Try to find out which way the neighbourhood's being going... up or down? If the latter, you could end up with a white elephant in future.

Are you looking for a home, or looking for an investment?

For investing, it would be foolish to buy anywhere near the top of a neighborhood's appraisals.

If you're looking for a home, then who cares whether you buy the most expensive or least expensive house on the block, as long as it's what you want, what you can comfortably afford, and can appraise out (meaning fairly priced).

We are looking for a home, not investment property. Would plan to live here a looooong time, barring any major unforseen circumstances. The home we like and the one across the street are the highest.

LOCATION is the most important thing. Is the whole neighborhood stable, well-located within a well-run municipality with good services and good schools?

Tell us a bit more about the neighborhood and town. How greatly do these two houses differ from the others in the neighborhood? WHY are they *assessed* higher? (Are the assessments accurate or mistakes that have not been appealed?)

Do you DIS-like the neighboring homes? Is this a 'development' or an established neighborhood?

Why not look in a "nicer' nieghborhood, and buy in the lower range there? You get the same features as the most expensive home in the other nieghborhood, and you have most of the other houses "pulling" yours up, as opposed to buying the nicest home and having most of the others "pulling" the value of yours down.

The general "rule of thumb" is to be the least expensive home in the best neighborhood you can afford.

I'm not sure how stable the values of the homes in this neighborhood have been, but the neighborhood is established and "insulated" as far as I don't think there is a danger in this neighborhood turning "bad". It is a an older neighborhood (homes built in the 40's and 50's) near downtown in a mid-sized midwestern city. It's sort of a transitional neighborhood in the sense that there are a lot of older folks who have been there for years, as well as a lot of new families that are moving in and fixing up homes. Not that the homes are in significant dis-repair; people are just updating kitchens and baths, that sort of thing. The major difference between this home and the others around it is that is has already been added onto and remodeled, thus making it a bit larger than some of the other homes in the 'hood. It also has some updates such as a newer kitchen and a master suite, which again, many of the homes around here don't.

The problem with a "nicer" neighborhood of similar age (we love old homes) and location (near downtown) is that we simply can't afford the homes that are in a condition that we are comfortable with. If there are homes that we can afford in these areas, they need too much work.

In general terms, our economy (incl housing market and job market) tend to do better than average. There is a lot of development in the nearby commercial area....a nice remodeled urban shopping area, improvements to roads and pedestrian/bike access, etc.

Remodels can be quite costly. You say these houses have already been remodeled. I assume from your comments that though they are the highest, they may not be all that much higher.

Moreover, as others are modernized over the years, their resale prices will go up considerably too. Is yours the first to be modernized and therefore the top price? If so, buy the one you want. Or were these houses already the pricest in the neighborhood and then remodeled?

Since you plan to live there a loooong time, other homes will change hands in the interim and experience upgrading too, thus changing the picture when you finally sell your house, which will be outdated by then. Ahhh, me!

OK, thanks for the background information. The house you like is not 'a crown among thorns'. It's just been fixed up more than its neighbors.

So...you will pay more for the already-improved property. I don't see a problem with that if it difference isn't huge. How WELL has it been added on to and remodeled? Would you be ahead to buy and remodel a neighboring home?

We own one of the smaller homes in our neighborhood. We bought a 1950's ranch on a nice lot in a nice neighborhood of mostly larger homes and did a teardown. We are 'money ahead' of what we would have had if we'd just remodeled. The good existing neighborhood plus other teardowns after ours have increased the value of our property. There are now only three other old ranches in the area -- future teardowns.

OTOH, our DS and DIL bought an old house in an established Chicago neighborhood about the same time we moved. The prior owner had done some remodeling. It wasn't THE nicest house on the block when they bought ten years ago, but it's starting to look better and better as the others *deteriorate*. The neighborhood has gone downhill as older people sold to immigrants who have different values. The nice park at the end of the street isn't as pleasant and safe. The local school is trying to cope with children who speak ten other languages at home. DS remodeled their kitchen and replaced pipes and electrical, but they have decided NOT to 'improve' further; the area no longer warrants it.

I'm trying to illustrate how "Things (can) Change."

If you want to live there for decades, this doesn't really matter.

However, buying a house that is early in the improvement trend isn't a bad thing. As the neighborhood comes up, it will lift all property values.

What you want to avoid is buying a property that is over-improved for the neighborhood. eg. someone put on an addition that matched the size on one of the unimproved homes OR someone who put million dollar finishes in a 100,000 house.

Thank you all so much for the responses, you have given me a lot to think about!

madtown, what you describe is fairly common in those type of neighborhoods.

I live in Cleveland very near downtown and the same type of neighborhood. There are houses on my street that are worth 5,000 and rready to tear down by the city (not many, just a few). The house next to me is an old victorian that sold for 200k a few years ago. Our house is near the upper end of the street but not the highest.

This situation you are facing is very common in older, gentrifying, urban neighborhoods.

People looking in those neighborhoods are often prepared to pay a premium for older houses that are renovated/fixed up tastefully and correctly.

The dynamics are totally different than in a more suburban neighborhood or a development. At least in my neighborhood, it was declining for years but in the last 20 years or so has been on an upswing, so there is no immediate or medium-term problem with buying a more expensive house.

There are a few streets around here with houses that go for 300k, new builds that go for 175-400k, and then like I said, the crap houses that the city will tear down.

Go for it if you love the house and it's in the right neighborhood. We had a really tough time finding a house in this neighborhood that was fixed up (not in poor shape) and to our liking - it's tough in these neighborhoods.

Good luck!

I'll also add that we were fortunate enough to have an excellent realtor who worked for a company that specialized in urban real estate.

She was very honest with us. She basically said don't expect your home value to rise for at LEAST 5 years due to the economy and the dynamics of the neighborhood. And she made sure we were aware that living here would entail more irritations from sometimes annoying or occasionally downright criminal neighbors and/or frequent renters in other houses.

We have been pleasantly surprised, though, and we are fairly tolerant people. I suppose we are "Urban Pioneers". We are part of making this neighborhood good again. Our realtor made sure that we were under no illusions, though.

But she also was able to educate us to how much this neighborhood and area had to offer and the many positives that would come from living here.

Perfect example: There was a kind of creepy old man across the street that was always sitting on his porch watching us every time we looked at the house. I hated it!!! And was creeped out. I wasn't used to seeing anyone on porches or outside really.

One day I let her know how much it creeped me out, and she said, "At least someone's out there watching out for the neighborhood all day!". And I was like, oh, you're right!

Hopefuly you have an equally knowledgable and able realtor!

Assessed for tax purposes?

These usually track sales prices but are not the same as an appraised value for getting a loan.

The tax assessor just wants money, the appraiser is trying to evaluate market value (willing buyer, willing seller, etc.).

The values rarely exactly coincide.

I've just made a connection: "MADtown". Are you in a college town? That can mean you have a more stable market.

Brickeye's comment set me thinking. Right now sellers cannot expect to get the same return on their remodeling as they did during the boom. If you are making an offer, I'd peg it more towards the median of recent sales in the neighborhood. The seller has enjoyed his remodel, and perhaps it will help sell the house, but he can't expect to recoup more than 50-60% of his remodeling costs. (You'll continue to pay higher RE taxes for the larger space of course.)