Wednesday, March 28, 2012

Just How Valuable are “Property Values”?

It’s a little bit like real estate’s Rite of Spring: ‘for sale’ signs sprouting on lawns like new flowers finding the area’s April sun. And since we are used to hearing how “property values” are still battling to rebound, this season the ‘Sale’ part of those signs is likely to be taken more literally than usual.  

But since “property values” seems to be such an important measure, what is really behind the term? Who determines our area’s “property values” – and how? 

We aren’t just talking about some abstract Econ 101 textbook definition of economic principals. We are dealing with a family’s major investment – their current or future home. So it’s valuable to make a mental distinction between that notion of ‘property value’ and other, less abstract terms. Like “price”.  

In a nutshell, “property value” can mean different things to different people -- and even different things to the same person! To a homeowner, for instance, it can be the amount of money he or she can sell it for (its “market value”), or the value it has if he or she don’t sell but continue to use it as a place to live (its “use value”). To a lender, it usually means current market value; to a pure investor, property value might be its future value or its liquidation value, -- which would also vary depending on whether they are thinking of some possible future forced liquidation or an orderly liquidation. In other words, “property value” is a term that can mean so many different things that it is not terribly useful. 

So the next time you hear a commentator talking about “rising property values” or “sinking property values,” be ready to take what they are saying with a grain of salt…or possibly a shaker-full. Property values are not anything like “price”, “asking price,” or “selling price.” Those terms can have real numbers attached!  

In case you have been thinking about buying or selling a local property, give me a call.

I’m here at the office -- and the market’s ready!

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