One of the more interesting things about my job is that I get to look at appraisals of homes from all over the country. For those who do not know, an appraisal is an official report giving a valuation of a home. Appraisers usually go to home in question and take measurements and pictures, sketch out the layout of the house, look for any updates or deficiencies, and look at the overall condition. [Note: They are NOT inspectors, and are not looking at things like electric work or structural issues unless clearly visible.] They then do some research on the home and the local housing market. They look for comparables, or “comps,” of other homes that have sold in the same area in the recent past (they usually try to find homes that have sold within a mile of the property within the past 6 months).
Comps will be similar in size and features – number of bedrooms and bathrooms, square footage, lot size, porches, garages, etc. Of course, comps will not always be perfect, but it is the appraiser’s job to use his/her best judgment to make slight adjustments for differences in size and features, and then use the sale price of those comps to triangulate a value for the home in question.
The old adage in real estate is that it’s all about “location, location, location!” This is certainly true, as the comps being used to triangulate a value are indeed located in the same local market. And local markets can vary vastly; some homes that may have similar features, square footage, and bed/bath counts could have vastly different values based on which area of the country you are located in. Below are a few homes homes illustrating this; these homes are based on true appraisals. [Note: I have changed cities and excluded anything identifying, but I tried to substitute similar cities/areas. The point stands, showing the difference between some West Coast homes and Midwest homes, and a bonus South Florida home thrown in there for me!]
The differences are stark. Go out to California, and in many cities, you may not get much bang for your buck in terms of home value. Stay around the Midwest or rural areas, and you will probably get a lot more house for your money. Go to Texas and you can get a very nice home for a very reasonable price. And I will add that you don’t have to go across the country to see differences either. My parents’ home in small town east central Indiana would be worth substantially more money if it were moved 30 miles to a suburb of Indianapolis. Sometimes even a few blocks can be a difference in thousands of dollars for home values. For example, if we moved a couple of blocks east, our same house would be worth much more (potentially 50-100 thousand dollars more!). Certain markets and cities have always been – and will continue to be – more expensive than others in terms of home values and overall cost of living. That’s not new and it won’t change. However, every now and then it kind of hits me how vast some of these differences are…whether it’s because we ourselves are new homeowners, or I get to check out appraisals from all over the country…it’s interesting to see!