2 Short Lessons on Market Value

Jane Gray
Published on January 24, 2017

2 Short Lessons on Market Value

While change is a fairly accepted constant in life, the acceptance of change and the rate is mostly variable…

Homes have changed a lot since the post-war boom where 28 million homes were built in the US between 1945-1965 and we have our share of them Sacramento.  There were many styles for all price ranges but the affordable styles for the vast majority included small cottages and ranch homes which might be 2 or 3 bedrooms with maybe only one bathroom and a detached garage that would fit a single car.land-park-home

Lifestyles have changed a lot since then, but people still live in those homes.  Some of those houses have been updated and while others have not, but now greater majorities live in larger homes with attached garages along with a host of other amenities we now can’t live without such as large open floor plans, walk-in closets, and indoor washers and dryers -all unheard of back then.

Lesson #1 – Outdated features may affect how much your house is worth

In real estate, when we see homes that aren’t updated, we use the term functional obsolescence which is a reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed.  In other words, it’s a deficiency or basic lack of something that other properties in the home’s neighborhood have.  It can be curable or incurable.  One example is having only a single bathroom in a home.  Though common at one time, it has become inadequate for today’s modern buyer and because it can cost more to add a bathroom to a home than a homeowner will recoup in a sale, it is said to be incurable.  A curable example but one that still takes a bit of cash is updating a kitchen from lovely avocado green (a 1970’s hit) to what’s current today.

frigidaireCertainly, it is livable, but just not desirable to the majority of buyers and that’s the key.  The outdated house takes a monetary hit in price for the lack of the extra bathroom from the norm or the lack of an updated kitchen.

I once went on a listing appointment for someone whose kitchen and home looked a lot like the photo to the left and the homeowner believed that her home was still as desirable and should be priced as high as if it were still fashioned after the latest design trends.  Sadly, she refused to price it where the market valued it at and she eventually lost it to foreclosure.

Lesson #2 Something that isn’t on your property may impact your sales price

So there are things you can fix about a house and there are things that you cannot.  Now we’re going to talk about how a house can be affected by external influences that a property owner can’t fix that can hammer its value.  This is called external obsolescence and some examples are: being situated on or near a busy road, being near non-residential areas such as gas stations, retail, or even cemeteries, being next to large swaths of rentals such as apartments or duplexes, and being near to high-voltage towers. power-line

Obsolescence of either kind can have a minor to major impact on the price someone is willing to pay for a property.  Consider a recent sale where a Granite Bay property located in a desirable neighborhood but with high-voltage electrical wires visible just beyond the backyard sells for less than comparable houses.  The seller expects to be compensated for the sleek and contemporary remodeling done on the inside, but buyers shun the house for the price.  The same house if it were located just across the street would have fetched $750,000.  In the end, the successful buyer secures a contract with a price that includes an obsolescence “discount” of 6% to make up for the proximity to the wires.  That equated to a $40,000 drop in price for the seller!  The number and severity of obsolescence types  can compound the issue – with both functional and external factors present, sellers may incur upwards of a 20% “penalty”.

Another example, was a home I recently sold which was on a moderately busy street that wasn’t busy at all when the homeowner purchased the house new.  Times had changed and buyers were wary of the traffic for kids, pets, and noise.

Bottom line:  First, if you have either type of functional or external obsolescence present as a seller be aware that it may affect the price and your bottom line dollar.  If you are a buyer and you buy near the freeway and you get a discount, expect to extend a discount when you go to sell in a few years.

We’re humans.  We are very adaptable to living in environments where there hasn’t been a lot of change, but when we go to sell we must see it through the lens of the majority of buyers who may have changed their tastes without us.  There are ways to play down functional obsolescence with staging and painting.  With some external obsolescence factors, there are ways to minimize that too – plantings and perimeter property walls.  If you have questions about how factors such as these might affect the market value of your home or what you can do to minimize it, ask your Realtor.

2 Short Lessons on Market Value
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