By Shayla M. Sharp
Perhaps you've recently had your home's value appraised or assessed, or maybe you noticed the house down the street now has a For Sale sign and it got you thinking about your property and what it could be sold for. Either way, you know--your house is one of the biggest investments you'll ever make. Just like the stocks on Wall Street, your house value can increase and decrease significantly over time. While there isn't a great deal you can do about the national housing market, there are ways you can adjust the individual value of your home within any market.
One of the first things you need to understand is the difference between actual value and perceived value, and when it comes to real estate that knowledge can help you put your money where it serves you best. Actual value in real estate is the current market value of your property as it stands--the county assesses this value for tax purposes. This value is comparable to other homes in the same area of similar size and age. Perceived value, however, derives its value based on what someone is willing to pay for the property to make it their own.
Let's use a non-real estate example to illustrate this. You are at the local mall in your favorite store for body products--you're shopping for some new soap. You go through all those little wicker baskets full of various colors and smells until you find the one you like the best, take it to the counter, pay for it, and drive home to enjoy it. What made that little bar of soap so much better than the other twenty basketfuls of them? After all, the difference between the red cinnamon soap and the yellow lemon soap is only a matter of some artifical colorings and a few drops of essential oils. The prices were the same for both bars as well, so why that one. The reason is simple--you liked it best. You have a particular liking for either a certain color or smell or both. Maybe you were even matching your bathroom decor with it. The point is there is an actual value for the soap--the price per bar, and there is a perceived value for the soap--what makes one bar better than the other to you. The next customer may completely bypass that great little bar of red cinnamon soap--to them, the perceived value is much lower. So low in fact, that they would not pay the actual value to get the soap.
Now, let's take this same idea and apply it to your house. Let's say you now live in a cute little three-bedroom craftsman in a quiet neighborhood which was recently assessed at a tax value of $300,000. If you put it on the market today, your real estate agent would start you off near that value. Now, let's say you update your out of date kitchen and bathrooms with new cabinets, stone floors and granite countertops (all very popular upgrades). If you were to list your house after these upgrades, your real estate agent would start you off with a listing value much higher than the $300,000. Why? Because perceived value comes into play. A potential buyer will come in and see the beautifully updated rooms and feel the house is worth paying a bit more for the property. More importantly though is what the buyer is NOT seeing--out of date rooms that they will have to spend time and money to upgrade. Buyers pay more for features that they want, but they will actually pay less than the actual value if they find that there are lots of repairs or upgrades required to make the property into what they want. If your house had damages and repairs needed for basics like plumbing and electrical, you can bet that you won't be getting the actual value for your home--you'll be getting much less.
Buyers expect that the house they are looking at has all the basics taken care of, so when they find out there will be repairs to make they mentally start taking off the costs of those repairs from the price listed--thus, the actual value cannot be met because the perceived value has been lowered due to disappointment in expectations. When a house has more than expected, such as modernized kitchens, the perceived value increases due to exceeding expectations.
To learn how you can increase the perceived value in your house, please read the second part of this Altering the Value article series.
Article first published at NWAbode.com in July 2009.
Shayla M. Sharp, owner of White Dragon Studios and freelance writer, enjoys design in all its aspects whether she's designing jewelry or trying to get two-year olds to hold stilll for a portrait. She lives in Oregon with her best pal Stars, a border collie mix, where she plants vegetables and flowers for him to run over.