CHM Blog

Home value is not a simple equation

Unlike stocks, bonds, or annuities, real estate is tangible. When you buy a home, you usually live in your investment. But a home is more than shelter. It can also be that nest egg that determines your financial future if you choose the right home in the right place at the right time for the right price.

Too many variables? As Realtor.com’s Ana Durrani explains, what determines property value isn’t always a one-size-fits-all number. “Property value is determined by everything from the year your home was built to its proximity to transportation to the number of bedrooms. And experts say there are many more intricate details that buyers and sellers might not realize that influence value.

While an appraiser considers your home’s square footage, the number of bedrooms, and the size of the lot when determining your home’s value, he or she will also note how much other homes similar in size in your area sold for. These are known as comparable properties. Confusion occasionally arises over the value of a property because of the location of county lines and districts. For instance a homeowner can be selling a home thinking theirs would be worth the same as the house directly across the street. But even though it’s the same floor plan, it may appraise differently because of a county line, easements, or a number of other variables, such as condition, lot size, or even school district.

Big doesn’t always mean more valuable. Functional, usable square footage is more important. Wasted space detracts from or often doesn't count. “For example, attics, garages, and unfinished basements are typically not included as usable square footage,” says Durrani. “So though you might have a 2,000-square-foot home, an appraiser might be able to value only 1,750 square feet.”

Age counts as well. Appraisers examine the property’s condition and its overall upkeep. Newly installed features such as a new bathroom, new hardwood flooring, or a new garage or roof will get bonus points, while original flooring, old-style paneling, popcorn ceilings, and old water stains on the ceilings will get a lower score in the eyes of the appraiser.

Newer mechanicals and utilities also score points. “Energy-efficient upgrades can reduce utility bills and are appealing to buyers. For example, adding a smart thermostat can improve efficiency and increase property value,” says Durrani, who adds that old, out-of-date electrical wiring can tank an appraisal in a heartbeat because it means buyers might have trouble running the air conditioning, microwaves, and hairdryers.

Climate resiliency is fast becoming a point of contention as well. “We’ve recently dealt with many waterfront home sales, and I’ve found that a key element for appraisers is the condition and age of the sea wall,” says Miami-based broker Ivan Chorney. “If it’s up to code, it adds tremendous value to the property and can save time for someone wishing to build their own home.”

He also explains that protection from extreme weather is a key element to the property’s appraisal value across the county. The better the protection from the elements, the greater the value.

Not all appraisers are created equal. “Buyers and sellers should be aware of variations among appraisers,” says Durrani. “As the appraisal industry becomes more regulated, fewer people are in the profession. The result is that appraisers registered in the state could be assigned to a property in an area where they have no local knowledge.” In the end, an inexperienced appraiser can significantly affect a home’s overall value. She goes on to say that if you think an appraisal you get is way off, you can question the number—and request a new appraisal.

Knowing what increases or reduces a home’s value can help keep potential buyers from paying more than a home is worth. Sellers? It’s crucial to understand the ins and outs of property values so they can price their home to sell quickly.

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are moving sideways today. The MBS market improved by +8 bps last week. This was not enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) Jobs and 3) Manufacturing.

1) Inflation: After Powell said on Friday that the Fed would not move their target rate from 2% and that they would keep pressing until inflation actually hit that goal, this week's inflation related data will be very important. On Thursday we will get the Fed's key measure of inflation, Core PCE. It is expected to increase YOY from 4.1% to 4.2% which of course is still double their target rate.

2) Jobs: We get Big Jobs Friday this week ahead of the long holiday weekend. Throughout the week we have a ton of job and wage related data points including: JOLTS, ADP, Initial Weekly Jobless Claims, Challenger Job Cuts, Non Farm Payrolls, Unemployment Rate, Average Hourly Earnings and more.

3) Manufacturing: We get some very big name manufacturing reports this week with both Chicago PMI and ISM Manufacturing PMI. We will focus on the internals for employment and prices paid.

Treasury Auctions: Here is this week's Treasury auction schedule:

08/28 2 YEAR and 5 YEAR Notes

08/29 7 YEAR note

This Week's Potential Volatility: High

This morning markets are treading water. Volatility has started low but expect it to skyrocket if any of our key reports this week miss expectations.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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