A Home Is Worth What It Is Worth_Part Two

Factors That DO NOT Affect the Value of a Home_Continued

• The Price Paid For the Home
  

The price paid for a home one year ago, three years ago, five or ten years ago has nothing to do with what the home is worth today. Real estate values exist at a fixed point in time. A home may have been purchased for $300,000 three years ago, and may be worth $315,000 today. Someone else may have bought a substantially similar home for $250,000 five years ago and it is worth $315,000 today. That is a drastic difference in equity in a relatively short period of time.

Real estate ownership has been blessed with appreciation in home values, but that appreciation is not always in a straight line. Real estate values are not static. Over the long term, an investment in real estate is generally considered the most valuable type of investment, one with the best financial returns. Over the long run, it is probably the best investment people can make.

Depending on the market conditions when the home was purchased, some owners were fortunate and purchased in a buyers market before the increases in real estate values like we just recently witnessed between 2001 and 2006. Others may have bought at the end of a strong real market and were forced to pay top dollar in a highly competitive sellers market, as many owners are experiencing now who purchased their home late in 2006. It is economic market conditions, the economy, employment, mortgage rates, supply and demand, that create changes in the real estate market and cause real estate values to increase, remain stable and perhaps drop at different periods of time. These are the factors that are beyond an owner’s control.

All owners would like to get the price they feel they should get for their home when they choose to sell. The reality is, their home is worth what it is worth, and that is the price a willing buyer is willing to pay. A buyer will not pay more for a home than what they would have to pay for another home with similar features and amenities in a similar location, something called the “Principle of Substitution”.

It is for that reason why so much reliance is placed on sales data when establishing market value, and not personal emotions or personal circumstances.

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