Ring, ring.
Realtor: “Hello?”
Know-It-All House Hunter: “Hi, why is this home priced under market?”
Realtor: “That home won’t qualify for financing due to the condition that it is in. They will only consider cash offers. I’d be happy to suggest other homes for you. Tell me more about what you are looking for.”
Know-It-All House Hunter: “I’d like a home that is priced below market, ideally less than what Zillow says it is worth, that I can put that difference back into the home and land a killer deal.”
It’s not uncommon to get calls like this on a regular basis in the real estate world. When you consider the abundance of real estate flipping shows on the air, it’s no surprise that house hunters in our area are trying to figure out how to spin straw into gold.
Is this an effective strategy for house hunters? First off, the online home value estimates are notoriously inaccurate. They are computer generated and while they provide a ballpark, they should not be seen as an accurate value tool. This is like trusting a robot to know how to love. Sure, it might know what the concept of love is, but not have the feelings behind it.
Secondly, if a home is priced below the estimated market value, why does it all of a sudden make sense to use that difference as your remodel budget? Suppose a home value is estimated to be $1.5 million, but the home is only listed for $1.3 million. Now you are assuming that $200,000 is your remodel budget. Does adding $200,000 automatically mean you’ve increased the value of the home to $1.5 million or do you suppose that now it is worth $1.7 million?
First off, money spent is not always equal to value gained. Secondly, there’s also a chance you could overbuild for the neighborhood, which would lead to a sinking return on investment. Finally, if you don’t know what you are doing or are not sure about what improvements will add value, you could hurt the value more than help it. For example, if you spend your whole budget adding a tennis court, but it would have been smarter to add a pool, you’ve just squandered $200,000.
House hunters want to get a good deal, which is understandable and wise. However, getting a good deal starts with knowing the real value of a home before you go into it. From there, coming up with a remodel budget should be based on what the home needs and what the market supports, without overbuilding. Bottom line, don’t assume you are getting a good deal because you see something online that makes you think you are getting a good deal. After all, you can find anything you want on the Internet to support your case – but does that make it true?
By Holly Schwartz
Holly Schwartz is a Realtor with Villa Real Estate who lives in Eastside Costa Mesa and has been featured on HGTV’s “House Hunters.”
