Determining True Home Value
Cost is one thing, but also consider the tangible and intangible benefits.
Real estate agent Philip Kaake helped clients reset their sights.
Photo by Dave Strauss
Can you afford to buy a house in the East Bay? For some of us, this question can be easily answered with a glance at median home prices: Berkeley, $1,080,400; Alameda, $904,200; Oakland, $670,500 (per Zillow). If those prices don't disqualify you, a mortgage broker or online mortgage calculator is the next site.
But there are nuances to this question. Maybe you can afford it, but do you want to?
“As an industry, we encourage people to think about their dream homes,” said Philip Kaake, an agent with Alain Pinel Realtors’ Alameda/Oakland office. “Clients imagine a big gorgeous kitchen with stainless appliances that opens onto deck with a thousand-dollar barbecue.”
Then, reality hits. Someone from elsewhere may want a three-bedroom, two-bath vintage home with a quarter-acre lot. What they can afford is a two-bedroom, one-bath home with a nice little yard in a nice-enough neighborhood.
A case in point is Kaake’s client, Linda Tartoff, a retired social worker from Chicago. She and her husband wanted to buy a second home in the East Bay to be close to many family members who live here.
“Once we scrapped our preconceived notion of what we could get, then we started to look at what can we get for double that? We notched it up as reality hit us in the head,” Tartoff says.
Tartoff and her husband ended up buying a condo in Alameda that they love, overbidding in consultation with Kaake and making the offer without seeing the property. She says, “We had a top price, and a price beyond which it would be absurd. We did not hit absurd.”
“If you think future prices will grow or even stay the same, then buying a $1 million house might not be that bad of an idea. You’ll use it and also have an asset you can resell in 10 years,” said UC Berkeley economics professor Enrico Moretti, author of The New Economy of Jobs.
Real estate is an investment, but it’s so much more: You’re buying a home and a neighborhood. Really, you’re buying a new life. It can be hard to put a price tag on that.
Intangible benefits are another thing that affects the true cost of a house, according to Moretti. Shared amenities are the kind of things everyone values: views, access to transportation, walkability. “These types of amenities are already priced into the house.” he said. “Assuming the market hasn’t declined, you get back that value when you sell the house because everyone likely will share those tastes.”
It’s the individual-specific benefits that can determine whether you got a bargain or a dog. They’re things that are important to you but most people don’t care about: close to your job or near a stable where you can keep your horse.
“If you find a house that has something that’s of value to you that no one else appreciates, you pay the average price but get much more value,” Moretti said. “You win big.”
Published online on May 11, 2017 at 8:00 a.m.