Four Mistakes Sellers Make

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Many homeowners do not know how to accurately determine the value of their home.  Owners often use unsound methods when setting their price and these miscalculations can greatly disrupt the selling process.  There are four deadly mistakes sellers make when determining the value of their home.
 
The Price You Paid When You Bought Your Home Is Not the Price It is Worth Now

The first is that they base their price on what they paid when they bought the home.  The real estate market is just like any other market; it is subject to supply and demand.  Prices in the real estate market, though not as efficient or instant as the Stock Market, are subject to going up and down based on the supply and demand.  The real estate market is more than four years into a buyer’s market so prices have been coming down.  This means that what you paid for your property in 2006 or 2007 does NOT have a bearing on what your home may be worth.
 
An Appraisal Should Never Be Used To Determine the Value of Your Home

The second biggest mistake in determining the value of your home is basing it on an appraisal, whether it is an appraisal for tax purposes or for a refinance.  These appraisal values are not an indicator for what a buyer is willing to pay for your property.  If the appraisal is for a refinance, the bank is looking to do whatever they can do to make sure you are able to refinance your home so they can make more money.  If the appraisal is done by a taxing authority, it is likely that they are going to overvalue the home so they can increase their revenue base.
 
Looking at the Cost and Features of Other Homes on the Market is Key

The third mistake a homeowner will make when setting the price for their home is adding together the value of the property and the cost of improvements.  Many homeowners think that if they paid $250,000 for their property and put in an extra $75,000, then the property must be worth $325,000.  This is not the case.  Your property does not stand alone; it is competing with the other properties in the neighborhood.  This is why it is important to know your competition.  An understanding of the amenities and features that a buyer can purchase in the resale market and in new construction can better equip a home seller to understand the supply and demand factors of the market.
 
What You Owe on Your Home Will Not Factor Into What Your Home Is Worth

The fourth and final crippling mistake a home owner makes when determining the value of their home is looking at what you owe on the property.  Prices in the real estate market have dropped significantly in the last four or five years.  You may have refinanced your property when property values were higher across the board or you may have taken out a second mortgage or home equity line during this time.  If this is the case, you may owe more than what your home is worth.  If you need to move and your home is worth less than what you owe on it, this is a special situation.  It is at this time that you need to consult a real estate agent.

ATTITUDE OF GRATITUDE

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If you have food in your fridge, clothes on your back, a roof over your head, and a place to sleep, you are richer than 75% of the world.

If you have money in the bank, your wallet, and some spare change, you are among the top 8% of the world’s wealthy.

If you woke up this morning with more health than illness, you are more blessed than the million people who will not survive this week.

If you have never experienced the danger of battle, the agony of imprisonment or torture, or the horrible pangs of starvation, you are luckier than 500 million people alive and suffering.

If you can read this message you are more fortunate than 3 billion people in the world who cannot read it at all."

We would all be more happy and have plenty to be grateful for...if only we would count our blessings rather than our problems.

Do You Know the Rewards AND Risks of Buying a Home?

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Every financial decision you make in your life has its rewards and its risks. Home-buying is no different. The key, of course, is to maximize the rewards and minimize the risks. That calls for objectivity on your part. So, to help you make an objective decision, I've provided a list of both rewards and risks below. Review the list to see if you're a good prospect for owning a home!

Rewards

The "intangible" reward of buying a home is, of course, the joy of owning it and creating a home for your family. Nearly everyone desires this reward! However, there are also several concrete financial rewards that can be earned through home ownership.

The first financial reward is appreciation. In spite the recent "mortgage meltdown" and price declines, it's a fact that, on a historical basis, your home is worth more when you sell it than when you bought it. A home purchase is a great long-term financial investment.

Financial flexibility is the second benefit and is derived from appreciation. When your home appreciates, you can sell it at a higher price. You can then use the profit to buy a bigger and better home…tap into the equity (what your home would sell for minus what you owe on the mortgage)…pay college tuition for the kids…use it to fund your retirement…or any other goals you have in mind.

The third goal is leverage. Buying a home allows you to use borrowed money (the mortgage) to profit on later price increases (appreciation) on property you haven't paid for.

The fourth and final benefit is that of tax breaks! You can deduct property taxes and mortgage interest and keep up to $500,000 of capital gains!

So, as you can see, home ownership is a wise investment in your future!

Risks

As I stated earlier, every financial decision has its risks as well as rewards. Therefore, it's wise to know what those risks are upfront, so you can decide how you want to deal with them. Review the following risks to make sure you're ready for the responsibility of home ownership.

The first risk is a decline in value. We've seen this risk come true in the recent "mortgage meltdown." The value of homes declined from 2006-2009.

Although, historically, this doesn't happen often (and prices are on the rebound), it still tells you there's no guarantee that the value of your home will appreciate.

Over the long-term, however, home prices do tend to appreciate, and, believe me, home ownership is far less risky than the stock market!

The second risk is maintenance costs. It takes money to maintain a home - roofing, heating, cooling, siding, paint, etc. This fact means that you must have the income to pay for routine maintenance costs as well as the inevitable big-ticket items (water heaters, furnaces, etc.) that come with long-term home ownership.
The third risk is the loss of other investment opportunities. In the short-term, alternative investments (stocks, bonds, etc.) may give you a greater return in less time if their value rises faster than that of the homes in your neighborhood.

In such an event, you might do better as a renter or investor. However, keep in mind that, as stated above, this is a short-term strategy.

The fourth risk is lack of flexibility. Purchase of a home ties you down to a specific neighborhood and city. Many people like this fact because it allows them to "set roots" in a community. However, if you're a person who prefers to be "foot loose and fancy free," then home ownership may not be for you.

For example, home ownership doesn't make it easy for you to take a new job elsewhere or move to a different location. And, if you have to put the home on the market in a hurry due to a divorce, job loss, etc., then you can take a heavy financial hit.

The final risk lies in the fact that if you have a large mortgage payment, it can make it hard to invest money elsewhere (savings, investments, vacations, etc.).

So, there you have it - a complete list of the rewards and risks of home ownership. If you'd like help in analyzing how these factors apply to your specific situation, contact me at today!