Kathleen’s Tip of the Week: Understanding Property Value

If you’ve ever attended a public meeting regarding something occurring in your town or neighborhood, you’ve probably heard at least one person make the claim of how the change or situation will effect their “property value”.  Property value is also one of the most misunderstood items of homeowners.  It’s rightfully so one of the most important things about owning a home, but it’s also very misunderstood.

What most people are referring to when it comes to “my property value” is how much they could sell it for at any given point in time.  What that number is actually entirely unknown because real value comes down to what a buyer and seller would agree on in regards to price.  Since that situation has happened, “suggested list prices” are on recent sales of similar homes and adjusting for desirable features.  The bottom line is that many things go into and contribute to the value of a property.

There are challenges here because no 2 homes are typically 100% alike and placing a dollar amount on buyers tastes is always fluctuating. This is the reason that “upgrades” don’t carry the same dollar amount towards value as one paid for the upgrade.  For example, one may pay $50,000 for a gorgeous pool and deck but the pool and deck do not often add $50,000 to the value of the house.  Why?  because pools aren’t important to every buyer.  They require upkeep and can be costly.  For many buyers they could be a give-or-take and therefore may not hold “worth” to a potential buyer.  This is also why automated “valuation” systems like Zillow’s or Trulia’s struggle when it comes to accuracy.

Likewise, buyer tastes change over time.  Hardwood floors, for example, are very popular.  Many buyers are opting out of carpet and must way the value of changing the flooring.

Impacts on Property Value

Property value can (and will) fluctuate over time.  Basically it comes down to two categories – controllables and non-controllables.   As indicated by the names, the second can certainly be the most frustrating.  But, again, in both categories the amount of the impact whether positive or negative can (and will) fluctuate.  Let’s take a look at some of the items in each category:

1. Controllables – These are things you, as an owner, have direct control over.  These include things like property condition, how you allow others to use your property (i.e. pathways through over long periods of time), updating, landscaping, etc.  We live in homes and we get comfortable.  Our homes are also an emotional attachment often times, but when it comes time to sell a lot of that emotion and comfort must be put away to make smart decisions on maximizing the value of the home.  For example, you might like a certain color and style counter-top but it might be a color and style not desirable to today’s average buyer.  Therefore, it may be a deterrent to getting offers and/or it may contribute to lower offers where buyers are taking into account the need to replace them.  In those situations, you have the control over making that decision that will impact your value.
2. Non-Controllables –  These are the things you, as an owner, have no real control over.  They include things like local economic performance (the ability to purchase), the upkeep of neighboring properties, quality of surrounding properties, quality of neighbors and environment, land-use changes, etc.  This area can be extremely frustrating for owners and we’ve all seen the economic impacts on our values over the last few years as well as many other non-controllable impacts.  These aren’t all negative either, there are non-controllable impacts that bring real positives to value such as a land-use change that might be more desirable to to today’s owners.  This is also an area that makes one realize the importance of being involved and informed in their local community.

The bottom line is that many things impact property value and those things also change a great deal over time, because people change.  It’s important to be open-minded if one truly wants to maximize the value of their property.

What are your thoughts?

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