How emergency preparedness features in your house affect your property value.
After last week's crazy-snow-apocalypse without water and electricity for days on end, we’re all asking ourselves what can we do differently to prepare so we can avoid or mitigate against those kinds of situations in the future? The price tags for some of these features are really really high. So the question is “If we can spend money on these emergency preparedness items, will it increase the property value? For how much?”
3 Factors That Influence Your Property Value:
1 - How people make purchase decisions
- First I want to explain a dynamic which most everybody can understand. It's a dynamic of how a swimming pool adds value to your property.
- Ex. You have spent $80k to install a really awesome swimming pool. However, most everybody understands that the entire $80k is not going to be recouped whenever you go resell the house. You might only get $20k out of the value of the swimming pool - the cost of installing the swimming pool exceeds the amount of value that's added to the property by adding the swimming pool.
- On the same level, that same dynamic exists for a lot of these emergency preparedness items such as a storm cellar, solar panels with batteries, private water wells, or a whole house generator, or the same kind of item will apply to those.
- You probably won't have as much bank for your buck for these emergency preparedness items as you would in a swimming pool and it all comes down to how people make decisions whenever they buy a house.
- People, in general, make decisions emotionally, and then they justify logically.
- Most everybody will begin the home purchase process by setting some parameters in just a simple form.
- Ex. They may say they are looking for a house between $350k-$400k, then see all the homes that fit inside the price range. This is the logical process. After that, they will start scrolling through looking at nice photos and when you see a pretty house you say “Oh my gosh, I want that one! Let’s go set up a viewing!”
- It's the 13 different shower heads, the really nice upgraded countertops, the awesome hardwood floors, and the thing that makes you (from the emotional level) say ooh that is an awesome house! - then you go through and justify it logically.
- Unfortunately, people are not going to stop and go crazy about solar panels, energy-efficient features. We wanted to work that way but it just doesn't
2 - How real estate is valued in general.
- Real Estate is valued on a Sales Comparison approach.
- Appraisers will look at homes and compare what a house sold for vs another house sold for that is similar in some basic features, geographic location, lot area, etc.
- Appraisers will then start considering other small details like solar panels, storm cellars, etc. these items will make a difference with the price value and may go up and down within that set of homes.
- Appraisers are not going to look at the total cost and features installed in a home but will look at the sales prices of the home.
- If there’s a lot of demand for a house for a certain set of features then the price of that house will be driven up.
- The demand comes from the people's buying decisions and that doesn't come from solar panels, storm cellars, and that sort of thing. It comes from nice and pretty, and is an attractive home.
You will get a little more out of your home. It will increase the property value but just wouldn't be as much as what you spend on your home. This is just something to justify the decision-making process like preparing for the next emergency.
"This is not the only factor you should consider. Family safety has to come above profit."
3 - Time
- The demand for houses right now is off the charts. It is unlike anything I’ve ever seen. Whenever we went through the 2008 financial crisis - the housing bubble issue, we won't hit that hard except for certain little pockets here in DFW metro where builders build way too much and get stuck with inventory and become trigger shot and quit building so many houses.
- That is the reason why the real estate market is going insane because there’s a lack of inventory and demand is increasing like crazy.
- Interest rates are super low and so people can afford more houses than ever. And so they are just gobbling up the inventory and that's causing prices to shoot to the roof even if your homes are not fixed up to the 9’s or even if you don't have the features that make people want to buy.
- The mere fact of the timing of how the market is going to increase property values more than anything ever could. And so, that is going to weigh much heavier than any of these things that we’re talking about
Q&A with Chandler Crouch
- How about being on the hospital part of the power grid?
Power is never going to be shut off if a property is near a hospital. House values near hospitals are going to increase tremendously this week because we are all driven emotionally from the pain of last week. People will do whatever they can to avoid that and if we can avoid that by making some simple decisions then we’re going to do that. And the emotion of that is really high. I just have a feeling that 3 or 4 weeks of 7-degree weather is not going to have the same emotional impact to drive that decision-making power that will increase your home value substantially. Buying a home near a hospital is a good decision for you and your family. Stay in the logical zone and make sure that you're making logical decisions in your next home purchase.
- Why does Houston have a huge property tax discount?
It goes to the decisions that the City Municipalities are making. They got pretty good tax exemptions themselves. It's just what they voted in, what their city decided that they could survive off. That's going to depend really more on the budgets for the little areas that received that property tax revenue. If they can survive on less then they don't have to generate as much property tax revenue.