value of older homes

madeynaOctober 31, 2010

I read somewhere a while back that after a home reachs 100 years old they are harder to finance and the values starts going down instead of up. Is there any truth to either of these statements? I have a home that was built in 1915 and has been completely updated . We put it on the market about a month before the big crash and then pulled it right back off to wait for the market to come back up so we can at least recoup our purchase cost and remodling cost. We would like to move to another area of the state so if the value of the home is going to go down I would rather take the loss now and move. If there is a better than reasonable chance that the value will go up in the next 5 years or so we are prepared to stay and wait out the market. I just don,t want to be screwed over because of the age of the home.

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I've never heard of that, and I've owned two 100+ year old homes. We had trouble with house insurance (rebuild cost - to original standards - greatly exceeded home value) but that's another story. Certainly in Canada, well-kept older homes keep their value, in Ottawa where I live, the most expensive homes are the heritage ones downtown.

    Bookmark   October 31, 2010 at 4:10PM
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"I read somewhere a while back that after a home reachs 100 years old they are harder to finance and the values starts going down instead of up. "

Never heard of that... and I do not believe it.

WHERE did you get that idea?

    Bookmark   October 31, 2010 at 4:34PM
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I think it was one of the realors that came to look at our house a few years ago when we were listing it. Either that or it was in one of the older home forums I was on alot during the remodle.

    Bookmark   October 31, 2010 at 5:13PM
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OK, Madeyna, maybe I can help.

I think it's possible you are confusing assessed value and appraisal value and market value (aka sale prices).
Assessed value is the basis of property tax. In most places it only has an approximate relationship to appraisal and market values. It's main purpose is to establish a fair relative value among all the properties in a given taxing jurisdiction. Since it is often loosely based on sale prices, if all the properties that could sell for the same price have the same assessed value, then the assessed value is accurate. It doesn't matter if the $500K houses are assessed for $5 or $500,000 it only matters that all of the $500K houses have about the same assessed value, at the same time. And for assessment purposes 100 years has, in some jurisdictions, been determined to be the functional end point for judging how much a house's value should be reduced due to age alone. (Also age beyond a hundred years is often difficult to discern with the precision needed to compare age among houses as records are less accurate in the 19th c.) It doesn't mean that a house has no value after 100 years, just that after 100 years it stops mattering so much based on years alone. A 125 year old house and 175 year old house are both functionally really old houses! A side note: some tax jurisdictions are supposedly at "full market value". A noble goal and one rarely achieved since it's impossible to recalculate the value of all properties based on new sales data every time one of them changes hands. Plus some people are more aggressive in seeking reassessments than others; some people make secret improvements; some people just get lucky breaks. (And as historical note: At various times in history sale prices weren't the basis for determining assessed values, window panes or number of stories were. The mansard-style roof was originally a tax-dodge as it created valuable finished living space in the untaxed "attic" story. Humans are such clever, creative species when figuring out how to manipulate the rules!)

Appraised value is a value set by a qualified appraiser of what a particular property is likely to sell for in the near future (or occasionally for some different end point). It presupposes that each party (both buyer and seller) are equally knowledgeable about real estate matters and that neither is under any undue pressure to complete the sale. The value is derived from a (sometimes complex) comparison between the subject property and recent closed sale prices (data usually gleaned from public records and real estate broker reports). The complexity comes in because rarely are two houses perfectly identical, so a method must be made to note and appropriately weight the different features, locations (distances) and slightly different time frames. Appraisals are about looking at the near past to predict the near future for a particular property, as best as possible. They are used in the process of getting a mortgage to make sure that the lenders weren't lending more money than the house was likely to be worth. (Big OOPs there, as we can see now!) And sometimes appraisals are done for other valuation purposes such as settling an estate.

Market value (and its illegitimate, and much more often gossiped about, sibling, asking price) are about what money actually changes hands from buyer to seller at closing. It takes into account not only the actual house, but also the eagerness of each party to do this particular deal, for this particular house, at this particular time. It's those last caveats that are so individually driven which can make market value different from appraised value since they have a lot to with personal factors that have nothing to do with the property itself. Sellers that have finally reached the end of their tether, or are over a barrel financially are highly motivated to cut prices. Buyers who are novices or just ga-ga over a particular house will often pay through the nose. And until recently everybody fancied themselves as real estate sharpies or mini-moguls, so they thought that the sell/buy bigger/sell higher/buy even bigger merry go round could never fail. Another big OOPS!

And so there you have it. Just one other comment: I wouldn't count on recouping all the money you put into remodeling an older house. That may have been the theory behind the flipping and fix-up crazes, but I doubt that it really was true in most cases, particularly with medium to really old houses.

Money put in to older houses to bring them up to snuff is not usually realizable profit on sale. It's simply the difference between the orginal sale price (generally lower with old houses) and the costs of bringing the house to the living conditions the owner wants to have. Say you buy an old house for $100K, and invest another $25K remodeling, upgrading, etc., you still may not have a house sellable for $125 (disregarding the current plummet), you just have a $100K house that you needed to put another $25K into to live happily in. If you can afford to spend the money, and it gets you more of the features and life-style you really prefer, then it's money well spent, IMO. But only in irrationally appreciating markets (like we've just lived through) does it seem that if you pay $100K for a house, and then put $25K in (and usually a lot of sweat equity, even if only in the inconvenience and time spent dealing with a reno), then you have an asset worth $125K++ down the line. Basically, you still have a $100K house that you spent $25K customizing. If you're lucky some of the costs of customizing (like, say, indoor plumbing where there wasn't any) are likely to be recoup-able on a dollar for dollar basis. But because people often want very different things in old houses, that isn't always true. For instance if someone had spent $25K putting new double-pane, tilt-in windows in my 165 y.o. house there's no way I'd want to pay $25K extra - actually that would be a sale price downgrade, IMO. So, with older houses, many (costly to fix) things will turn out to be just for your own pleasure or comfort, and not for the resale value you can ever hope to get.

I'd decide what you need to do for your life (sell or wait it out), and not try too hard to time the market. If all houses in your area are down, then maybe it's better to wait, if you can. But don't kid yourself that waiting has no risk of further across the board price-slides, or even of a weakening in the potential sale prices of older houses as the glut of newer ones (with features many more people want) flood the market as the Great Unwinding unfolds over the next few years.

I wish you good luck in whatever you decide to do.

PS: Oh, yeah, I almost forgot. There is also the CMA, or whatever its current name, which is the a figure offered by various realtors to prospective listing (selling) clients to encourage the sellere to list with them. While these can be accurate, there's often some extra windage built in there as an appeal to the seller's greed. Agent agent "A" says, "I'd list the property for $100K"; Agent "B" comes along and says, "I'd list the property for $150K". Neither is really talking about what the deal may close for. Which do you choose, as no one would like to leave $50K on the table unneccessarily,not to mention the effect of the differences on marketing scenarios and timing? The cure for that dilemma is one (or more) private appraisals. Then you have a better idea what the property may sell for, not the initial listing price which is a meaningless number. Sure, appraisals cost a few hundred bucks, but with thousands at stake it seems like a worthwhile investment. Unless of course, you are a real estate sharpie. Then you're good to go!

    Bookmark   November 1, 2010 at 3:09AM
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No, 100+ year old houses aren't worth less. In fact, in most major cities, the 100+ year old homes are generally located in well established neighborhoods and often bring top value.

As for whether your local market will rebound in 5 years - who knows. Chances are, prices will be higher than they are now, but probably not as high as pre-crash levels. Nobody has a crystal ball though. Unless you remodeled with "the bottom line" as the primary motivator, it may not be realistic to expect to recoup all of those costs. Most remodels actually lose money.

    Bookmark   November 1, 2010 at 9:16AM
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In our part of New England for the most part over 100 yrs will increase the value. Also the more original the better the value.

    Bookmark   November 1, 2010 at 2:09PM
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IF you (or someone else) was referring, e.g. to an old house in the country, one that had not been completely updated from the foundations up, then the story would be valid because there are so many of these types of ex-farmhouses, etc. that end up being lived in by sole remaining family members a lot of the time, old people with no money who don't/can't do much with them and then they end up unsaleable. But if you're talking about a well built and maintained city place, then it could be a great deal - the important thing would be to have a very well recommended and licensed inspector look at it, all the structural things and systems - cosmetics aren't as important - and let you know what state it is in.

    Bookmark   November 1, 2010 at 5:02PM
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Thank you all for the responses . I think we may be screwed on the monney invested because it alot of it went for things like a new foundation , subfloor and well. I hope we will recoup at least the monney we spent on siding, flooring kitchen and bathrooms because those are things buyers can actually see as a improvement not just something the house had to have. The home was purchased as a place to raise our family but then my husband got laid off and finally got another job but further away from where we live than we like.

    Bookmark   November 2, 2010 at 11:42PM
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