Where to put the emphasis when evaluating a home's value.

Last week I was working with a family looking to move to the Forest Springs neighborhood in Louisville's east end.  The home buying process went pretty much like any other buyer I've worked with over the past 9 or 10 years.  We looked at some homes.  We evaluated the floor plans, the finishes, their general upkeep, etc.  Eventually, we started getting more serious and we reviewed the seller's disclosure form for any surprises.  

Example Stock Market GraphThrough this process, the buyer got educated on the current market... what homes were selling for in certain areas with certain finishes and conditions etc.  I feel like it is an important part of the buying process to see not only the homes you like but through the process, you see homes you don't like as well.  How does that old saying go?  To appreciate the highs you must experience the lows.  That isn't an exact quote, but the meaning is the same.  In order to know what you like, a lot of times you have to see things you don't like to refine your criteria.

The same goes for pricing.  When you view several homes in a geographic area with similar amenities and finishes you start to get an idea of the home's current value.  Which is why I'm so often surprised by people asking me "How much did they pay for the house." -- Let me type this out in bold print.  What someone paid for a property is not an indication of its current value.

People always want to know though.  I get that it might help in negotiations, I really do.  But, that is never why people want to know.  It never fails that people want to know because they don't want to be the one that allows a seller to make a handsome profit "off them."   Of course, the only piece of information that we have access to is the purchase price.  We don't have receipts for the new flooring that was installed or all of the updated light fixtures... the bill for the HVAC system that was updated 2 years ago, etc.

In reality, housing should be treated more like the stock market.  When you go and buy a stock you look at the current financial health of the company.  You look at where the stock has been and you project where you think it is going to go.  But you never know how much the seller paid for the individual shares that you are buying.  You know the historical price of the stock ( this relates to real estate as comparable property sales. ) 

To recap, I'm not saying don't do your due diligence.  I'm just saying, be sure you look at the numbers that are important and put emphasis in the correct spot.  What a neighbor's home sold for 4 doors down 4 months ago is a lot more valuable to you than what the seller paid for the current home 8 years ago.

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