Three Quarters of Owners Continue to Overvalue

price is rightDespite survey after survey showing that consumers expect home prices to continue to decline next year, most home owners still believe their houses are worth more than what their agents recommend.

Nearly three out of four home owners, 76 percent, believe their homes are worth more than the recommended agent listing price. By contrast, 68 percent of home buyers believe homes are overpriced, according to the latest HomeGain. Thirty-two percent said homes are overpriced by more than 10 percent.

The gap between what sellers expect and what agents recommend has actually grown slightly over the past year even though national median prices have declined about 4-7 percent this year. A year ago, some 73 percent of owners thought their homes were worth more than their agent’s recommended listing price and 69 percent of buyers thought homes were overpriced.

“The market in the Syracuse, NY area is classified as a buyers market. Sellers are still not understanding the importance of proper pricing as most sellers properties are priced 5 to 10% over market value,” said one professional.

“Seller pricing is not necessarily the problem. The issue is making it possible for buyer candidates to buy a home. More buyers equal better quality offers. The credit system needs to be reinvented,” commented another.

Forty-two percent of real estate agents and brokers and 37 percent of homeowners think that home values will decrease in the coming six months. Only 15 percent of real estate professionals expect home values to increase in the next six months, up four percent from last quarter. Fifteen percent of home owners also expect home values to increase in the next six months, up three percent from last quarter.

“Home owners and real estate professionals appear to be in sync regarding the direction of home prices. Home buyers and sellers, however, continue to remain apart as to home valuations with the vast majority of home owners thinking their homes are worth more than their agents and the market are telling them,” said Louis Cammarosano, General Manager of HomeGain.

Over 400 real estate agents and brokers and over 2,000 home owners were surveyed in HomeGain’s nationwide fourth quarter 2011 home values survey.

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Housing Affordability Hovers Near Record Levels

232_img_locnUltra-low interest rates mixed with stabilizing home prices continued to push housing affordability in the third quarter near its highest levels in more than two decades, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index.

For the third quarter, 72.9 percent of all homes sold were affordable to families earning the national median income of $64,200, according to the index. This marks the 11th consecutive quarter that the affordability measure was above 70 percent; prior to this it rarely was above 60 percent.

"With interest rates at historically low levels and markets across the country beginning to improve, home ownership is within reach of more households than it has been for nearly two decades," Bob Nielsen, chairman of the National Association of Home Builders, said in a statement. "However, tough economic conditions — particularly in markets that experienced major changes in house prices and production — as well as extremely tight credit conditions confronting home buyers and builders continue to remain significant obstacles to many potential home sales."

The most affordable major housing market nationwide? Lakeland-Winter Haven, Fla., in which 92.5 percent of all homes sold were found to be affordable to households earning the median family income of $53,800 for the area. Other affordable major markets included Toledo, Ohio; Youngstown-Warren-Boardman, Ohio-Pa.; Indianapolis-Carmel, Ind.; and Ogden-Clearfield, Utah. For smaller housing markets, Fairbanks, Alaska, ranked the highest, in which 97.8 percent of homes sold during the third quarter were found to be affordable to families earning the median income of $91,700.

Meanwhile, the least affordable major housing market continues to be New York-White Plains-Wayne, N.Y.-N.J., in which 23.3 percent of all homes sold were affordable to those earning the area’s median income of $67,400.

Source: National Association of Home Builders

What home feature adds $43,000 to its price, what reduces it by $24,000?

The average new home is 2,150 sf

In a Southern suburb, a home’s value increases by around $43,000 by having a third full bathroom in a single family home, according to the National Association of Home Builders’ updated home price estimator and economic model that compares the four regions in America to enable home buyers, home builders, home owners and developers to compare the impact of physical features on a home’s price.

The results of the national economic model are interesting – the “standard” new single family home has 2,150 square feet, has three bedrooms, two and a half bathrooms, garage, fireplace, central air, separate dining and three miscellaneous rooms in a neighborhood where groceries are within 15 minutes from the home.

New home prices are typically higher in the Northeast and West than the Southeast and Southern regions and the lowest prices tend to be outside of a metro area, but according to the NAHB, “In general, the estimator finds that suburbs show higher prices than their companion central cities, which include the areas inside the city limits and not just a central business district or downtown area.”

How features impact a home’s price

Take for example a standard new home in a suburb in the South- it costs on average $203,874. Put that home on the waterfront and the price jumps by $90,000. Put the home near public transportation and you add another $26,000. Add 500sf of living space which adds an average $13,000 to the home price, but adding another bedroom or miscellaneous room adds less than $10,000 in value.

What can hurt a home’s price? Take out that fireplace of that Southern suburban home and you’re looking at reducing a home’s value by an average (and shocking) $24,000. Foreclosures are having an impact on home values without a doubt- an abandoned building within half a block knocks $28,000 off of a home’s value. Without shopping nearby, metal bars on windows, poor roads or bad smells can hurt a homes value by more than $6,000.

Cheat sheet:

Below is an easy to read summary of the information above (remember, all of this serves as an example of a Southern suburb for illustrative purposes). Visit the NAHB’s home price estimator and economic model to learn more about feature values in your market.

  1. The average new single family home has 2,150 square feet and is a 3/2.5.
  2. The average new home has a garage, fireplace, separate dining and three miscellaneous rooms.
  3. The average new home is in a neighborhood where groceries are within 15 minutes.
  4. A full third bathroom adds $43,00 to a home’s value.
  5. The average new home in a Southern suburb is $203,874.
  6. Being waterfront adds $90,000 to a home’s value.
  7. Being near public transportation adds $26,000 to a home’s value.
  8. Adding 500sf of living space adds $13,000.
  9. BUT, if that extra space is a bedroom or miscellaneous room, it adds under $10,000.
  10. Removing a fireplace reduces home values by $24,000.
  11. An abandoned building within half a block reduces a home’s value by $28,000.
  12. Without shopping nearby, metal bars on windows, poor roads or bad smells can hurt a homes value by more than $6,000.

See what you can get in Bellevue.

Not All Feet Are The Same

feet One of the most misunderstood data points in real estate is square footage. To some this seems like a solid, historically accepted statistic that should be left alone. The reality is that not all feet are created equally.

As someone who consults both buyers and sellers on strategies that include pricing, I have had more than one occasion where square footage has been an issue of consternation.

Though I’m not an appraiser, I do understand the principals by which they establish value. In the Puget Sound, our topography dictates a variety of architecture. We have two-story, ramblers, split-entry, multi-level, townhomes and many more variations of those. Some homes have mountain views, while others look out on one of our gorgeous lakes. Still others look into a school yard or directly to a brick wall. Not all feet are created equally.

To suggest that, if all things being equal (number of bedrooms, baths and size), square footage would offer the key to pricing, is in my opinion a precarious position to take.

The truth is that floorplan rules! Useful (useable) design and flow are imperative to the way the home lives. People make due with the spaces they occupy, however, many of us have said something like, “If only that wall was over there”, or “If only we had a larger kitchen”, or “I wish the laundry room was upstairs”. As an aside – another benefit of our current inventory levels is that buyers have the opportunity to select homes that fit their needs at a pace where there is less compromise than in the frenzy market of 2003-2006.  The floorplan MUST be considered when evaluating the profile buyer (most likely buyer for the property), usefulness of the spaces and subsequently, the value of the property.

Multi-level homes, though fun and interesting, may have a smaller pool of buyers (older families, due to the distance between bedrooms and other layout considerations) which in turn can affect its value, depending on when it is sold. View homes may be more valuable to some than others (ask an appraiser how much a view is worth and you may receive a very long bluff – there IS a value, but determining that number is science and gut mixed with a little Pepto Bismol). Craftsmanship has to play a role in the valuation of a home. Different builders use assorted materials and sub-trades. The quality of materials and appliances cannot be ignored when valuing homes.

As a city or neighborhood ages, we see gentrification. In Seattle, Bellevue and Redmond, comparing homes in neighborhoods that are mixed with original and newly built structures is not for the faint of heart.

Many homes in our area have multi-levels due to where they are placed on the lot. Often these homes have an abundance of stairs and hallways, whereas a well designed rambler will yield the highest return on investment.

This is not to say that there aren’t times to use the square footage data. Identical homes in neighborhoods (unless there are some major differences such as location & condition), and more likely condominiums and townhomes, can benefit from the square footage valuation model. Again, one must consider the updates that may or may not have been done. The most important component in those cases is timing. I have observed and have been a part of selling identical properties only 6 months apart at dramatically different prices. Even the micro-market is affected by variations in the economy and lending.

Though none of this is splitting the atom, I have seen many who deal with home sales and marketing gloss over this point, sometimes putting their seller clients in a less than successful position.

If this resonates with you, let me know how I can help 206-713-3244 or email.