Aug 11, 2008

Perception of Home Values Defies Reality

A recent article on Inman News reports that a survey published by Zillow, an online real estate valuation company, shows that a majority of homeowners are unrealistic about the true value of their homes. According to the survey, even though about 73% of homes lost value in the last year, 62% of homeowning respondents said they believed the price of their home had held steady or gone up. These homeowners are unrealistically optimistic about the future, too, with 75% expecting an increase or level value for the next six months, even while 42% expect values in their market to drop.

Why the disparity between reality and perception? One reason is probably a stubborn disbelief that it's possible for the real estate market to fall, especially given the frenzied pace with which values were increasing just a few short years ago. Conventional wisdom says that home values rise over time -- which is historically true -- but "wisdom" just a few years ago told us time or investment wasn't needed, and home values always rise. (If you disagree, try counting the number of television shows and books on flipping properties.)

Probably an even greater misperception -- given the number of people who think the value of their home will rise even while the local market falls -- is that homeowners think their properties are better and different than the rest. They can't imagine anyone wouldn't love what they've done with the kitchen, or ooh and ahh over the new deck.

But the sad reality, as any homebuyer knows, is that houses are commodities. Buyers aren't looking for someone else's dream home, they're looking for something that meets their needs at a reasonable price, and they're not willing to pay the premium many sellers expect for their own customization or improvements. (Often, whether such "improvements" even improve is questionable -- pet showers, anyone?) After all, if they don't like the seller's choice of custom cabinetry or bathroom tile, they can easily find another property without these features -- and not be expected to pay for them.

Alayna Schroeder