Gaining Perspective & Getting a Better Handle on Pricing and Value

By · Wednesday, September 26th, 2007

Click here to download…Audio File of the Conference Call

Historically a traditional rate of appreciating which would be considered good to great would be 4% to 6% year over year appreciation. For this illustration I will utilize 6%.

What would be the value of a home which was purchased in 2002 for a price of $300,000 at a year over year appreciation rate of 6% for a period of 5 years?

I would suggest that you discuss (utilize visuals) this exercise on all your listing/pricing presentations. You can determine what rate of appreciation they are truly asking for by using the price they are expecting. As you go above 6% you begin to get unrealistic. This will help drive historical reality back to your clients. I know some people will not be able to be this realistic or simply are not willing to be. Fine! It still does not change the facts. Keep in mind that this information is meant to be used as a benchmark not an exact science. You will always have to take into account upgrades, location and other unique aspects of any property.
(Download price vs. demand charts below)     

To receive an unrealistic short-term super aggressive year over year appreciation rate of return you need an environment that has –

  1. A perception of irrational exuberance
  2. A market that is supported by huge investor pools of buyers
  3. Very aggressive mortgage financing available to most all purchasers and a secondary money market that will back it up. Like stated 100% programs.
  4. Lines of buyers at new home developments where the builder runs our of inventory
  5. Lotteries for homes
  6. A huge percentage of home owners buying second, third and even forth residencies for investment
  7. Where people have no intention of moving into the property or renting it out. All they wish to do is flip it and at closing.  
  8. A booming economy, low unemployment, big population growth and lots of jobs.   This still exists and will continue for a long time to come in Las Vegas.  Long-term stable success is always the key. Everything else is short-term gambling!    
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