You’ve decided to sell your home. You have a knowledgeable agent upon whom you’ll rely. Should you bother learning real estate terms, specifics, and details? Are you aware of your home’s appreciation and resale value?
Think of it this way: You have a body, and medical doctors are experts on the human body. We bet you must read medication labels, food ingredients, and exercise guidelines. Sometimes, you might take a look at your lab results or X-rays.
Why bother when you have a board-certified subject matter expert to advise you on your body? The more you learn about your subject—be it your house or your body—the more informed your decisions will be.
We aren’t suggesting you take the real estate licensing exam. Don’t delve deep into books written about property law.
There are critical concepts unique to selling real estate. In this post, you’ll learn to DEAL—Define, Explain, Add, and Leverage—home appreciation and resale value.
Let’s define and dig into the concept of home appreciation first. Then we’ll tackle resale value.
A home that increases in value over time is the definition of home appreciation. Why does this matter? If the owner decides to sell their home, they’ll make more money from the sale if the home’s value has grown.
Stated simply, resale value is the price a home can achieve when it is sold in the future. There will be more on this topic a little later.
Explain: The Simple Equation for Home Appreciation
For now, we’ll focus on the concept of home appreciation. The concept of home appreciation has two components that sellers should know about. The first is the calculation of home appreciation. The second is average home appreciation.
How do you prove that a home has increased in value? The proof lies within an equation. While not everyone loves math, math is a great way to end arguments as it offers concrete proof.
Let’s create an equation and then meet a seller.
The current value of the home can be represented by the letter X.
The price paid for the home can be represented by the letter Y.
The difference can be represented by the letter D. The difference is the home’s appreciation, stated in a finite dollar amount.
X – Y = D
Home appreciation often is stated as a percentage. Let’s meet our seller and obtain some real numbers. Then, we’ll revisit the concept of home appreciation expressed by a percentage.
Meet Maddie. In 2018, Maddie purchased her home for $275,000. In 2022, Maddie’s home is valued at $325,000.
X = $325,000
Y = $275,000
D = $50,000
Maddie’s home appreciated in value by an increase of $50,000.
Home Appreciation Stated as a Percentage
Let’s put together the home appreciation equation and the dollar values associated with Maddie’s property purchase. By putting them together, we can see what home appreciation expressed as a percentage looks like.
The original home value is equal to what Maddie paid for it in 2018.
Y = $275,000
The original home’s value (Y=$275,000) subtracted from the current value of Maddie’s home (X=$325,000) is the change in the home’s value.
D = $50,000
To find the appreciation percentage, divide the change in the home’s value by the original home value.
D = $50,000
Y = $275,000
D/Y = 0.18 (rounded to the nearest hundredth)
Multiply the answer by 100 so that the figure is expressed as a percentage.
0.18 * 100 = 18%
You may understand the mechanics of this math as the subtraction and the division are pretty straightforward. What you may be struggling with is the relevance of the dollar values versus the percentages.
Consider this example, in which you’re going back to elementary school. You and your friend Paul take a spelling test consisting of 50 words.
You spell 46 of the words correctly. The difference between the total possible number of correct words and the words you spelled correctly is four.
Your friend Paul tells you he scored an 85%. He asks you what you got on your test. You tell him you misspelled four words.
It would be easier to tell which of you did a better job if you translated your score into a percentage, like Paul’s.
46/50 = 0.92
0.92 * 100 = 92%.
You scored 92% on the test. Paul scored 85%. See how much easier it is, to compare things using the same unit of measurement?
Understanding the Average Appreciation
You’re thinking, the concept of subtracting the original price paid for a home from its current price to calculate the home’s appreciation is simple! Why time travel back to math class and work through percentages?
Nationwide home appreciation is frequently stated as a percentage. Sellers examine those percentages and use them as benchmarks when studying their regional housing markets.
Bankrate, a consumer financial services company based in New York City, New York, in the U.S. reports home appreciation throughout the country. When Bankrate cites home appreciation data, it is expressed in percentage terms.
In summary, to view your home’s appreciation in context with nationwide home appreciation data, it is helpful to see that data represented in the same format.
We’d be remiss to leave out the concept of fair market value (FMV) when discussing home appreciation.
Recall, in our example with Maddie the seller, we kept it simple by assigning $325,00 to be the value of Maddie’s home.
In reality, realtors determine a home’s current value by ascertaining the Fair Market Value (FMV) of a home.
There are nuances to establishing FMV. However, the basic premise identifies a set number of comparable properties that sold within the same timeframe, sums their selling prices, and divides by the number of properties sold.
From January 2022 through March 2022, in the southwestern suburbs of Pittsburgh, Pennsylvania, three single-family dwellings of approximately 3,500 square feet properties sold at the prices below:
- House A sold for $400,000.
- House B sold for $380,000.
- House C sold for $409,000.
The FMV for a 3,500-square-foot property in the specified region for the designated time period is calculated as follows:
$400,000 + $380,000 + $409,000 = $1,189,000
$1,189,000/3 = $396,333
FMV = $396,333
Ask any seller what keeps them awake at night or what distracts them from their day job. The seller’s answer is likely to be, “How do I add value to my home?”
Ask and you shall receive! Below, you’ll find some tried and true tips for maximizing your home’s marketability through true value adds.
- Paint covers a multitude of sins—Are your corners scuffed from shoving an oversized sofa through too-small halls? Was your kid creative with Crayola, using her bedroom wall as a canvas? A few gallons of high-quality paint are worth the price to disguise dark scuff marks and the works of mini-Picassos.
- Consider every mod-con, borrowing a term from our British brethren (modern conveniences shortened to “mod-con”)—Even if your home was built before the Internet of Things (IoT), if you can upgrade with one smart appliance, go for it.
- Invest in cleaning and decluttering (C&D) the way pharmaceutical firms invest in research and development (R&D)—These actions cost nothing and can be fitted into the busiest of schedules. If you have four hours, blast through your basement, ditching old tools and paints. If you have 40 minutes, scour some surfaces.
- Give some love to the heart of the home—Practically speaking, we are advising you to update the kitchen. Add metallic knobs or on-trend drawer pulls. Are you working on a shoestring budget? One bottle of wood cleaning spray and a couple of clean rags make cabinets shine.
- Cue up curb appeal—Maintain mowing the grass regularly and keep bushes trimmed. Anchor a central garage door on either side with large pots bursting with brilliant blooms.
- Add on—If the budget allows, go big with an addition. Develop a finished basement into a fully functional apartment and watch buyers’ eyes light up as they consider it for their aging parents who still want their own space. Enclose a one-season deck and get a four-season room.
- Stage right—Furniture arranged in an eye-pleasing way, crisp curtains dancing in the breeze, and minimal elegant touches make a home infinitely more attractive. Over your mantle hangs a 6×6 family portrait, rendered in oil paints. On your mantle is your collection of ships in a bottle. Seeing these items brings a smile to your face. That reaction is unique to you. Trust us on this and move them to storage, please!
- Waste not, want not—Improve your home’s energy efficiency by swapping old appliances for environmentally conscious ones with Energy Star ratings. Look for washers that use less water. Consider dryers with lower heat settings or auto sensors. If that isn’t feasible, add a couple of low-flow bathroom fixtures. Low-flow refers to the smaller quantity of water that a toilet, shower, or sink uses. Even a low-flow faucet gets a gold star from potential buyers with a mind toward minimizing their natural resource consumption.
- Floor them—If you have the time and money, replace worn carpet or scuffed wooden floors. If you have neither the time nor money, rent a carpet cleaner to oust old dirt or a buffer to give a glow to the aging planks.
- Trust them, they’re professionals—Even with all the DIY television shows and YouTube tutorials, you may feel far from comfortable selling your own home. That’s okay. Hire a real estate professional. Ask friends, family members, and neighbors for recommendations. Your research and reading won’t have been a waste of time. You have acquired knowledge from your home improvement projects, even if you didn’t complete them on your own.
“Use (something) to maximum advantage,” is the dictionary definition of leverage.
How does leverage work in the world of real estate? The more attractive a property appears to potential buyers, the greater the leverage you have as a seller.
How do you gain leverage as a seller? By driving your home’s resale value upward, you can increase the price you’re asking. A higher selling price equates to a higher profit for you.
Remember, savvy buyers will look beyond the plate of still-warm cookies and behind the strategically staged furniture. They’re looking for intrinsic—and inherent—value.
Let’s really dig into what resale value is and understand the factors that affect it.
Recall the ten tips for adding value to your home? The goal of those was to increase your home’s resale value.
Call to mind the definition of resale value as discussed in the first part of the post. We’ll add to that now.
Resale value is the estimated dollar amount for which a home will sell at a point in the future. The key word herein is “estimated.” Many factors come into play when anticipating a home’s resale value.
A variety of factors and their relative importance to potential buyers are the reasons that resale value is classified as an estimate. However, there are five general factors that many people consider when assessing a home.
These five factors are pre-existing conditions to consider as you prepare your home to be put on the market. Being aware of what they are and how they affect home sales may affect your decisions.
Recall the previous topic of fair market value and average appreciation. Both concepts look at your home in the context of similar homes that have sold previously.
Take into account the homes that have similarities to yours. If two other properties have the similar square footage, were built around the same time, and sold within the last three months, these two properties would be comparable to your home.
The appeal of your home’s location may be that it is close to your sister (or far away from your in-laws). You may like that the backyard is framed by woodlands. Those attributes make the location attractive to you, but not necessarily to another buyer.
When a home appraiser assesses the attributes of your home’s location, they’re looking at three points.
- Proximity to businesses and industry
- Nearness to commercial enterprises (e.g., shopping, dining, and services)
- The quality of the public school district
In most cases, if your home is newer, it is going to be more appealing to buyers. A newer home translates into a roof that hasn’t weather years of storms, problem-free plumbing, and untarnished electrical wiring that is up to code.
The state of the economy is a factor that affects home sales. If employers are hiring fewer workers or laying off workers, the unemployment rate is affected. A higher unemployment rate may cause buyers to be more hesitant to move into a new home as they worry about their own employment status.
Supply chain shortages and stock market instability are other factors that have a ripple effect on the economy.
Some moves transpire across state lines or even from one part of the country to another. Getting your stuff from Connecticut to California is going to rely on a moving truck (or two), which uses gas. If that is scarce, moving companies have to increase the price of their services to compensate.
The stock market reacts to elections and global conflicts. Keeping abreast of current events may help you to forecast trends in the financial sector that cause economic ups and downs. Over time, you’ll recognize which of these affect the housing market.
“What is everyone else doing?” is a relevant concern when contemplating whether to put your house on the market.
Your appliances’ stewardship with natural resources may get top marks from the EPA. The kitchen and bathroom surfaces may be less than a year old. Everything that plugs into an outlet is smart and can be operated from your phone.
Even with all those things in your corner, if the nearby yards are flooded with “For Sale” signs, selling your home is going to be difficult. It’s all about supply and demand. If there are more houses for sale than there are buyers, buyers can afford to be selective and negotiate aggressively.
Isn’t it reassuring to know that you’re in the know? Home appreciation, average appreciation, and resale value—not to mention tips galore for home improvements—are part of your arsenal.
To grow that arsenal, take in some more tips for getting into the groove for your next move.
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