The Multiple Attributes of Home Value
National news continues to talk about dollar value, however, potential homeowners must consider other, somewhat intangible values as well. I have explored multiple definitions of value with the hope you will find the value you seek in your home or investment property.
Since 1996, I have worked as a licensed real estate agent in Connecticut to help my clients to recognize and achieve value in their real estate, investment and lifestyle decisions. I find meaning in life by helping others. By discussing my market knowledge and community perspective with others, I make a positive difference in the lives of those I meet. By reflecting on what it would be like to be you, facing the other side in a real estate transaction, I maintain my personal commitment to my fiduciary duty, honesty and authenticity in my daily life.
Real Estate is Local, so know your neighborhood, zip code and local market. Many states are still below their peaks attained in 2006, while others have attained new peak prices in 2014.
Here’s another good-news statistic, keep in mind that estimates are only starting points. They’re no substitute for a professional appraisal or a comparative market analysis. Dollar values vary by zip code, with CT and RI trailing the pack in the nationwide value increase. If you haven’t checked to see how much your home is worth today, you might be pleasantly surprised.
Happiness Value- is the big one here; a measure of your overall satisfaction with your life position, based on your previous dreams, accomplishments, balanced by your present perception of your life wellness and inner peace. Every day we have moments of reflection where we view our lives and our relationships. Considering how far we have come, or the goals we wish to attain can cause happiness. These goals often include professional success, financial well-being, social action through giving back, health, and family development. Owning one’s own home has been a benchmark of happiness for thousands of years, as the sense of place in the world where one is centered transcends time and short term changes in success. Families who own their homes and pass this permanence through generations, are not well represented in the USA housing marketing story, as this multi-generational permanence is not favored by popular media over the American search or pursuit of wealth and professional success. In many countries, multiple generations have happily lived in the same small radius or even the same building.
Happiness affects our daily life on multiple levels of personal well-being, including health, relationship building and prosperity. People who are happy in their daily lives exude a certain radiance and confidence that is noticeable and attractive, making happy people more likely to be accepted by friends, colleagues, neighbors and possibly strangers. Genuine happiness is consistent over time, as is one’s commitment to maintenance and preservation of their home. Departure from our personal place of renewal and rest begins the daily life cycle as we greet the morning, and upon our return, this is where we rest our heads most every day. Leaving a place you love, expecting you will return, can create a distinct sense of happiness as we set our sights on the trails and challenges of daily life. When we return home free of our commitments to the material world, we may experience more happiness. We may spend enjoyable, rejuvenating times doing meaningful things we like with people we love in a place we have designed and created, or we might do nothing but watch a video screen.
Serenity Value- is related to the happiness value, determined by the feelings of peace, content and meaningful connection within personal moments you experience. Many people find serenity value through meditation, contemplation and personal reflection, however, having a location to center one’s physical presence can help to achieve this sensation. Serenity value is enhanced by placing one’s self in specific locations that nurture the experience of serenity. You may find visual and physical places defined by personal elements of interior design, including minimalism, simple lines, tranquil views and natural experiences. As the modern world pushes our limits, intruding into our time and space via mobile devices and instant communications, we may begin to see value in experiencing a place of peace and stillness where we can just rest and relax without being directed to respond. A place where we can achieve the feeling of catching up with daily life and looking our situation over with a reflective overview, instead of just keeping up with the race of commitments and obligations.
This experience of serenity comes on the heels of happiness as it is the realization that life is good right now, and this momentary realization in that particular time is valuable and worthy of experiencing as long as possible. We may imagine this tranquility accompanied by a cup of warm beverage, in a favorite chair, in a room of minimalist design, with a fireplace crackling nearby, or on a deck overlooking a garden, lawn or breathtaking view. One may move past this place of personal to thoughts of responsibility, creativity and engagement with a new sense of confidence and commitment, knowing goals have been met, dreams realized and new achievements are on the horizon. Allowing my self to be in this place of reflection and joyful realization is a fountain of inner strength and direction which can be shared with those around me in a renewed spirit and positive attitude. I do not suggest this experience cannot be achieved without home ownership, as one may rent a house or apartment. However, in a shared building there are likely to be noise intrusions and the presence of other residents in your immediate area.
Serenity value is often enhanced by the lot size or size of the home, where the owner may develop sitting areas, decorative water ponds, wildlife immersion areas (birds and small animals), outside dining areas and vegetable gardens. By spending time immersed in these environments, experiencing the peace and natural beauty, one may increase their inner serenity. Copyright 2013 by David Carr. All Rights reserved
Relationship Value- the relationship value of a home is determined by the friendships the occupants develop based on your physical proximity to others. Many people do not realize a major factor determining development of relationships is proximity and shared interests with others, so if you place yourself in a specific location, there is a reasonable chance you will develop some new relationships with people who live around you. I can identify multiple friendships I have nurtured based simply on my daily physical presence in my neighborhood for 15 years, because my home is a place where I see, and am seen by others who live around me. Another relationship stream available is realized by social action and participation in community development issues, volunteering, voting, and participation in municipal government. Copyright 2013 by David Carr. All Rights reserved
Memory Value- is unique to homeowners as people who rent and move frequently will not have the opportunity to sit in the room where specific life events happened – to reflect and remember special past experiences. Homeowners have the unique ability to sit in these spaces, then slip into memory of past significant life experiences including hours spent entertaining, sharing a coffee or beverage with a friend or neighbor, a favorite place where one spoke on the phone, played with children, read stories, engaged in a favorite past time, listened to music played alone or with friends, shared meals with family, or any of the multitude of experiential moments that makes us who we are. Copyright 2013 by David Carr. All Rights reserved
Life Stage Value- The Life stage value is often seen as the nesting drive of a young family, or a sense of where one sees them self in a certain point in their lives. The Life stage value of a home for children has been well documented, as a sense of place and belonging and can be instrumental in developing a sense of security and place in the world.
Children can thrive in a neighborhood where they grow up making lifelong friends. This is often accomplished when the child sees himself in a place over time, and builds relationships with people who share immediate proximity and experiences. Children have the opportunity to participate in school, sports, recreational events, and general neighborhood play with those who live in their immediate proximity.
As people move past high school, college and professional development, many enter a stage of life definition where they make their career or life work. In this life stage, acquisition of a place to realize this plan is a stage in life. Middle life, the late 20’s to early forties is often the time Americans are able to see themselves in this more committed life stage. Life stages are loosely defined in our contemporary society as more people experience themselves as more youthful due to personal health, medical technology advances, cosmetic youth marketing, and the general focus on recreational and personal pleasure that exists in modern American culture. Older Americans may see themselves in single level homes or recreational vehicles without stairs, however, improving multilevel access technology has reduced the stair issue for many mobility impaired individuals.
Educational Value- the educational value of the home is access to the school system the homeowner receives as a resident of a community. Many young families place schools highest on a home’s value, and will buy a home that may not meet all the physical specifications to enroll their child in a school system that is well rated and known for producing a majority of successful students. Many communities attain high school graduation rates in the 90th percentile due to lack of transience and instability, factors known to interfere with relationship building, educational success, and a sense of connection. Concerned and committed parents are able to gauge school systems easier than ever, using school reporting sites and state score reporting databases. I suggest people use the state sites because some private websites may be slanted by minority participation or extremism. I suggest balance by visiting the schools your child will be attending. Experiencing the enthusiasm and happiness of the students, faculty and their parents at dismissal, school events, sports events, and board of education meetings can be helpful in assessing the strength of the school system. Potential parents can search the school name online, or talk to parents waiting to pick up children prior to dismissal.
Equity Value- is the current value of the property compared to what the person paid for it. A property owner will experience positive equity when their equity value has appreciated with inflation and local demand, creating a financial resource unavailable to the renter. Renters consistently have to pay rent. There is no future except for higher rents due to inflation. A homeowner locks their interest rate, yet is susceptible to rising property insurance premiums and municipal taxes. A person who pays for their house over time will own that property, creating a lower monthly payment (no mortgage interest). A person can pay a 30 year mortgage in about 20 years if they make only one extra payment of $3000 per year ($8.22/day), designating all the money towards principle. You could pay a 30 year mortgage in about 15 years if you make extra payments of $6000 per year ($16.44/day) designated to principle, not interest payment.
In late 2013 we hear many stories of people with negative equity who bought homes between 2000 and 2006 in the housing value expansion that preceded the great recession. Upon closer investigation, we see that many people who experienced the negative equity created the situation by borrowing money against the inflated value of their home in this time. Some foolishly used their home like a cash machine to buy desired possessions, finance education or go on vacations, and some possibly planning to resolve the debt with bankruptcy. Some people who suffered equity loss without additional borrowing cash outs have been able to refinance at historic low rates, and many are close to seeing their values return in the near future.
Equity value also creates the ability to execute a Lateral move when one wants to move up to a larger home, or move to another location. When you buy and sell in the same market, usually defined as a six to twelve month period, you experience the same value conditions. A person who wants to move into a larger property can do so by adding the value difference to their current home value when they sell and buy the larger property. Conversely, one can utilize cash value when choosing to downsize.
Inflation Hedge Value– Prices historically rise in the Unites States and most of the developed world consistently, controlled by the monetary policy of the government and current lending conditions. We often hear about the Consumer Price Index, which is an overall gauge of the prices of consumer commodities, the things most people buy on a consistent basis, food, clothes, cars, appliances and such. Many people do not consider a home or investment property a consumer commodity. That assumption, however, may deserve some personal consideration. We do not consume a home, we occupy it for a period of our lives until we move on for a variety of reasons. We do spend money on things associated with the home. We do access, and sometimes consume, the equity or “Home Value” of the property, which is the number we hear about in the national news. When the price of milk, dining out, a shopping cart of groceries, a gallon of gas, an ice cream cone or a beverage all cost more than it used to, so does a home. Currently at the end of 2013 in New England, I can see specific properties where the inflation value of a home is at historic lows, with actual, non-adjusted cash values comparable to 1990 and 2000. In the same time, inflation has maintained lower than preferred levels of increase since 2005 due to recent financial market disturbances. If your house costs $200,000 and inflation is 2%, your home will be worth 204,000 in a year, $220,816 in 5 years, $243,798 in ten years, and $269,173 in fifteen years, based solely on assuming a 2% (200×1.02) annual increase in prices. We have seen properties appreciate much more than this between 1998 through 2006 and a fall in values from 2007 through 2012, due mainly to manipulation of collateralized securities and leveraged debt obligations by investors. These market manipulations are similar to the Dutch Tulip Bulb Bubble of the 1600’s where credit was extended, and people kept paying more for tulip bulbs simply because they thought they could sell them for more than they borrowed. Then and now, lenders were willing to fuel the investment, despite the quality of the borrower. Copyright 2013 by David Carr. All Rights reserved
Leveraged Value– is the amount of money you control compared to the actual cash you have to invest. One may be able to live in a $200,000 home and pay a monthly mortgage payment of $956 month (at 4% over 30 years) to control the 200,000 property, creating a cost to value of 200:1. The homeowner will still have to pay additional fees for property tax ($5000/year), home insurance ($1200/year) and Private Mortgage Insurance ($2500/year) making the total estimated monthly payment around $1681/month, assuming the borrower is creditworthy. Even at $1700/month, the cost to value ratio is 125:1, or the leveraged value.
Now, imagine this property appreciated 50% (5% per year is ideal appreciation) over 10 years to be worth $300,000. That $100,000 increase could be the buyer’s profit, all for choosing to assume title for the property. Or, if the same property was rented in the same time-frame with the same appreciation for $1800/month, the owner could realize a $1200/year profit, over, 10 years, $12,000 plus the $100,000 equity value increase. How do we calculate the leveraged value when we consider the cost value of a property? A really unique question. Copyright 2013 by David Carr. All Rights reserved
Tax deduction Value- when you file your federal IRS and state income taxes, there is a line for property tax deduction and interest paid on your mortgage. This may reduce your annual tax burden by $16,472 per year if you itemize deductions. People who do not itemize their deductions and choose the standard deduction may not realize this value. Everybody has a unique financial position they should understand, either by having taxes professionally completed, using credible tax preparation software, consulting with a financial professional or reading a good book about tax liability.
Rent to Own Ratio value– is the relationship of rent paid to the value of the house you could buy for the same dollar. If you paid $1500/month rent, you may be able to assume a mortgage for the same monthly dollar. We have to spend a certain amount of money every month for shelter, unless we are fortunate enough to already own our residence free and clear of debt. The $1500/month becomes $18,000/year, and creates a rent to own ratio of 10 if you purchased a $180,000 property to occupy. Rent to Own ratios under 14 are considered buying signals in traditional home buying evaluation formulas, meaning the person who pays $1500/month rent would be wise to buy a $252,000 house if their employment and financial situation allowed them to do so.
Pride of Ownership Value-can be related to happiness, as this is the sense of satisfaction a person achieves when they reflect on the actual ownership of the home, the personal effort made to maintain the home, and the ongoing commitment to the members of the family who also realize the benefits of this decision every time they head home.
Pride of ownership is gauged by how much personal satisfaction an individual attains by maintaining and improving their place of residence. Some people enjoy learning new skills like painting, gardening, lawn care, wiring, and construction. Others enjoy hiring somebody else do the work while they watch, or are working at their own job, then evaluating the quality of progress. Either way, the pride of ownership compared to renting cannot be understated. The renter is often forced to endure environs that are not to the standards they really want, yet are unable to change how their landlord’s property is maintained. Pride of ownership is experienced since childhood, from our first favorite toy, to our favorite bike, then a car or other prized possession. As a homeowner, it will be the good feeling you experience when you see the results of your creativity and dedication reflected in the image that is your home. Copyright 2013 by David Carr. All Rights reserved
Location Value- is the quality and consistency of your immediate environment and neighborhood. You may have heard the saying, “The three most important things to consider when buying a property are location, location and location”. You can change everything about your property except the location. Location value is often determined by the pride of ownership of the people who invest in their property, or the quality of municipal, recreational and educational services provided by the town or city. Open space, larger lots or expansive land, low traffic counts, low traffic noise, also contribute to a property’s location value. A property on a busy street or corner will not have the same location value as a property on a side street, cul-de-sac or abutting open space.
Lifestyle Value- is more specific than the location value as it defines how the owner moves to pursue a specific style of life and activity, like a golf course, boating or skiing community.
A city dweller may choose a lifestyle that offers efficient public transportation, bike paths, daily personal shopping services within walking distances and a variety of cultural and educational opportunities.
A suburban neighborhood dweller may choose a quiet street, comparable home values and styles, a garage for their car or bicycles, access to public transportation with a daily ride for reading, writing and daily reflection, and a short drive to a destination shopping location, or the availability of home food delivery.
A Recreational dweller may choose a location close to the activity of their choice, like a person who chose a community because of the proximity to the ocean, mountains, lakes, golf courses, race tracks, horses or rivers.
An Entrepreneurial owner may choose a property because of the ability to operate a business or industry, including farming, retail sales, or cottage manufacturing. Copyright 2013 by David Carr. All Rights reserved
Exercise and Health Value– is determined by the proximity to venues for daily personal exercise and strength building, supported by a climate that suits one’s needs. Climate may be too cold or humid for some people due to breathing or muscle conditions. Exercise may be accomplished anywhere the motivated person chooses to make a commitment. I believe that by making a daily 30 minute commitment to ourselves, we also make a long term investment in our personal health and future. Exercise and Health time are truly investing in ourselves. The exercise value is expressed in the recreational value of a community as one will likely find a park, bike path, or walking trail suitable for exercise if they seek it out. Strength training may be accomplished if the community has installed a public circuit training system in a park, yet the motivated person will find a way to make weekly strength training a part of their daily lifestyle as well. Exercise and good food is health insurance. Copyright 2013 by David Carr. All Rights reserved
David Carr is a Ct Licensed Berkshire Hathaway Home Services REALTOR residing in Southern Connecticut.
Mr. Carr finds time to write about being a Dad (4015 days/smashwords.com) and cohabiting the world with streaming technology (Virtual Immersion Downs Holistic Development / smashwords.com
Mr. Carr advocates for sustainable energy practices (newengland.eco-smart.com).