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And speaking of Miss Piggy, she can cause your home value to drop if she lives too close. Read on.

Your neighbor is a problem. As I wrote in "Neighbors hurt your home's value?," neighbors who are slobs can lower your appraisal by 5% to 10%. If the mess is bad enough, you might not be able to sell your house at all.

Also problematic: registered sex offenders. Those offenders living within one-tenth of a mile (about a block) can reduce home values by 9%, according to researchers at Longwood University in Farmville, Va.

Neighbors don't have to be human to hurt your home's value. A cemetery, funeral home or school can reduce your price, as can a landfill or power plant. A University of California at Berkeley study (.pdf file) showed homes within two miles of a power plant had values that were 4% to 7% lower than comparable homes farther away. Subdivisions near dumps lost 6% to 10% of their value, according to another study (.pdf file), from the Pima County, Ariz., assessor's office.

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Your homeowners association is too strict -- or not strict enough. HOAs are supposed to enforce the CCRs -- codes, covenants and restrictions -- that guide how the neighborhood looks. HOAs that are too lax let the slobs run down everyone's home values. But HOAs that take their jobs too seriously can make everyone miserable -- and chase away buyers.

"A homeowners association that has a psycho code enforcement -- to the point people are suing each other over covenants -- can hurt your values as much as letting Elvis paint the house orange," Fries said. "However, a slacker at the HOA can hurt if everyone has too much Elvis going on or lets the yard art get out of hand. Most people like covenants, but not to the point you have to get your flowers approved."

Your tax assessor is wrong. If you bought your home during the boom years, your previous appraiser may well have relied on the description of your home contained in county tax records. Lending standards were so loose and the volume of sales so high then that many houses sold with not much more than a drive-by appraisal.

Now that lending standards are stricter, appraisers are doing things like actually measuring a house's square footage -- and sometimes finding it comes up short.

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Until two years ago, one of my readers thought he had a five-bedroom house. When he refinanced the mortgage in 2009, however, an inspection revealed that he actually had a four-bedroom, since the room in the basement isn't a legal bedroom by county ordinance (it doesn't have a door or window that leads outside). Oh, and the house is 400 square feet smaller than what was recorded at the assessor's office.

"It turns out that back in the heyday of the housing market when I bought my house -- August of 2004 -- neither the inspector hired by the seller or my own noticed that the square footage in the house was recorded improperly," the reader told me. "The fact that (the county) refunded some of my property taxes going back three years was little comfort."

Occasionally the news is even worse -- if, say, the home itself isn't where it's supposed to be.

"I am working on a case (where) the survey was wrong, and the (property) line goes through the existing home," Fries said. "Talk about a mess to straighten up."

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Click here to find Weston's most recent articles and blog posts. Personal Loan Mumbai

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