What is the Most Important Thing When Buying a Home?
by Hank Miller
on Sunday, December 13th, 2020 at 3:38pm.
Everything is important when looking for a home to live in, but one thing trumps all. How well does the home fits the requirements of the buyer? This is known as "value in use"; if the home fails to meet your requirements then why purchase it? With real estate, “value in use” is different than the generic term of “value”. Terms surrounding what a home is "worth" are jumbled; price and value are often used interchangeably and may be best described as what a well informed buyer is willing to pay for a particular property that is offered for sale. This is assumed “arm’s length”; a transaction completely above board. Text books dive deeper but no need for that here.
Value in Use
Value in use is buyer specific; how does that property fit the buyer's requirements? A perfect example is a buyer with older parents that are likely to require help in the near future. A home with easy access, finished in law suite, step-less shower, level lot…provide major advantages. Buyers that have allergy problems or pets may want a home without carpet. A car enthusiast might want multiple or heated garages; a musician a soundproofed area or detached studio. A buyer may require a heated lap pool or exercise facilities. Equestrians will pay a significant premium for well designed pastures, barns and facilities. The variables are endless but they play directly into the reason a buyer likes a home and what that home can offer them. The home should fulfill the main requirements of the buyer.
The Devil is in the Real Estate Data
The data doesn't care about value in use, data is what it is. What happens when that perfect home doesn't line up with others around it? In some cases the home may be so well equipped that it's over improved for the immediate area. In layman’s terms, a $1M home in a 500K neighborhood is over-improved. A 5BR/4B home on a full basement in-law suite in a community of 4BR/2B homes without basements is over-improved. A home with 10 acres, fenced pasture and a 4 stall luxury stable in a community of 2 acre wooded sites is over-improved. This is where value in use and data collide; the home is “perfect” but the comparable sales don’t support the purchase price. Real estate agents play a key role here. The listing agent must be clear on what makes this home special; what does it have that sets it apart from the others? The buyer's agent must firmly counsel and educate the buyer that while the home may be perfect; data support for the price isn't there and that may present issues when they sell it.
The Real Estate Appraisal Problem
Appraisers do not "kill" home sales, they have no vested interest in any transaction. Appraisers work only for the lender, they are required to follow strict guidelines and lenders base the loan amount off the appraised value. Homes that contract well above the comparable data may have an appraised value below contract price, that will cause issues. The loan is based off the appraised value, that difference needs to be covered and it's up to the buyer and seller to resolve this. Agents were mentioned earlier; appraisal "packets" provided to the appraiser can be very helpful. The listing agent knows the home better than the appraiser, if legitimate data is provided the appraiser may be able to leverage that for use in the report. Pointing out the less obvious, explaining why that feature(s) adds "value" and demonstrating robust interest in the listing can help with the appraisal. The single worst thing an agent can do is try and BS the appraiser; that will not end well as it immediately undermines the agent's credibility and lights up the appraiser's radar. Of course cash buyers...no appraisal worries.
The Most Important Thing
It's pointless to buy a home that doesn't meet requirements. Trying to "make do" can lead to major problems, both financially and with simple daily functions. A home must fit the buyer's need, that is the single most important thing when buying a home. A home is a huge financial commitment, but the emotional drag when things aren't right can be draining. There is much to be said about intrinsic value; having elders well cared for under one roof or boomerang kids back over a rough patch can be rewarding. So too can having a horse at home, with a barn and pasture out back. A car enthusiast that walks out to a heated garage is much happier than one working on a car in the driveway sitting on jack stands. That can't necessarily be measured but it's a positive for the owner. Value in use is at the root of the very first question buyer's answer..."what kind of home are you looking for"?
It's idiotic to buy a home that doesn't meet the requirements; you have to live there. Cost however, should be balanced with the data. Buyers become sellers and there's no guarantee that down the road what's spent will be recovered.
The last many years significantly impacted the residential housing market; boom, large homes, bust, recovery, tiny homes, historically low rates and low inventory, student debt, rising prices...yet the one constant is that everyone needs a place to live. Every home, buyer, and seller is different and they all act at a certain point in time. The only constant in real estate is change; the best thing any buyer or seller can do is be highly educated about the process.
The Hank Miller Team puts 30+ years of full time sales & appraisal experience to work for you. Act with complete confidence & make sound, decisive real estate decisions.
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