The HUGE MISTAKE you’re making about home values

| September 11, 2015 | 3 Comments More

American homeowners have been making a certain mistake for the history of the housing market, and they’re getting worse instead of better. According to Quicken Loans August 2015 Home Price Perception Index (HPPI), homeowners are increasingly likely to overvalue their homes by a large margin these days. In fact, homeowner estimates stand, on average, just under three percent higher than appraiser opinions. This is the largest gap in more than a year[1].

“In reality, home values have remained mostly flat this year,” said Quicken Loans chief economist Bob Walters. He added that most homeowners are making the erroneous assumption that home prices have resumed a “steady, linear path upward” and are likely to be “disappointed when their appraisals come in.” The largest gap between homeowner beliefs and reality exists in San Jose, California, where homeowners believe that their homes are nearly six percent more valuable than they actually appraise. Interestingly, Philadelphia, Pennsylvania homeowners tended to underestimate their homes’ worth by more than three percent.

Walters also noted that homes in the Northeast appear to be “moderating,” meaning dropping, which could actually be a good sign in the market overall. He predicted that first-time buyers are likely to focus their purchasing in this region because “moderating home values…could be especially enticing to those looking to purchase their first home.” This could be exciting news for homeowners in the region, who already tend to have a pessimistic view of their home values and may be less fazed by lower appraisals since they underestimate their home values already.

Do you think that it is a problem that homeowners are overestimating their home values? What do you do when you encounter this issue when you are purchasing a home?

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About the Author (Author Profile)

Carole Ellis is editor in chief of the Bryan Ellis Investing Letter. Under Carole’s leadership, the Bryan Ellis Investing Letter has grown to over 700,000 subscribers, making it one of the largest real estate newsletters in the world. Each day, Carole directly impacts the daily thinking and conversations of real estate investors worldwide by providing thought-provoking analysis and commentary on news topics relevant to serious real estate investors.

Carole has a strong background in research and in the management of respected publications. She holds a degree in English Literature from the University of Georgia, and has substantial research experience in plant biology. She is the former editor of and writer for the University of Georgia’s Research Magazine. She’s also the author of hundreds of articles and multiple books and home study courses published under the names of her clients, many of whom are well known, highly respected real estate entrepreneurs as well.

Carole makes her home in Kennesaw, Georgia with her husband Bryan and 4 children.

Comments (3)

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  1. Sherman says:

    Excellent article, Carole. Sellers almost always overvalue what they have. Please note your spelling of the word phasing
    It looks like the word in that context should be fazing, not phasing. Keep on writing. You are good.

  2. Richard wilcox says:

    I believe one of the problems is appraisals. The appraisers have no incentive to give a high appraisal but they do have incentives to keep them low. (No repercussions row low but there are for high ones)

  3. Rich says:

    Or maybe appraisers are being more conservative after being a significant part of the problem in the real estate bubble last decade.

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Category: Real Estate