Value in Use Matters Most When Buying a Home

Value in use matters most when buying a home; if the home fails to meet your requirements then why would you purchase it? With real estate, “value in use” is different than the generic term of “value” and doing a deep dive into the pencil necked geek side of things isn’t necessary, but let’s hit the high points.

Value is best described as what a well informed buyer is willing to pay for a particular property that is offered for sale. This is assumed “arm’s length”; a transaction completely above board. In short, what can a property be expected to sell for.

Value in use is more user specific; how does that property fit your requirements? A perfect example is a buyer with older parents that are likely to require help in the near future. A home with easy access, finished in law suite, step-less shower, level lot…provide major advantages. Buyers that have allergy problems or pets may want a home without carpet. A car enthusiast might want a heated garage or a musician a soundproofed area. A buyer may require a heated lap pool or equestrian facilities for a child. The variables are endless but they play directly into the reason a buyer likes a home and what that home can offer them.

From the data side, we are likely unable to isolate their contributory value through use of paired sales analysis (geek stuff). In some cases, a feature might even be an over-improvement and/or super-adequacy. In layman’s terms, a $1M home in a 300K neighborhood is over-improved. A $15K Jacuzzi tub in a spot where a $1K tub would work is a super-adequacy. The data demonstrates the cost of installation is not likely to be recovered during sale.┬áThis is where value in use and value often collide. The home is “perfect” but the comparables don’t support the price.

Value in use is the most important thing for a buyer; does the home work? Of course data matters but, if it doesn’t fit the bill then the data is immaterial.

Every real estate transaction is unique and it’s common for the “data side” to conflict with the “emotion” side. That 400K home with the basement that is perfect for the parents might have a data supported estimated value of 375K. But for that buyer, it’s worth it spend a little more and get what works. A home that hits all or most of the major requirements for a buyer “is worth” that extra price if it makes life easier. This is typically when we begin to see appraisal issues; where that collision between the analytical side and emotional side of real estate occurs. It can get dicey and it’s not unusual for that “perfect” home to come up short; underwriters are completely analytical and “by the data” so many times buyers will be bringing a few bucks to the table.

Buying a home is a huge commitment and that’s why value in use matters most to so many. A home has to fill a requirement or what’s the point. Always be careful however, to understand all aspects of a purchase and never forget that you will be selling that home at some point. Work with experts, educate yourself with the appropriate data and make informed, confident decisions.

Questions? Maybe we should talk.

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