Monday, July 23, 2007

I stand corrected

I have been preaching about how a home's value is never related to the needs of the seller or buyer, but rather it is wholly dependent on what the market will bear (a price that a buyer and seller are willing to both agree upon, without extenuating circumstances). Well, I just had one of my clients call me a few minutes ago and present a situation where that isn't true.

My client and his wife purchased a home from me around 15 months ago. Without being too specific, a developer approached them this weekend and wants to buy their home. He bought several properties around them and is planning on putting in a small subdivision. He made an offer to them that is pretty much exactly what they paid for the house 15 months ago. However, they have put another 10% in improvements and repairs into the home. They don't really want to move.

After speaking with them, we determined what their price would be. It isn't based on the value of the house, but rather it is based on their needs. Because they replaced the HVAC system, and did other improvements to the property that were needed, they are a little upside-down in equity. The improvements they made increase the long-term usability and functionality of the home, but don't pay back in the short term.

And, since they don't need to sell the home, they aren't subject to the same market constraints. Cool for them.

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