If you think real estate is something that will only rise up in value then you better think again. If you are wondering why your agent says that your Cape Ann real estate is worth significantly less than what you paid for it years ago (taking into consideration the effects of inflation), do not get too angry because he may have a point why he told you this.
Here are some of the things that affect the value of any real estate property, and hopefully they will be able to help demystify how your realtor came up with the price of your house.
1) Physical depreciation – This is the physical damage that is caused by natural forces. One of the best examples would be your roofing shingles; if the shingles on your roof has a life expectancy of around 25 years, and you have been living in the house for almost 15, then you can expect that the price of the house will be marked down considerably because the cost of replacing is taken into consideration.
2) Functional obsolescence – This is when a feature of the house is flawed, or is in too much disrepair that it no longer has any use for the next homeowner. Good examples of which are outdated air conditioners, water heaters, and kitchen appliances; even if they are still functional, they no longer comply with the kind of safety and operational standards of today. In this case, your house will depreciate by the same amount as the cost of buying and installing new appliances and/or utilities minus the scrap value of the original pieces.
3) External obsolescence – This is the loss of value due to outside influences. This is better explained by the recent economic crisis, this was the time when property prices were at an all-time low, but not many people can still afford to buy them. Right now, the economy has still not recovered fully from the effects of the financial crisis, so your Cape Ann real estate may get appraised in accordance with how much people are actually willing to pay right now; which is not that much according to most experts.
So, please do not yell at your realtor for seemingly giving you a lowball price on your house, he is only working with whatever it is he has, and if the odds are against you then you will not be getting too much out of the sale of your house.
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