According to a recent study by Quicken Loans Inc., homeowners continue to overvalue their homes by an average of 2%. This represents the eighth straight month homeowners think their property values are higher than appraiser opinions.
Of course 2% may not sound like much of a difference. Quicken Loans Chief Economist Bob Walters explains, “It may not seem like homeowners assuming their home’s value is 2% higher than appraisers’ opinions is significant, but it could make a huge difference in metro areas with higher average home values. It could also cause complications for homeowners looking to refinance, who may be close to the loan-to-value thresholds to qualify, or for those looking to eliminate mortgage insurance. We encourage consumers to stay aware of sales prices on comparable homes in their area to have a better idea of their home’s value.”
In the Washington, DC metro area, the median home sales price is $400,000. So a 2% difference in price equals $8,000. Such a discrepancy could hurt if you want to set a price to sell your house fast.
3 Reasons Why Homeowners Overvalue Their Homes
Popular rationale has been home values go up over time. That’s what real estate history has shown. The thought that your largest asset may have devalued significantly is difficult to accept. These three contributing factors fuel a seller’s distorted views.
Real estate agents
With the awareness that sellers tend to overestimate the worth of their homes, some real estate agents will agree to list a property at a higher price to avoid offending their seller. Other agents may think they need to price the listing high to get the seller’s business.
Their rationale is that it only takes one person willing to pay the asking price to turn the imagined, magnified value into a fulfilled contract and official value. Depending on how motivated a seller is, that listing could sit for quite a long time.
Upgrades & Improvements
Like a car, a house needs maintenance or its value depreciates quickly. That means replacing an HVAC system when it breaks down and cleaning the gutters every year. Additionally, maintenance may mean renovating the bathrooms or the kitchen every 10-15 years. It includes replacing light fixtures and updating hardware. Your house needs continual improvements to keep it relevant.
Here’s the irony. Homeowners who invest in these upgrades overestimate how much those improvements add to the value of their home. Typically homeowners think they can get back, dollar for dollar, what they put in. In reality however, they will only get a fractional return. According to Remodel Magazine, in the Baltimore and Washington, DC metro areas, an average bathroom remodel only returns 72.7%. And a homeowner could expect to only recoup 61.3% on a major, upscale kitchen remodel.
Listening to the news, oftentimes sellers will hear that home prices are going up! In general they are, but perhaps not by as much or as quickly as you think. If you read that home prices are up 10%, what exactly does that mean? Is it 10% over last month or over this month last year? Do they mean sales prices or are they really referring to sales volume? And to what area to those statistics apply? What’s happening in one part of the country is not what’s necessarily happening on your block.
Furthermore, sellers look on sites such as Zillow to gauge market value. Even Zillow CEO Spencer Rascoff has said that “they’re a good starting point” but nationwide Zestimates have a “median error rate” of about 8%.” Locally, median error rates on Zestimates could far exceed the national median.
If You Want to Know How to Sell Your House Fast
As a home seller, the smartest strategy is to do your research, talk with professionals in your area and set a realistic price for your house.