Your clients likely are overly optimistic about the value of their home, a new study finds. Home owners tend to overestimate the value of their properties by about eight percent, according to a study published in the Journal of Housing Economics.
Researchers say that the overvaluations often are from owners who miscalculate their estimations over the capital gains they've accumulated in the house. The study echoes similar findings from a recent survey conducted by Quicken Loans, which found a "widening gap" between what home owners think their home is worth and appraisers' valuations.
In a recent article, The Seattle Times asked appraisers why home owners tend to overvalue their homes -- besides the emotional attachment they likely have to it. The appraisers said homeowners tend to have unrealistic expectations about how much their improvements add to the home’s resale value.
"Consumers may think they can get back what they put into the improvements they've made over the years," says Tom Horn, an appraiser in Birmingham, Ala. "But it doesn’t work that way."
Appraisers also note that home owners often don't realize that they may have over-improved their home compared to others in the neighborhood, which can lead to overestimated values. Owners may spend thousands of dollars for an ultra-gourmet kitchen when nobody else in their price point has done so, says Don Boucher, an appraiser in Washington, D.C.
Plus, home owners who install highly personal and costly remodeling items commonly don't see the full-cost payback on those projects either. So, if a home owner installs a luxury indoor lap pool or spa for their personal desire, they can’t expect that prospective buyers will view it as valuable as they do.