What it means
The term grew out of the housing boom of the late twentieth century, when developers began to build oversized homes in suburbs, often on land that used to hold smaller houses. A McMansion tends to have a large footprint, a crowded mix of design features and standardised materials, with the size of the house out of proportion to its plot.
The label is more a judgement of style and quality than a legal or technical definition. From a finance and property viewpoint, the interest lies in how these houses are priced and financed.
Buyers pay for size, often measured as price per square foot, and may take on a large mortgage to do so. Lenders assess them like any other house, but the cost to heat, insure and maintain a very large building can strain the owner's budget.
Resale value is the main risk. Because they are often built quickly with lower-cost finishes, McMansions may age less well than older, better-crafted houses, and buyers can be sensitive to the build quality.
In a falling market, a large house with an oversized loan can be especially hard to sell. Local authorities sometimes respond with planning rules that limit the size of a house relative to its plot.
Such rules can protect the character of an area and the value of neighbouring homes, though they also restrict what owners can build. Developers must factor them into their feasibility studies.
For a business reader, the term illustrates a wider point about value: size is not the same as quality. The same logic applies to buying a bigger office, a larger warehouse or more equipment than the business needs.
Taxes and insurance add to the picture, since both are usually based on value or size and rise with a bigger house. A buyer who stretches to buy the largest home the lender will finance can find the total yearly cost of ownership is much higher than the mortgage payment suggests.
Budgeting for the whole cost, not just the loan, is the safer approach.
In practice
Real-world examples.
Example
A mortgage broker advises a couple who plan to buy a 5,000-square-foot house on a small plot. She explains that the monthly costs of heating, insurance and upkeep will be well above those of a smaller home. The couple decide to look at a more modest property.
Example
A property developer buys an old bungalow for $400,000 and plans to replace it with a large new house. A planning rule limits the size of the building relative to its plot, so the scheme must be cut back. The developer revises the numbers before committing more cash.
Example
A real estate analyst writes about a suburb where several large new homes have sat unsold for a year. She finds that buyers prefer well-built older houses with character at a similar price per square foot. Her report suggests that the oversized new builds were priced above what the market would pay.
Case study
Seen in the real world.
Cedar Hollow Homes is an illustrative, fictional developer that built twelve large houses on small plots in a commuter suburb. Each house had six bedrooms and was priced at $950,000, and the sales team marketed them as luxury homes.
Buyers noticed the cheap finishes and the lack of garden space. After eight months only five had sold, and the developer had to cut the price of the rest to $820,000 to clear them.
The cut reduced revenue on seven houses by $130,000 each, a total of $910,000, which wiped out most of the project's planned profit. The illustrative lesson is that a project aimed at size alone, without quality, can leave a developer exposed when buyers become selective.
Watch out
Common mistakes.
- Assuming a bigger house is always worth more, when buyers look at build quality, location and the plot as well as the floor area.
- Ignoring the running costs of a very large house, such as heating, insurance and maintenance, when deciding how much mortgage to take on.
- Treating the term as a precise definition, when it is an informal and often critical label with no fixed size or price.
Questions
People also ask.
Is a McMansion the same as a luxury home?
Not necessarily, because a luxury home is defined by quality and location, while a McMansion is defined by size and style.
Why are McMansions sometimes hard to sell?
Buyers may prefer better-built or more characterful homes, and the high running costs shrink the pool of buyers who want them.
Do planning rules restrict them?
Many local authorities limit house size relative to plot size, which can prevent very large houses on small plots.
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