Gregg Fous Perspectives in Real Estate

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What's that house worth?

I have heard some version of this question over and over again, from different people, at different times, and all the questioners expected a definitive answer. I shall attempt to discuss worth and value and will try to simplify the discussion and give you some food for thought. First let's get to the most practical reasons people ask this question in my business. They either want to know:

 How much can you sell my house for? ,or

 How much do I have to pay for this house?

 These questions actually go to price, and the short answer always has a dollar figure.

 BPO's 

 In our office we are doing at least a dozen BPO (Broker Price Opinions) a week. A BPO provides the answer to this question: "based on the sales of similar homes in close proximity to this one over the past three months, what will the subject home sell of within 30 (or 90) days?" (for a blank BPO form click here).

 The BPO form will also list three homes that are on the market, but in truth the ask price that some has on a home has little bearing in today's market valuation. A BPO price is generally brutally honest and generally is referred to for a quick cash sale. The BPO's in our office are performed on homes we list that have been foreclosed on by the bank and the bank is asking us to sell the home.

 Alternatives

 In general real estate sales, we are more likely asked: What can you sell my house for?  We may start with a BPO.  But we have to ask more questions: "How soon do you want to sell?  Will you hold the mortgage? What is included?"  In previous uptick markets sellers would "lead the market".  They would price a bit higher and wait for the market to catch up. In today's market this might be a bit like trying to catch a falling knife.  Most agents will look at what alternatives a potential buyer has to buy a similar house - not what one has sold for. If a buyer wants to live on the river in Lee County,for example,  the agent will look at all the alternatives on the river  and then price the subject home  to be competitive with what is on the market.

Are you going to sell and then buy?

  Some sellers today are thinking of downsizing. They want to put their home on the market and buy a smaller one. The wise seller will set his price to sell quickly, foregoing a higher price because they know bargains exist on the buying side. Unfortunately there are many who want to "sell retail and buy wholesale. They realize it's a down market but rather think that the down market does not apply to their home! In their wait for the perfect price for the home they are selling they may miss the bargain on the buy side.

  What is in a price?

I have often said that there are three forms of capital: Time, Money and Thought, and I have a limited amount of all three. The money issue is the most up front and center. Let's look what is involved in the dollar cost of a home. The following is a list, in no particular order, of factors that affect the dollar cost of a home:

  1. Purchase price
  2. Insurance Cost
  3. Taxes
  4. Maintenance
  5. Home Owners/Condo Dues
  6. Useful Life expressed in years (Depreciation)
  7. Cost of Borrowing
  8. Utility costs

 

If a buyer or seller just looks at the first one, price, and ignores the rest, they are not examining the true costs.

 Less obvious than the dollar costs are the time and brain power costs. You may think of these as the same thing. I do not.

 One deals with the clock - how much actual time it takes to accomplish  the search for a home, the maintenance of a home,  and what are the alternatives for that time; the other deals with stress and cognitive power.   If I am stressed with the burden of my home ownership, this will steal cognitive power I have for accomplishing other things - like my livelihood and my enjoyment of my family.

  And what of Intrinsic value?

  I am not talking of present value as in an investment, but more the philosophic intinsic value of a home and its contribution to happiness. The expression "You deserve this" comes to mind. The home is a reward - but only as it is related to happiness - not the number of square feet and bedrooms. What is the price for happiness?  What is the cost? For this answer you must examine your bigger goals in life.  I, like many others, have re-examined these questions and find that worth has more to do with the intrinsic values that the dollar values.

  

Gregg                 GFous@MarketAmericaRealty.com

Comment balloon 0 commentsGregg Fous • November 01 2009 11:32AM

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