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Study Shows Homeowners Tend to Overestimate Property Values

By Allison Halliday | June 2, 2015

A recent study that was published in the Journal of Housing Economics found homeowners tend to overestimate the value of their property by an average of 8%. These figures are based on statistics from the federal databases and researchers think these over valuations are most likely due to owner estimations of the capital gains accumulated in that property.

The results of this study tie in perfectly with the results of another monthly survey which was carried out by Quicken Loans. This particular survey looks at the estimates provided by applicants who wish to refinance their home compares with the actual property appraisals. According to their latest study the gap was widening on average right across the country between actual market value and the value owner’s place on their own properties.

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As the article in the Seattle Times points out, nobody can really blame homeowners for being optimistic about their property’s value as after all many people are emotionally attached to their homes. However, according to real estate appraisers, overestimating is also related to other factors.

It’s quite common for homeowners to have unrealistic views about how much home improvements will affect the resale value. Homeowners know exactly how much they paid for home improvements and renovations and think they can get back exactly what they’ve put into improvements made over the years. Unfortunately it doesn’t always work this way. Apparently many high-cost improvements are not reflected in resale values and re-modelling a kitchen for nearly $57,000 would have a return of 67.8% on a property’s resale value and remodeling a home office would have a return of less than half of the cost.

Another thing that homeowners sometimes neglect is over-modelling a property according to the neighborhood, for example installing a gourmet luxury kitchen in an area where no one else has done the same. Real estate experts point out that if you choose to do this then you’re typically not going to be able to recover that extra expense. Some homeowners install expensive improvements that have limited appeal, for example indoor lap pools or glass conservatories. In many cases prospective buyers may not want these types of improvements and could even have plans to remove them if they purchase the property, meaning these costly renovations have zero added values.

Appraisers also say that owners may not understand land costs in their area which can make a huge difference to the overall appraisal of a property. They point out that appraisers can perform independent valuations for owners as well as lenders.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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