Many home features and amenities add value to a home, but it can be difficult to determine how much value a particular feature adds. When you’re looking at a home with a pool, for example, how much extra value does the pool add versus a home that doesn’t have one? How about a larger kitchen, or wall-to-wall carpeting? Sometimes you find a feature or amenity that you love and you may end up paying more than it’s worth. Make sure you determine the value of a home feature before you pay too much for it.  

Calculate Value Minus Depreciation

The most basic way to calculate the value of a feature is to calculate how much the feature costs and adjust for inflation. For example, if a pool cost $12,000 to install 10 years ago, it should add no more than $5,000 to the home’s value today with a 50% adjustment for depreciation.

How Easy is it to Add the Feature?

Features that anyone could add to the property, such as wall-to-wall carpeting or a new hot tub, don’t add as much value to the home as features that are difficult to install. Evaluate how difficult it would be to add the feature yourself to determine the value of the feature.

Beware of Features Too Expensive for a Home

Sometimes homeowners add features or amenities that are too expensive for a home’s overall value. For example, if homeowners spend $25,000 on custom cabinets, Sub Zero appliances and a top-of-the-line kitchen makeover on a home that’s only worth $80,000, the upgrade is worth too much for the property. You’d never get someone to buy the home at a price high enough to justify the expensive upgrades. Make sure the features and amenities that you love about a home aren’t priced too high relative to the property itself to justify them.

Overpriced homes seem like an easy thing to avoid, right? All you have to do is look around the market and check comparable sales to see how much homes are selling for and determine whether the home you’re buying is a good deal. While this is sometimes true, it can also be true that the housing market reflects an inaccurate picture of current market values. You may need to pay a little more attention to avoid overpriced homes, and beware of price-related sales tactics.  

A Lower Price Might Not be a Bargain

One tactic that some real estate agents use to try to sell a home is to take home buyers around to look at three or four homes that are overpriced. Many homeowners don’t have an accurate idea of what the market prices should be, so the first three or four homes they see set the expectation for market prices. Then, when a home buyer sees a “bargain” home, the price difference can seem like a dream come true. Buyers may be pressured to make an offer right away because a home that cheap won’t last long.

Unfortunately, you can’t take a market at face value like that. Especially during a downturn or slump in the housing market, you’ll find that many or even most of the homes on the market are overpriced. Homeowners try to sell based on their expectations of the old market. The homes sit around for months not selling, and prices fall lower and lower.

Then when a new home comes on the market and is accurately priced for the current market, it may seem like a bargain – but is actually just a reflection of the current market. Just because the other homes are overpriced doesn’t mean a ‘cheaper’ home is a bargain.

When you evaluate home prices, look at the current market and how long homes have been on the market. Comparable sales 6, 8, or 12 months ago don’t give you an accurate idea of today’s prices. Likewise, homes that have been on the market for 6 months or more are probably overpriced. Beware of judging home prices relative to overpriced homes, as you probably aren’t getting the deal you think.

Evaluate a home’s price and interest.

When you look at a home that is new to the market, the first thing you and your agent should do is evaluate a home’s price and the interest level in that home. Is the home priced to sell, or overpriced? Is it attractive and in a good location? Is there much interest? If a home is reasonably priced and attractive, it will probably generate interest. That interest could easily translate to a bidding war that drives the price above the asking price, even if the asking price is reasonable.

Think about how much you want the home.

When you see a new home that is exactly what you want, priced within your price range and is generating a lot of interest, you have a difficult decision to make. Attractive homes that are well-priced tend to generate interest, and you may find yourself in the position of entering a bidding war for the home. Think about how much you want the home and how much you’re willing to pay so that you can decide from the beginning what strategy to pursue.

Consider offering more than the asking price.

If you see a home that you really want and that is likely to generate a lot of interest, consider offering more than the asking price. Even upping the price by $5,000 can help your offer stand out from the rest, and may provide the leverage you need to ensure the sellers accept your first offer. With multiple offers on the table, you might not get a second chance, so be prepared to lead with your best offer – potentially above the asking price – from the beginning.

Median home prices are something you’ll hear about over and over again when you’re home shopping. Your Realtor may tell you about median home prices, and use it as a way to compare potential houses in your marketplace. Unfortunately, median home prices aren’t the ultimate evaluator of homes in your area. Educate yourself about the myth of median home prices.  

What is a median home price?

The median home price is the midpoint for home prices in your area. It’s not the average, which is a common misconception. It’s the middle number in a range. Consider this example:

1, 10, 12

The median in this set is 10, because it’s the number in the middle of the set. The average, on the other hand, would be 7.66, which is the sum of the numbers divided by the number of numbers.

A median can be a completely arbitrary number, if you have a broad range or a range that’s skewed in one direction. For example, you could have the following set:

1, 2, 3, 20, 25

And the median is 3. The average in the above example would be 10.2. Neither number accurately reflects the range of numbers, the average value or the range in which the majority of the numbers occur.

What a median home price can’t indicate.

As you see, a median home price doesn’t give you an average home value. It can’t tell you how much homes in your neighborhood typically sell for, if there’s a broad range. It can’t tell you if the home you’re considering is in the right price point for the area. Many people misuse the median home price, and don’t understand what the data actually means. Medians can’t tell you how many bedrooms a home has, or what the average square footage of a home is. It’s a misleading and often misused number. Even real estate agents sometimes get this wrong, mistaking median for average or otherwise manipulating the numbers.

What a median home price can indicate.

The one thing a median home price can do is give you a basis for comparison with other medians. For example, if you’re looking at a home in an area in which the median home price is $200,000, and another area you’re considering has a median of $700,000, you know there’s a general disparity in home prices.

You can also compare today’s median home value in a neighborhood with the median home value X years ago to get a sense for which direction the home values are moving. For example, if the median today is $200,000, but the median 10 years ago was $150,000, you know that the median now is higher and home prices have probably gone up in general.

There are some interesting speeches, announcements and numbers expected to be released today. As this is being written, Fed Chairman Ben Bernanke is delivering a speech at a congressional conference. 

Shortly after Bernanke’s speech, the new home sales forecasts are expected to be released. Housing permits issued for single-family homes for August didn’t move much over July’s figures, which shows no increase for housing starts month-over-month. It is expected that with the first-time home-buyer credit nearing its expiration date it may spur housing sales. It’s estimated that a 2.8% increase in home sales (approximately 445,000 homes) will push the increase in homes for the last five months to a rate of 34%. This would also push home sales up over what the numbers were one-year ago.

Finally, the governor of the Federal Reserve Kevin Warsh will be delivering a speech at the International Banking Conference in Chicago. With the Chicago Federal Reserve Bank (the attendees of the conference) expected to play a pivotal role in stirring up a sustainable recovery of the economy, what the Chicago Federal Reserve Bank takes away from Mr. Warsh’s speech may have an overall effect on economic recovery.

You may want to fasten your seatbelt for the day. It may or may not be a bumpy one.

The U.S. Census Department and the Department of Housing and Urban Development announced that new home sales were up in June of 2009 compared to May of 2009. Not only is the June figure up by 11% from May of this year, but it’s up 21.3% over the new home sales from June of 2008.

As an added bonus, the average sales price for homes also increased from the average $274,300 in May to $276,900 in June. While the average sales price bumped up a bit from month to month, it’s still below the average sales price of $298,600 at this time last year. Of the homes that sold in June, approximately 44% were existing homes, 28% were home under construction homes and the other 28% were new construction homes for which construction had not yet begun.

The price and quantity increases along with a stock market trying to go bullish has many wondering if we’re finally seeing the light at the end of the recession tunnel. Economists say maybe, but we still have some time left in the tunnel before we come out on the other side—bringing the rollercoaster journey to an end.