What is Conformity and Why Is It Important?

In real estate theory, the principle of conformity states that a given cabin will appreciate best in a neighborhood of similar cabins. This also means that developments with good conformity (those with similar homes) will appreciate better than developments that lack conformity.

Obviously, it’s stupid to build a mansion in the middle of a trailer park. But people make the same mistake on a smaller scale fairly frequently, when they make improvements and renovations. I did it myself when I built a $20,000 patio room on the back of a renovated house in an emerging neighborhood in Atlanta. It was fine when I was using it, but when I decided I wanted to sell, I couldn’t get my money out of the house. Nothing in that neighborhood had ever sold for what I needed to sell for, so it sat empty until I decided to make it a rental. So the rule to remember is this: Lack of conformity won’t hurt you until you decide to sell or refinance.

In other words, it’s risky to build a $300,000 cabin in a development of $150,000 cabins, because appraisals are always framed in terms of comparable sales in the same neighborhood. This means that even if you do find a buyer who is willing to pay your asking price, it may not appraise for that price, which means that the buyer will not be able to obtain a loan. You’ll only be able to sell if you find a buyer who wants to pay cash.

By the same logic, a $200,000 log cabin is a better investment in a log home development than it is in a development that has log homes, brick homes, and vinyl sided homes. In the city, this is rarely an issue within developments, because the developer usually builds every home in the subdivision. In our area, it’s not unusual for the developer to build some, and for others to be built by a variety of other builders. In recent years, we’ve also seen builders buy lots on the retail market and build spec homes on them. All of this tends to dilute conformity, which in our area is enforced by the covenants and restrictions that the developer attaches to the land rather than by the developer building every home.

In our area, covenants and restrictions have tended to improve and tighten over the years. Fifteen years ago, it was normal to simply forbid temporary structures, mobile homes, and animal husbandry. Today, it is not uncommon for developers to specify minimum square footage and type of siding. One restriction that I’m seeing more often, one that I particularly like, is that not more than 50% of the trees originally on a lot can be cut. In general, the tighter the restrictions the better, unless you really want to do something that is restricted (like rent your cabin in a development that forbids it).

Enforcement of covenants and restrictions is by the courts, which means that if some nut builds a monstrosity that is forbidden in your development, you or your neighbors have to bring suit at your own expense to secure enforcement. This isn’t a very common situation, because most buyers respect the covenants, but there are some developments that have a poor track record of enforcing their covenants, and they are probably to be avoided.

Of the three counties that we service, Fannin County probably has the best overall conformity, and Gilmer County probably has the worst. For instance, there is a certain development in Gilmer County that is notorious in the real estate community for its lack of conformity, as it countenances everything from camping trailers to yurts to brick mansions on the river. That’s an extreme case, but it’s common in Gilmer and Union to see a mix of brick, vinyl, and log in the same development. This is not to say that you shouldn’t buy in these developments. But you should be aware that some buyers won’t.

I think the relatively greater conformity in Fannin County is probably due to the fact that Fannin was developed a little later than the other counties, and attracted a critical mass of upscale buyers relatively early in the development cycle due to the success of one of our local developers, who advertised heavily in Atlanta and Naples, Florida. In other words, mountain developments are rarely designed by architects. The local builders simply watch what works, and do more of what works and less of what doesn’t. Over the past ten or so years, our developments have evolved to suit the tastes of the buyers in our demographic. Cabins here tend to be either log or log-sided with tongue and groove paneling inside instead of sheetrock. And, no matter how expensive, they tend to be cabins, designed for weekend occupancy, rather than year-round homes with things you would expect in the city, like a large kitchen pantry and walk-in closets in the master bedroom. While this has its pros and cons, there’s no doubt that the relatively greater conformity has supported greater appreciation.

2/12/2002

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