Nothing more and usually nothing less… When the real estate market is moving through a time of transition, as it has been for almost seven years now, the “usual” no longer applies. The conventional methods of valuation and customary beliefs are often misleading.
This can be examined from several points of view, but possibly none more clearly than what an appraiser puts into his or her report. The three historical methods of valuation are the income approach (typical for commercial property), the cost approach (often for new construction or insurance claims) and the market approach (based on recent sales activity nearby).
For a residential structure, an appraiser is going to use the market method. It does not matter what rental income a home generates (that would be income). And the cost to replace a structure has not mattered much in years, since the bubble burst and homes have been selling well below replacement cost.
Realtors typically focus on market statistics too. They will show a potential buyer what similar properties have sold for recently, that are close to the same size, quality and location. A two bedroom condo in the South Capital area has almost nothing in common with a home in Tesuque, for example. Other than beds, baths and kitchens, they are different animals. Like compared to like would be an easy way to state the rule here.
Why do so many people, even these days after years of underwater homes, foreclosures & short sales still try to put cost into the equation of what a home is worth? You will often hear “But I paid X for it! I have to get that out of it when it sells!” True only if the market supports that statement. Today’s Santa Fe residential real estate market is still not supporting prices from 6 to 10 years ago.
And yes, there are exceptions. I am speaking of a wide view of the market here.
Some recent arguments heard: “it wouldn’t cost that much to replace the windows and doors and roof and do all the site work necessary to make it a nice property! Why hasn’t it sold?” The painful answer is that all of that work would only bring the home value up to market value. As long as it’s priced at market value when the work has not been done, it is overpriced.
When the work is complete, it will not soar above everything else. It will simply be properly priced at market value with comparable properties also for sale. Making repairs does not make the home worth more. It makes its worth, or value, legitimate and at market.
Another example is the plea from an owner that spent the money to upgrade everything in the home. He or she might very well say: “Well, someone can just make an offer. I will respond to any offer that comes in.” Nevermind that the home’s asking price is 12% above everything else out there. Human nature, in my observation, tells me that a buyer will almost always make an offer on a home that they hope to get for 6% below asking price rather than 12%.
A buyer’s expectations are reasonable if they hope to buy a home for 6% below ask, while hoping to get it for 12% below means they anticipate rejection and feel like it could be a waste of time. And if they put themselves in the seller’s shoes, they may feel the seller does not have a good grasp of reality, which might be of concern to the buyer during negotiations and escrow.
There are lots of reasons people do things, and lots of reasons they don’t do things. If you are selling, put your home in the path of the buyers looking at homes – not way off to the side. If you are a buyer, nobody will blame you for thinking that an asking price is just a suggestion. Your offer is the beginning of negotiations and what you pay for the home is what it is worth.
Enough talk. Lets get into action! There are great deals out there. I am ready to show them to you! And ready to help you make the deal that has eluded you for so long. Call Alan at 505-470-7153.