In a new book, Zillow CEO Spencer Rascoffand the firm's chief economist Stan Humphries question some age-old maxims of real estate. "Zillow Talk: The New Rules of Real Estate," which was released this week, shares insights gleaned from analyzing extensive residential real estate data Zillow (NASDAQ: Z) has collected over the years.
Here are seven myths they try to bust:
1) The most important rule in real estate is location, location, location. Not true, they say. Instead, the most important rule in real estate is future location, future location, future location. The authors say home buyers eager to maximize their returns must look 10 or 20 years down the road to assess what will happen to the neighborhood.
2) Buy the worst house in the best neighborhood. Wrong! The house will always be the worst house in the neighborhood, and buyers in a great neighborhood are likely to look past your ugly duckling when you go to sell, meaning the price gains on these "worst houses" actually underperform their surrounding neighborhood rather than being carried along with them, Zillow found. Instead, the authors advise a shopper to buy the worst house in the hottest neighborhood — and to do so within the first five years of the neighborhood getting hot. In a subsequent blog, I'll share with you signs I looked for when house-hunting in up-and-coming neighborhoods in Charlotte, N.C., and San Francisco over the years.
3) Foreclosure discounts offer compelling investment opportunities. The authors say calculations of dramatic discounts offered in buying foreclosures often overstate the case. That's because the foreclosed property is usually compared to the prices of non-foreclosed property, an apples and oranges comparison, rather than other foreclosures in the area. According to Zillow, the national foreclosure discount in September 2012 was just 7.7 percent, and an even smaller 4.7 percent in San Francisco. I suspect the foreclosure discount is even narrower now.
4) Remodeling the kitchen, with a lot of fancy upgrades, is one of the smartest moves you can make to boost your home's value."Kitchen renovations, at any level, offer among the lowest return on investment of the home improvements we studied," the authors said. Instead, a modest bathroom makeover might have the biggest impact on your home's value.
5) List early in the year to catch the spring home-buying rush. Nope. With more home buyers starting their search online, it's better to list in late March, generally speaking, so your listing is near the top of search results. Or as the authors put it, "you shouldn't list your house for sale before March Madness or after the Masters."
6) Home ownership is the foundation of the American Dream. The authors argue that an analysis of Zillow's data indicates public policy designed to boost homeownership among low-income buyers has the opposite effect of lifting people out of poverty. That's in large part because less affluent neighborhoods, where many of these new home owners can afford to buy, experience lower appreciation and higher price volatility than more affluent neighborhoods, according to Zillow Talk's analysis.
7) The mortgage interest deduction is essential to the health of the nation's real estate market. The authors concede that they're taking on the third rail of real estate, and American politics, in calling the mortgage interest deduction ill-conceived public policy. The authors make the case that the federal government is essentially spending $100 billion in the form of lost tax revenue annually to help Americans living in homes that cost about $865,000. And yes, that includes many of us living in the Bay Area. "It's especially ironic that the (mortgage interest deduction) is consistently sold to the American people as a populist policy to help the little guy," the authors write. "In reality, it's the exact opposite."
Source: San Fransisco Business Times
by Mark Calvey
Maria Krahn is an Affiliate Broker with Marx-Bensdorf, REALTORS... Maria has earned the Senior Real Estate Specialist designation as well as the Accredited Buyer Representative designation..
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