Hello everyone and Welcome to episode 78 of Selling Greenville your favorite real estate podcast here in the upstate of South Carolina I'm your host as always Stan McCune realtor right here in technically Greer South Carolina as you guys have heard me say before but regardless it's all the same Greenville County South Carolina I'm your host as always and all of my contact information is in the show notes if you need to reach me for anything with regard to the show please make sure that you're subscribed to the show so that you don't miss any episodes I appreciate if you guys can download do whatever your podcast app because we're on a bunch of different apps do whatever your podcast apps requires for you to do that if you're on Apple scroll down leave the show 5 Stars write up a quick little review I appreciate all that and I thank you guys that have already done that today we are going to be talking about smaller homes specifically smaller houses but smaller homes just in general how in a sense smaller homes are a better investment in a lot of different ways than larger homes are now I want to preface this right off the bat okay because there are there there's one very important thing that we need to get out in front of because I myself actually to me the house that I live in is pretty big it's like 3,800 Square ft when you factor in our completely finished basement so I am certainly not against being in larger homes and this is where there has to be some kind of bance in discussion between lifestyle and investment and we've talked about this in other episodes but I just want to bring it up very briefly here at the beginning just to make sure that you don't misunderstand me I'm not saying that you shouldn't buy bigger homes but what I am saying is that smaller homes do tend in the long run to be a better investment now investment isn't the only consideration when you're buying a house for your family I remember reading Warren Buffett talk about how it actually would have been better for him in the long run if he had rented versus buying his house that that he raised his his family in but that he had no regrets that he felt like owning the home that he purchased and that his family his children grew up in that that was a great lifestyle decision that was a decision where they they made memories and and and even if he may have lost money he gains so much more that was much more valuable than money in that decision and sometimes the best lifestyle choices the best lifestyle decisions are not necessarily the best investment decisions and so you need to weigh that if you're looking to move don't just automatically go fully on one side of the spectrwhere you're completely focused on lifestyle you're not thinking about the investment side of things but if you're more future oriented and and a lot of us are investors tend to be more future oriented if you're more future oriented and you're thinking more on the investment side of things don't forget don't defer all of of life's Joy To The Future there are some things in the present to be enjoyed and sometimes if you defer your joy to the Future you never get to actually have it you you end up never getting to see that Joy the only thing that we're guaranteed is today and I'm getting a little bit philosophical here but my point is that my point is that the fact that some homes are better Investments than others doesn't necessarily mean that that's the home that you want to purchase you know what the best investment is right now it's to to purchase a home in a transitional neighborhood that is seeing 20% year- on-year appreciation even prior to co well guess what most people don't want to raise a family in a transitional neighborhood they tend to be higher crime you know they tend to to not have as good of schools there's all sorts of different things that people will will say about these different neighborhoods and that's fine I I can't steer people one way or the other that's just the feedback that I get from people when they are looking at at the different neighborhoods that they're looking at but at the end of the day most people don't choose the best investment for their own home and that's totally fine but I do think it's helpful to consider to look at the data and to consider what the market says and and how all of this works how the different Dynamics work in terms of of how it plays out in the long run from an investment side of things when you purchase a house so on to the episode here that smaller homes in general are a better long-term investment than larger homes are now we're just going to start with some some very I shouldn't say basic things actually the this is probably the more complex things but more in the weeds in terms of of the real estate side of things smaller homes tend to appraise and sell for a higher price per square foot than bigger homes so they tend to both appraise for not a higher price total not a higher price total but a higher price per square foot than bigger homes well why is that well there are there are two reasons for that I want you to think of of a neighborhood just in general picture a neighborhood in your mind and think about what the smallest home in that neighborhood is right the smallest home in any neighborhood has there is a floor basically to what a neighborhood will sell for and that floor is generated for a variety of reasons the Baseline is generated for a variety of reasons but it comes down to location right every neighborhood based on its location and as well of course based on the quality of construction all these different things has a baseline that no home will ever sell below my neighborhood that Baseline right now as I'm recording this is about $200,000 there will never be a home that comes for sale a house that comes for sale barring some kind of weird economic you know recession or something like that but no home in my neighborhood that has three bedrooms and two bathrooms will ever sell below $200,000 that is the floor that is the Baseline and that's simply because this I'm in a part of Greer that's very Central to everything it's close to to 85 it's close to 385 you can easily get to Spartanburg you can easily get to downtown Greenville great great School District Riverside School District you know accessible to everything so and the the construction quality in my neighborhood Pretty good overall homes that aren't that old has a pool in the neighborhood all these different things contribute to the fact that there is a lot of people out there looking for homes that check off all of those boxes so this is where we talk about Supply and demand so the demand for a home in my neighborhood is tremendous and that demand means that really no matter what size so we had something like a 12 or 1300t house in the neighborhood the past year sell for a little bit over $200,000 well that's a very small house for this neighborhood there's not very many houses in my neighborhood that are that small and on the flip side you'll see other homes that are much bigger that might sell for 225 or 230 and so the price per square foot for that 1,200 square foot house is much higher than some of these other homes well think about it from this standpoint right you've got the living room you've got the two be the two bathrooms the three bedrooms the kitchen the dining room that is the stable and and of course whatever backyard that is the stable layout I should also mention a garage almost every house in my neighborhood has a garage but those are are the staple things that people are looking for right so what's the difference between again in my neighborhood the difference between a 1200t house and a 16 or 1700 square foot house there aren't more rooms they're just bigger right the living room is a little bit bigger the kitchen's perhaps a little bit bigger the master bedroom master bathroom is a little bit bigger perhaps the yard is a little bit bigger so that square footage that you add of course not to the yard but the square footage in the house that you add it doesn't fundamentally change what spaces are in the house it just changes how those spaces are laid out and how large they are well someone is going to be willing someone is going to be okay there is someone in the market that's like you know what I don't care I don't need a very big master bedroom I don't need a very big master bathroom I don't need a huge living room I don't need a huge kitchen but I need all these other things that that this neighborhood provides that great School District that accessibility to everything that the fact that it's a newer home doesn't need a bunch of Maintenance those are the things that I need and so that is what ends up driving the price up the price per square foot up for these smaller homes is that ultimately people are not as worried as long as the home checks off the boxes they're not as worried about how large all of these different rooms are and so that's what happens we have a neighborhood the the smallest house in the neighborhood should almost always sell for the highest price per square foot of in in comparison to the other homes in that neighborhood what about appraisals how how do appraisers handle this well it's it's not at all the same in terms of of the logic behind it but it comes to the same outcome appraisers handle the adjustments on smaller homes in a way that really favors the smaller homes now what are adjustments all right when when a appraiser looks at a house they will will take that house and they'll they'll basically have a bunch of categories for that house and and you know all all the different finishes and the condition of it and and the location all these different things they're assessing the house by then and and of course the size is one of them then they have the comps they have at least three comps sometimes more than that that they are comparing that house to all right so you take the subject prop property which is the house that we're looking at that has 12200 ft well there are no comps that are 1200 square ft so we have to use comps that are 1,600 1700 square ft substantially larger than this home how do they handle that they have to adjust and so they will make basically they will take the price that those homes sold for so let's say that those homes sold sold for $250,000 and then they will adjust that price down basically penalizing penalizing them in order to make it an equal playing field they're trying to make these 16,700 foot homes to be comparable to the 1200t homes for the purposes of the appraisal they're trying to make it a Level Playing Field in order to account for the fact that these homes are bigger than the the subject property okay so how do they make that adjustment well here's the weird part right so if we've got a 1,200 foot home that is for sale for $200,000 or under contract for $200,000 the price per square foot of that comes out to what 167 roughly $167 a square foot well how does the appraiser adjust the price for the other comps the other comps are perhaps selling for you know $130 a square foot well you would think the appraiser would just deduct $167 or $130 a square foot per square foot for the comp so in other words we've got a comp that let's just let's actually play this out so we've got for instance A600 or a 1,500 foot house that sold for 250,000 oh actually that's that's exactly 167 all right so we we do need to change this to 1600 all right so we've got a a600t house that sold for $156 a square foot 20, 1600t house that sold for 250,000 that's $156 a square foot you would think Okay so we've got a 1200t house we have a 1,600 squ foot house we need to level the playing field we know that the, 1600t house sold for the for $250,000 we need to penalize that house in order to make it comparable to the 1200t house how should we do that well the logical thing would be to take, 1600 minus 12200 that's the difference in size between the two homes $400 sorry 400 square fet and now just multiply that times 156 so if we do that whoops times 156 it'd be good if I could type that would be really really ideal all right here we go that that brings us to 62,400 and and so the logical thing to do would be to deduct 62,000 62,400 from the $250,000 to make that comp comparable to the 1200 foot house so that would take us you know actually in into the 180s at that point that to me is reasonable but that's not how they do it they actually adjust it's it's arbitrary but they adjust by you know 30 40 50 $60 a square foot and it's just kind of depends on the appraiser and it kind of depends on their mood and it kind of depends on a few other things as well so they they I think I most frequently see adjustments by like $40 a square foot so they adjust by $40 a square foot well well that takes us to $116,000 right because again the difference between these two houses is 400 ft so if you say that that 400 ft is only worth $40 a square foot you're saying that that the 400 ft is worth a total of $166,000 right so what that means then is that that comp that was $250,000 we just adjusted it and now it's $234,000 you see just happened now this 1200t house we're actually looking at it and saying oh actually this 1200t house is actually worth potentially in the 230s well that that math doesn't make sense probably the market doesn't agree with that either but that's the way appraisers do it well let's take it on the flip side of of things and I know this is a little bit hard to explain on the podcast so I hope you guys are are following me but let's say you've got the largest home in the neighborhood so let's say you've got a well in my case a 3,800 squ foot home and there aren't very many other 3,800 ft homes in the neighborhood now you've got the reverse problem right you've got the appraiser now he's pulling comps at are 3,00 3100 3200 square feet and so he looks at that to level the playing field or she looks said it to level the playing field he now has to subtract or he now has to add square footage to those homes and and basically make an adjustment to those homes in order to to make it fair and so let's say that one comp is 700 Square ft smaller than the subject property and he is or she is only giving $40 a square foot for that extra square footage that comes out to $228,000 let me ask you something how many people do you know that are looking for a 3,800 ft house versus and and wouldn't even consider a 31t house 3100t house how many of those people do you think only value that 700 squ ft as $28,000 none of them do like that 700 Square ft makes a big difference when you're talking about you know going from you're going from one tier like 3,000 foot homes to nearly 4,000 foot homes that's an entire tier jump at that point you're talking about homes that oftentimes have a an entire additional bedroom and bathroom versus the other homes but and appraisers are supposed to adjust at least for the extra bathrooms but they are basically penalizing the larger homes by how they do this and of course I complain about appraisers all the time on this podcast because they are the bane of of Realtors everywhere but this is the part of it where regardless of whether appraisers are doing their job or not I do not understand how they come up with this math and I don't know if this is universal across the us or what I just know that that's how they do it here you if you're a owner of a smaller home or if you're purchasing a smaller home the odds that your appraisal will come in at the price that it should be is dramatically greater than if you're in a large home for your neighborhood that is just the way it works I hope that all made so both to sellers sellers are willing to pay a higher price per square foot and appraisers are willing to appraise at a higher price per square foot for smaller homes now we spent a lot of time talking about really that that first point that was kind of two points the rest of these though we're not going to spend a whole lot of time on because that was kind of the the the the bulk of of this that you probably have never fully thought about or or maybe you have but some some one in the audience I'm confident has never fully thought all of that through but there are other lesser important but but I should say simpler to explain but equally important things to consider smaller homes for instance have cheaper homeowners insurance by and large by and large the insurance company when they look at it they see the size of the home they are typically going to offer a lower premifor that smaller home for a larger home so your your ongoing costs are cheaper as well in that regard additionally to a certain extent property taxes are also going to be lowered now let me hedge that for a second that typically in at least in Greenville County Spartanburg County as well and and the surrounding counties really a South Carolina by and large type of thing typically when you make a home purchase the county will will immediately within the next year reassess the value of your home and and coincidentally their reassessment will come in pretty close to what you purchased the home for so you're not necessarily going to get a property tax savings by having the smaller home right away but where I think it could end up benefiting you is down the road down the road as they do there every five year or however often that they decide to do it because there is a little bit of an arbitrary aspect to it but as the county reassesses just independently as they're looking at your home and they're looking at what you purchased it for they're looking at the square footage they are less likely to reassess you at a higher price as they take all of that into account so you will probably end up paying less money for property taxes as well well due to the fact that it is a smaller home another very very big thing to consider and house flippers know this very well is of course there are fewer costs associated with updating the house when it's a smaller house it's a small house it's got a small kitchen that's less Granite fewer cabinets less Hardwoods that you need to replace less carpet that you need to replace everything is less it's less home that you have to paint less roof that you have to replace all of these costs you know it's a cheaper AC unit all of these different things are are cheaper with a smaller house than with a larger house and so you're when you have to make repairs do Renovations whatever that ends up being cheaper with a smaller home than than a bigger home this is perhaps not the biggest thing MoneyWise but TimeWise and we all know that time is money TimeWise and MoneyWise as well it is a lot less home to clean you're spending less time cleaning you're spending less money on cleaning supplies so you don't I mean trust me go from a I went from an 1800 foot house to a 3,800 ft house it's a lot harder to keep up with cleaning in a 30 800t house that that is just the reality of it it's just more home to clean there's always something to do always something that needs to be done same thing with the renovations there's always Renovations that we can be doing I mean we could constantly be working on projects in this house if we really wanted to and and so that is something that is is worth considering as well just the the fewer costs and the significantly less time spent cleaning when you have a smaller home versus a larger home and this is a little bit Downstream but you know as I was thinking through what are what are the different you know advantages of a smaller home you have obviously Less storage in a smaller home than you do in a larger home and when you have less storage that means you have to have a lot more self-control in terms of what you own terms of the possessions that you have you can't can't just go out on a shopping spree and buy you know $1,000 worth of clothes where are those clothes going to go you don't have as much house to decorate you don't have as many walls to hang things on so there are in addition to Simply the raw things related to the house updating the house cleaning the house and all of that you kind of have fewer costs in in theory in terms of other things that you buy as well because you don't have as many places to put those things right now of course here's what often times happens people that have smaller H smaller houses they end up never parking their car in the garage because then their garage ends up becoming a basically a giant closet and I'm sorry I'm sorry if if that's you I went for a long time without having a garage I have one now I like it I like being to park my car in the garage and I and I highly recommend it but I get it if you're in a smaller house maybe that's that is the sacrifice you can't make you have to have there's a certain level of worldly Goods that you must have in your possession and the house can't fit them all but the house plus the garage can sorry car you got to be out there and hope that a hail storm doesn't come along and ding you up but that is potentially I say potentially potentially a way that someone might save money in a smaller house is that they have to be have a lot more self-control in terms of what they buy and and what they have because of storage concerns and I have heard this from from people before I do know people that literally they back off on a hobby that takes up a lot of space because they are out of space to support that hobby and so that's that's a very real thing again to bring it all back in it's not wrong to buy a big house and it's not irresponsible to buy a big house you have to look at your lifestyle and determine what lifestyle do you want what lifestyle do you want for your family what makes the most sense for you and your season of life it may mean buying the biggest home in the neighborhood it may mean buying the smallest home in the neighborhood but in terms of the investment longterm buying the smallest home in the neighborhood does pay off long-term in ways that buying the bigger homes do not that is just the reality of the situation and that is the reality of this podcast and the end of this podcast and I appreciate you guys listening please subscribe to the show if you haven't already please leave a rating or or a review if you haven't already and all of my wonderful contact information is in the show notes if you need to buy a house if you need to talk real estate if you need anything real estate related let me know I'm happy to help you happy to chat hope you guys have a great rest of the week if you're in the Northeast I hope that you don't have a hurricane about to hit you CU we had that tropical storm that came up here dumped a bunch of rain on us had some weird weather had a lot of tornadoes but thankfully we were all safe I hope that for all you guys in the Northeast that are listening and for all you guys down here that are listening hopefully we'll have just some nice weather as we transition into the fall here in the next few months but thank you guys for listening stay safe have a great rest of the week [Music]