Home Value: How Do You Know it When You See it?

It seems obvious. Every homebuyer’s goal should be to obtain the best value for his/her money. But, “value” itself is a relative concept represented by the relationship between the desired features and benefits of a product or service and the cost associated with those features and benefits.


The basic concept of value is much easier to understand than compute because certain benefits of a product or service can prove difficult to quantify. For example, how do you put a number on the benefits of “comfort”, “potential for improved health or longevity”, “reliability” or simply “how a product might make you feel”? Value becomes even more challenging to compute when one recognizes that the cost component of the value equation depends on which type of cost you are quantifying-- simply “initial cost” or “total cost over a planned period of ownership”. This complexity no doubt accounts for why so many homebuyers make a poor purchase decision by comparing two or more homes on the simplistic basis of “initial purchase cost per square foot”. The math is easy and the resulting decision often is unfortunate.

Purchasing a home on the basis of “initial purchase cost per square foot” makes as little sense as purchasing a new car on the basis of “cost per pound” or “cost per cubic inch of car volume”. One understands readily that the features and performance contained in one pound of luxury car typically are not found in one pound of economy car. And by contrast, while almost every purchase decision begins with cost being one evaluation criterion, the smart auto shopper consciously considers other equal or more important criteria such as fuel efficiency, vehicle performance, comfort and quietness of ride, vehicle weight and safety features, custom features that meet a want or need, warranty, vehicle and dealer performance and service ratings and history of trade-in value. This frame of reference entails recognizing every vehicle feature of importance to the car buyer, while also evaluating all factors that will comprise the vehicle’s “total cost of ownership”.

A similarly thorough assessment of a home’s value will include initial cost, home size, floor plan functionality and adaptability, location benefits (such as proximity to schools, parks, shopping, employment, friends or family), energy efficiency, ease of maintenance and maintenance costs, custom features that meet a want or need, indoor comfort, features promoting occupant health and/or safety, seller warranty, seller service performance as evaluated by prior customers and how well a home or neighborhood is likely to hold value over time.

By understanding home value as thoroughly as a smart car shopper would approach car value, the home buyer will recognize value as being a function of the least total cost of ownership, all factors of ownership being considered. It’s this approach to understanding home value that provides the greatest assurance of a sound, intensely satisfying and rewarding investment.