7 Home Value Myths Busted

Home values are one of the most confusing and challenging parts of real estate investing, especially for new investors.

There are many myths about what affects a home’s value and how to determine the value of a property. Some directly affect real estate investors in gauging how much to offer and re-list for while others just cause them frustration due to uneducated or mislead home sellers and buyers.

Cracking the Home Value Code

Myth 1: “Zillow is a Great Way to Determine Home Value”

False! Despite having done incredibly well at marketing itself, Zillow remains the source of endless frustration for homeowners and real estate investors. In fact, even the best online home value tool has been proven only to give an accurate range of value 50% of the time, and that wasn’t even Zillow. A neat mapping and preliminary search tool maybe, but reliable? No way.

Myth 2: Appraisal is a Science

False. Appraising real estate, especially residential properties is recognized as being much more of an art form than an exact science. Yes, there are guidelines and rules which real estate investors need to watch out for and can use to better calculate what a home is worth but no two appraisers may come up with exactly the same value for a home.

Myth 3: It Makes Sense for the Seller to Pay for an Appraisal

In the past many sellers have ordered and paid for full appraisals and have expected just to be able to force them onto buyers and expect them to hold up for financing. Firstly, the buyer’s side needs to order the appraisal, so a new one will have to be ordered and paid for anyway. Secondly anyone who has been in real estate for 5 minutes knows that any appraisal can be tweaked to show just about any figure desired but that doesn’t mean a lender will accept it.

Myth 4: Cosmetics Don’t Matter for Appraisals

While cosmetics really shouldn’t pay a huge role in property valuation, they do. That’s why real estate investing pros make a killing buying ugly houses and selling them for big profits after giving them a makeover. Both investors and sellers also need to understand the personal aspect of mortgage financing too. If a property owner doesn’t bother to clean up a home before an appraiser takes photos, what impression are those pictures going to have on a mortgage underwriter? Is this really a home the bank wants to loan on and which looks like it is worth what the appraiser is claiming?

Myth 5: That New Tile Just Increased the Home’s Value by Thousands of Dollars

Homeowners and many investors are frequently totally lost when it comes to how improvements make a direct difference to a home’s value. Re-painting, re-landscaping, replacing flooring or putting in nicer appliances normally doesn’t have a massive upward effect on appraised value. At least not unless it completely takes a property from ‘poor’ to ‘great’ condition. Still, if the 3 neighboring homes sold for $100,000 and yours has tie instead of carpet, it won’t mean your appraisal will come in any higher. Comparable sales are far more weighted.

Myth 6: Most Expensive Renovations = Bigger Returns

This is another cash killer which frustrates investors and sellers no end. Yes, adding additional square footage and bedrooms can help increase property value in most cases, ass can putting in a pool, but that doesn’t necessarily mean these items deliver the biggest returns. In fact one report recently revealed that mid-range improvements from $800 to $2,400 yielded the best ROI.

Myth 7: My Neighbor is Asking $X, so My Home Must be Worth That Much

Asking prices are normally completely irrelevant to real home values, as are pending sales (with a few exceptions as supporting comps). Only actual sales prices can be used to precisely determine a property’s real market value.

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