Buyers should also assess the neighborhood. Desirable streets and coveted blocks of similar-size and maintained homes will enhance value. However, investors should avoid a relatively new urban phenomenon: the “McMansion” in aging neighborhoods. As interest rates plummeted in recent years, developers bought modest midcentury homes on big lots, replacing them with large, luxurious houses that were inconsistent with the architectural style of the neighborhood. When interest rates began to rise, construction slowed, leaving investors who had envisioned a neighborhood gentrification stranded in suburbia. Owners might pour money into renovating or even rebuilding a house, thinking it will be worth $5 million. But if it is in an $800,000 neighborhood, the sellers will not receive $5 million, says Barbara Candee, a director with Daniel Gale Sotheby’s International Realty on New York’s Long Island.

Sellers sometimes struggle to see their own homes as others will. This can pose a challenge when selling because most homeowners invest a great deal of emotional and financial resources into their properties. Candee recalls looking at Virginia Payson’s Land’s End in Sands Point, N.Y., five years ago and estimating its value at about $18 million. Payson rejected the price and listed it at auction for $50 million. When there were no bidders, however, Payson listed it with Daniel Gale and it fetched $17.5 million.

Gilt By Association
Homes often embody the reputations of their owners. The estates of admired people often become trophy homes when they hit the market. Others can just as easily suffer from negative associations. Charles Manson’s 1969 murders of Sharon Tate and her friends on Cielo Drive in Beverly Hills forever made the house where the crime took place a pariah. Alvin Weintraub bought it in the early 1990s and razed it in 1994 after he had trouble selling it. He then built a lavish, nine-bedroom Mediterranean estate. Weintraub first listed the property for $12.5 million, but it sat for three years with no takers. He reportedly lowered the price to $7.7 million, and the property sold for about $6 million.
 
Similarly, the 3,700-square-foot, four-bedroom condo in the Brentwood neighborhood of Los Angeles that was the scene of Nicole Brown Simpson’s and Ronald Goldman’s murders was difficult to sell. After the 1994 crime, the condo sat on the market for two years until selling for $590,000, about $200,000 below the then-asking price. The house number was changed and the condo remodeled, but its history continued to haunt it. In 2006, it was listed at approximately $1.7 million—roughly the same price as a smaller, two-bedroom condo in the vicinity.

Even land with a history of nonresidential use can run into difficulty. Investors should scrutinize a property’s environmental history and look into what businesses may have been nearby. Sometimes a careful site inspection will reveal potential problems. A few years ago, Duggan previewed a home built on land that was once part of a ranch. When she looked out a window, she spotted a small cemetery the sellers had failed to note on the disclosure forms. The graveyard proved a deal breaker. The buyer was not squeamish about living near a cemetery, but she did fret that her property would be bound by real-world deed restrictions, Duggan says.

But perhaps nothing makes an impression on a prospective buyer more than a seller’s choice of decor. While taste is subjective and never easily defined, homebuyers react strongly to both good and bad taste. After Brad Pitt and Jennifer Aniston’s divorce, their Beverly Hills home was listed for approximately $25 million in 2006. It required little pitching: The 11,000-square-foot estate already enjoyed distinction as a prominent property with an admired interior design by Waldo Fernandez. “There are certain individuals who are well-known in our community for having good taste,” Rey says.