Homes Prices Can Be Complex

When is the price of a home not really the price of the home? We talk a lot about average prices, appreciation, etc, but we don’t always talk about some of the things that go into the data. Take the current situation of prices that are lower than the prior year. Part of the situation is that more houses are selling as foreclosures. Now we all know that banks and distressed owners tend to take less for the home than someone who is living in the home and can continue the payments. Having said that however, lets talk about how the house gets that way. Usually there is an event, whether it is divorce, sickness, layoff, or job transfer that occurs. The house tends to become neglected, goes up for sale in less than perfect shape, and when it doesn’t sell, eventually goes vacant, becomes even more neglected, and finally is resold as a foreclosure for substantially less. Whether it is owner occupied or an investment. Money is spent to get it back in shape. This can range from “paint and carpet” to replacing missing appliances and cabinets that somehow “disappear”. All this not to mention putting a new lawn in, sprinklers, etc. I have not seen many foreclosures that that did not need at least $5-10k in upgrades to get back up to snuff (not to mention the “sweat equity” stuff related to cleaning things up, etc). This fixup work is not reflected in market statistics, but if it were, the average prices would be higher.
Another other thing that affects prices is the amount of “non price” concessions, such as closing cost assistance. This is often (though certainly not always) done here, as especially VA buyers tend to need some help with this. Closing costs run about 2% of the loan amount, sometimes a little less, but are often reflected in the final selling price.
The other factor that is not discussed much when talking about appreciation, is ongoing improvements to homes. Our neighbor added on to their home, finished the basement, added central air, upgraded windows, repainted the exterior, etc. If they sold it for exactly what they have put into it, it would look like it went up quite a bit, or appreciated. However, while this will statistically show up as appreciation, in reality, they would simply get their money back out from what they put in. A lot of money gets spent at Lowes and Home Depot or with remodelling companies that looks like appreciation on the sales statistics.
Speaking of statistics, May home sales statistics for the Colorado Springs are now final, please see the link on the right for the final numbers, but they are essentially unchanged from the estimates previously posted.