Dec. 29, 2010 - Are you overpaying for that house?

Overpaying for a house is something no one wants to do and also something very few ever admit to having done. 

Let's look at a simple technique of studying the comps. First you need to understand the components of value.

I'm using Split Entry homes in this demonstration, because they often represent the best example of looking at the wrong things when valuing a property.

The properties in this sample were all sold in 2010 and are in the same subset area of a particular zip code.

House #1 is my opinion of Best Value of the 19 homes sold in 2010 in this area of this basic home style.

Before explaining the snapshot above, let's look at the worst value as well in this home size range, as the visual of seeing both may make the points more obvious.

Technically, the second home should have sold for less than the first one. Neither were bank-owned or a short sale. The first house was larger and the total assessed value was higher. While one might think the garage being larger is a factor, it actually reduces the value given both homes had garages that were part of the lower level square footage. That means the more than adequately sized 570 is better from a value standpoint, as it gives you more living space on the lower level.

Let's look at another set of Best and Worst in a smaller and more common configuration of the same split entry style.

Note a few of the differences in the picture above. The main floor footprint is much smaller at 1,190 sf, but is also more typical of the common size of a split entry built in the Seattle Area. In this example you DO NOT subtract the total garage sf of 480 from the Lower Level square footage, as 280 sf of the garage extends out past the front of the house. 200 sf is in and 280 sf is out. Once you note these differences it will be much easier for you to tell by looking at the sold comps which have the garage fully contained in the lower level square footage, and which do not. It's a visible factor from outside the home standing in front of it or seeing a picture of the front of it.

Because there is more of a difference in the land values on this second set than the difference of the land values in the first set, the extra size of the home itself does not create a total value difference.

Interesting to see that the BEST value at .97% of Assessed Value and the WORST at 1.35 is almost identical to the best and worst in the first two larger homes. So we have identified the range of value to be between .97% and 1.35% of Assessed Value for the home style generally in this particular area. Other areas may vary, so be sure to use this method, but use homes in the same basic area. Best to use homes that have the same schools, all three, and not just the same school district. 

My first thought is did prices rise or fall due to time of year sold?

#1 sold in October

#2 Sold in March

#3 Sold in June

#4 Sold in March

To me that says that the Tax Credit that expired in April likely caused the two people who paid the higher % of Assessed Value to be more worried about getting the $8,000 credit and getting a house before the expiration, than overpaying for the home. In both examples they paid a lot more than the $8,000 they received.

This leads me to needing to compare 2008 and 2009 to see if generally that period of time, chasing the credit, pumped up the pricing for a limited time, or if the March Sales reflected market value that has since declined by that large percentage.  Too much to put in one post, so I will do a follow up on price trending.