Getting Realistic — Prices of Homes Don’t Add Up

Even in today’s “buyer’s market”, buying a home can be frustrating. I admit my experience may a little extreme. I’m picky. I’ve suddenly become cheap. And we’ve narrowed our area down to a few neighborhoods. The latter isn’t so unusual; but what does place it outside of the norm is the fact that these neighborhoods are among the more sought after areas…each with their own unique characteristics. Basically, we’re hunting for a deal.

Even in this ‘unusual’ case, I’ve resolved that the prices of some homes are a contradiction to comparative market analysis (CMA). I’m no Realtor, but CMAs seem pretty straight forward (I’m open to some direction from Realtors out there) — comparisons based on square footage, number of bedrooms and bathrooms, area, etc. But are there instances where you can make adjustments to the CMA?

The Price Is Not Right. The prices of homes in my area may differ from yours. So for the sake of making this easier, let’s choose round numbers. House A is updated and has little room for improvement. It’s a great home for the long-term…and for a family with little desire to upgrade. It is 2,500 sq.ft. and is listed at $100/sq.ft. House B is just down the street from House A. They are the same size (sq.ft., 3 bedrooms, 2 bathrooms); and House B, like House A, was built in 1970. The mustard shag carpet, wood panelling throughout and dated appliances (not to mention the pink tile in the bathrooms) suggest that 1970 may have been the last time it was ‘updated’.

Is it appropriate to price House B using a $100/sq.ft. base? Definitely not. Is it even appropriate to use $80/sq.ft., which translates into a $50,000 difference? I don’t know. According to Realtor.org, the average cost of a [major] kitchen remodel in 2008 was $56,611. Bathrooms cost $15,899. How about a new roof, energy-efficient windows or even replacing all the outdated carpet and walls? There are any number of reasons a house may not be selling. But even with all the HGTV hours you’ve racked up, the costs add up. And that’s hard to swallow in a market with declining home values.

Cap & Trade. Forget the macro-economic implications of this bill. I only mention it to add to help qualify the argument that (I’ll try not to sound biased) outdated homes on the market ought to be discounted for their lack energy efficient appurtenances.

The 1,400-page cap-and-trade legislation pushed through by House Democrats contains a new federal policy that residential, commercial, and government buildings be retrofitted to increase energy efficiency, leaving it up to the states to figure out exactly how to do that.

This means that homeowners, for example, could be required to retrofit their homes to meet federal “green” guidelines in order to sell their homes, if the cap-and-trade bill becomes law.

The bill, which now goes to the Senate, directs the administrator of the Environmental Protection Agency (EPA) to develop and implement a national policy for residential and commercial buildings. The purpose of such a strategy – known as the Retrofit for Energy and Environmental Performance (REEP) – would be to “facilitate” the retrofitting of existing buildings nationwide. CNSNews.com, July 1, 2009

Getting back to the inspiration for my rant…we placed a bid on a house at a similar discount to the one above. The counteroffer was just shy of the list price. So, I get the hint. You won’t budge. At what point do sellers need to get real with their list price? And is it considered poor taste for a potential buyer to offer a significantly lower amount based on perceived value?

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