Own­ers of­ten over­es­ti­mate home’s value

Los Angeles Times - - REAL ESTATE - By Kenneth R. Har­ney ken­har­ney@earth­link.net Dis­trib­uted by Wash­ing­ton Post Writ­ers Group.

WASH­ING­TON — Do you know what your house is worth? Would you con­cede that there’s a chance that your es­ti­mate of its value might be higher than what a buyer would pay?

A new sta­tis­ti­cal study, pub­lished in the Jour­nal of Hous­ing Economics, found that home­own­ers on av­er­age “over­es­ti­mate the value of their prop­er­ties by about 8%.” Tap­ping into fed­eral data­bases, re­searchers con­cluded that over-valu­a­tions prob­a­bly are tied to er­ro­neous owner es­ti­ma­tions of the cap­i­tal gains they’ve ac­cu­mu­lated in the house.

The study is in sync with a monthly sur­vey con­ducted by Quicken Loans, which com­pares es­ti­mates pro­vided by ap­pli­cants for re­fi­nanc­ings with re­sults from ap­prais­ers.

The lat­est Quicken study found a “widen­ing gap” on av­er­age across the coun­try be­tween what own­ers think their homes are worth and ac­tual mar­ket value. The di­ver­gence was much nar­rower in the Quicken sur­vey com­pared with the Jour­nal of Hous­ing Economics find­ings — cur­rently just sev­en­tenths of 1% — though in 2008 it av­er­aged about 7.5%.

No­body can blame own­ers for think­ing op­ti­misti­cally about their homes’ value, right? It’s hu­man na­ture.

But here’s a ques­tion I re­cently put to real es­tate ap­prais­ers in dif­fer­ent parts of the coun­try: Other than the ob­vi­ous emo­tional at­tach­ments that color our per­cep­tions of our homes, where do we tend to err when it comes to es­ti­mat­ing value?

Top of the list: un­re­al­is­tic ex­pec­ta­tions about how much the im­prove­ments you’ve made to the house will add to its re­sale value.

Be­cause you’ve paid the bills, you know pre­cisely how much you sunk into the kitchen re­mod­el­ing, bath­room up­grades, land­scap­ing and the new roof. Tom Horn, an ap­praiser in Birm­ing­ham, Ala., says con­sumers “may think they can get back what they put into” the im­prove­ments they’ve made over the years. “But it doesn’t work that way.”

An­nual real es­tate sur­veys con­sis­tently show that dol­lar-for-dol­lar re­turns are rarely the case.

The 2015 “Cost-vs.-Value” study by Re­mod­el­ing Mag­a­zine and mem­bers of the Na­tional Assn. of Real­tors in 102 mar­kets found that many high-ticket im­prove­ments don’t come close to pay­ing off what they cost.

For ex­am­ple, based on na­tional av­er­ages, a ma­jor kitchen re­mod­el­ing cost­ing nearly $57,000 would re­turn just 67.8% in re­sale value. A backup power gen­er­a­tor re­turned just 59.9% and a home of­fice re­mod­el­ing less than half, 48.7%.

A closely re­lated is­sue: over-im­prove­ments of your home com­pared with the neigh­bor­hood norm.

Don Boucher, an ap­praiser in the Wash­ing­ton, D.C., area, says he sees it all the time: Own­ers sink tens of thou­sands of dol­lars into a su­per-pre­mium gourmet kitchen in a neigh­bor­hood where no­body else has in­stalled such lux­ury.

When you ren­o­vate a kitchen or other fea­ture of your house to a level typ­i­cally seen only in com­mu­ni­ties where homes cost dou­ble what they do in yours, you’re not go­ing to re­coup that ex­pense, Boucher says.

Another ex­am­ple of where own­ers get off track, ac­cord­ing to ap­prais­ers: They in­stall highly per­sonal but costly items — fea­tures that they love or need, but most po­ten­tial buy­ers don’t.

Say you spend thou­sands of dol­lars to in­stall an in­door lap pool or spa. It may be just what the doc­tor or­dered for your health, but prospec­tive buy­ers may not want it.

They may even plan to re­move it if they pur­chase, giv­ing you zero in added value in their of­fer. Ditto for ex­pen­sive, spe­cial-taste items such as all-glass con­ser­va­tory rooms, over-the-top backyard “en­vi­ron­ments” and, in some north­ern mar­kets, swim­ming pools.

Gary Crab­tree, an ap- praiser in Bak­ers­field, says lush land­scap­ing that re­quires large amounts of wa­ter isn’t adding as much to value as it pre­vi­ously did, given the cur­rent se­vere drought con­di­tions and wa­ter re­stric­tions in Cal­i­for­nia.

Fi­nally, ap­prais­ers say own­ers may not un­der­stand the val­u­a­tion dy­nam­ics of their lo­cal mar­ket.

Glen Kan­gas, a Los An­ge­les ap­praiser, says own­ers fre­quently es­ti­mate value based on the square footage of the house. Yet “in my area, land value is re­ally high,” he said. “So sales with larger lots have a higher price per square foot,” which own­ers of be­low-av­er­age-sized lots er­ro­neously ap­ply to their own home val­ues.

Bot­tom line: With­out ac­cess to key data — re­cent sales com­pa­ra­bles, ac­cu­rate in­for­ma­tion on ap­pre­ci­a­tion rates over time — it’s tough to know ex­actly what your house is worth.

If you re­ally want to know, con­sider hir­ing an ap­praiser to per­form an in­de­pen­dent val­u­a­tion — they work for own­ers, not just lenders — or talk to mul­ti­ple realty agents who spe­cial­ize in your neigh­bor­hood.

Anne Cu­sack

KITCHEN RE­MOD­EL­ING is likely to re­turn just two-thirds of its cost in re­sale value. Above, Michael Ci­marusti and wife Crisi Echiverri in South Pasadena.

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