How Effective Age Impacts Home Values

Have you ever been shopping for homes in a neighborhood and discovered two similar looking properties that were priced completely different?

Even when properties are the same age and very close in size, their values can be heavily impacted by what we refer to as the "effective age" of each property. As you'll discover in today's article, sellers and buyers have a different way of viewing this.

Does A Home's Age Matter When Determining Value?

Generally speaking, newer homes will sell for more than older homes, but there is an important (HOWEVER) that needs to be addressed.

Sometimes, an older home is effectively newer than a home that was built more recently. For example, a home built in 1960 that has been gutted, retrofitted with a modern electrical system and then appointed with all the current fashions in flooring, countertops, cabinets and appliances will effectively be much newer than a home built 30 years later but never fully modernized.

So the effective age of a home is more important than the true age of a home in most instances, and that is something that we don't have to teach buyers, yet sellers typically want to fight it tooth and nail.

How Is The Effective Age Of A Home Measured?

Effective age can be defined as the impact of renovations that add to a property's useful life, thus giving the home a rebirth of sorts.

Now if you are seeking a mathematical formula for determining the effective age of a home, you're out of luck. The effective age is more conversational than mathematical, but it is very much in play when buyers are looking at homes.

Why Price Per Square Foot Fails The Valuation Test

One of the reasons that online valuation tools are rarely accurate is that they fail to take into account the effective age of the homes they use for data.

One way to better understand this it to look at the VERY extreme example of a duplex on the right.

I suspect the unit on the right would sell for quite a bit more than the one on the left, and I bet nobody would be surprised by this at all. Yet the owner of the unit on the left could perform an online valuation and the unit right next to it would be used as a comparable property. Do you think they are comparable?

It's likely that the real age of each unit is the same, but clearly the effective age of the renovated unit on the right will be much "younger" than the gem on the left. Simply put, the renovated unit has more life remaining than the non-renovated one. There's not a buyer in the world that would see these units as equivalent, so home sellers must learn to try and view valuations without rose colored glasses.

There is no way to apply a general (or average) price per square foot of properties in an area to one specific home. Instead, use the trend of the local average to get a feel for the direction of the market (are values rising, or are they falling?).

When it comes to a specific valuation, each home must be compared to similar homes with adjustments made for the effective ages of all homes used in the valuation.

Change The Effective Age Of Your Home?

The big question that you might have before you decide to sell your home is what you can do to change the effective age of the property.

The short answer is easy. Renovate. Change the kitchen. Change the master bathroom. Replace all flooring. Paint. Paint. Paint.

But the right answer is not so easy. All those renovations cost money, and in many cases, the majority will not add more value than the cost of doing the renovations. Do you really want to spend $70,000 to make your home worth $35,000 more?

The decision of what to do to prepare a home for sale requires an experienced agent who knows market conditions and what to do to prepare a home for sale (PROFITABLY). If you can spend $1,000 to make your home worth $5,000 more, then you should probably do it. There are no guarantees that you'll get your money back from renovations, so proceed with caution.

Just don't be tricked by an inexperienced agent who provides non-profitable recommendations in order to ease the sale. It just doesn't add up!

Want to know more about getting top dollar for your home? We're happy to sit down and do a no-strings-attached consultation with you in your home. Simply give us a call at (850) 366-8917 or drop us a note and we'll be in touch right away. 

If you want to know what people are saying about working with Joe Manausa Real Estate, you can see hundreds of real customer reviews reported on Google, Facebook and Zillow right here: http://www.manausa.com/testimonials.

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