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Five Myths About Home Values

Five Myths About Home Values

During periods of economic growth, when home values are on the rise, most homeowners never question their home values.

And in times of turmoil or when property values are on a downward slide, both home sellers and even listing agents often question the validity of an appraisal and try to pick it apart.

However, the actual appraisal and valuation process has changed very little, except of course for the implementation of Home Valuation Code of Conduct (HVCC), over the course of the housing boom and bust cycle we Americans experienced from 2001 to current date.

Since the topic of home values seems to be a hot discussion, let’s address the top five appraisal myths.

Appraisal Myths / Questions:

“I just put $15K into the property, why isn’t the appraised value higher? ”

Not all home improvements equal in producing added value. A local real estate investment club used to tout about buying run-down, roach-infested properties for cheap, then after de-bugging and adding a fresh coat of paint and carpet; PRESTO, the house would be compared and appraised as if it was just like the new home built up the street.

Even with some cosmetic repairs, the property may still a lot more comparable to the foreclosure next door rather than the new home a block away. You first have to look at “guts” of the home; the electrical, A/C, plumbing, etc. If they are updated, then the property may be more in line with the new home opposed to the foreclosure. The next factor holding most weight, the number of bedroom and bathrppms and square footage. Lastly, genuine updating of cosmetic improvements.

“But my home really compares to some of the properties in the neighborhood across the way…”

For example, if a homeowner preparing a house to sell adds $150,000 in upgrades to the kitchen, built-in cabinets and flooring, it may help the property show better in an open house and in magazine advertisements.

However, the seller might still be stuck with a $450,000 appraised value like the three comparable properties on their street vs the $750,000 they were hoping to list it for.

Even though the neighborhood across the main street had similar homes in the higher price range, especially after the seller’s extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.

So basically, the seller simply over-improved their home for their specific neighborhood.

“This appraiser included foreclosures as comps – that’s not fair”

It isn’t fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.

Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use the recent sales and trends as comparable values.  High foreclosure rates generally depress values and show a trend of lowering prices.

And abnormally high foreclosure rates generally depress values and show a trend of constantly lowering value.

“But I just put in a $50K pool, doesn’t that count for anything?”

Pools and professional landscaping rarely see a dollar for dollar value add on a property.  The value is going to mainly be based on comparable sales in a neighborhood.

“How can similar homes in the same neighborhood appraiser for such different values?”

This is a typical question for older neighborhoods where similar models may have drastic price differences.

Additional rooms and square footage can be the main reason for one property appraising higher than another.

Keep in mind, just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order rise with the tide.

An appraiser is looking at several things when determining the value of a property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area.


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