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Wednesday, February 20, 2008

What is this house really worth?

Good question. I was reading this month’s (March, 2008) copy of Money Magazine and came across their monthly home renovation article entitle Stoop Conquered (no link yet, but here is the main page) by Kate Ashford. In the article, it showed a house that was purchased a couple of years ago in Evanston, city just north of Chicago by the Sheikh’s for a total of $956,000. After the family moved in, they spent $200,000 upgrading the home in several different areas, redoing the front yards, adding a porch and upgrading areas of the interior including the bathrooms. The article now “valued” the home at a whopping $1.2M.

Something about the appraisal of $1.2M just did not sit right with me, especially in 2008. Yes, the family derived a lot of personal value out of the upgrade and has a much more livable space to call home. But the emphasis in the article was the increased value of the home, not the increased value in the family’s home life. Had the article been written in 2006, my response would have been – par for the course. But in today’s house market, that valuation – while it may feel good for the family – seemed preposterous.

My curiosity took a hold of me, I had to investigate.

Given that both the full name of the couple and their specific Chicago suburb were provided, I took a quick spin on Yahoo’s people search to see if their address would come up with the basic information in the articl. To my surprise, their information returned with unexpected accuracy. I had all the information needed to take the new step.

I turned to the trusty Zillow website, what has become a standard for a lot of people in terms of a gut feel on the valuation of the home. Their formula is based on a number of factors including recent comparable sales (comps), upgrades, and other assessed information on your home. In reality their estimates are usually surprisingly accurate.

After popping in the address information obtained from Yahoo’s people search, the Sheikh’s house showed up on Zillow. After checking out the bird's eye view from Microsoft Virtual Earth, I was able to confirm that the house in the picture was the same as the home featured in the Money Magazine article. Looking at the particulars and comparable sales – it seemed to be inline with the features added, and the local area.

However, what was the Zestimate or the estimated value of the home? Shocked, it was only $964,000 – about $250,000k lower than what the article stated the market value of the home as of "today". This confirmed my suspicions that the Money Magazine article was way off in their presentation of the facts on this story. Not to mention, the Zestimate suggests that the property topped out at a total of $1.09M – not the $1.2M that Money Magazine suggests.

A few lessons learned here:
1. You cannot trust everything that you read in magazines. This is a case of an author not cross-checking their facts. I am speculating that this article was produced some time ago and the facts were not re-checked – or they were never researched completely.
2. Just because you spend $200,000 on upgrading you house, that does not necessarily mean that amount will be added to the value of your home. Many times, it is not – especially if you overpaid for your house in the first place.
3. When you volunteer to take place in any sort of article, there should be very little expectation of privacy. It was amazing with just a couple of simple facts provided in the article how quickly I was able to locate the details and physical address of the home presented.

In the end, does it really matter? Not if the Sheikh’s are happy with the home they live in and can afford it. The other side is that if you are enhancing your home simply to increase the value of it –- then you are doing it for the wrong reasons.

Finally, to Money Magazine – please check your facts before you publish articles that are so inaccurate and misleading.

1 comments:

People Power Granny said...

I still think renting is the better way to go. I explain fully at peoplepowergranny.blogspot.com. Your readers are also invited to respond to my poll on renting vs. buying.