We recently refinanced our home, and as part of the refinance, we had to have our house appraised. Our appraisal came in high enough that we were able to refinance, so we were lucky compared to so many other people. Fortunately, we refinanced before a neighboring house started plummeting in value.
The house I am referring initially went up for sale around $300,000 this past summer. Now in January, it is down to $235,000, and it is a short sale. I have no idea what happened behind the scenes. All I know is the owners up and moved away out of the blue one day and the house was suddenly up for sale.
When I thought about how much this home has dropped in value, I thought about price-drop-prevention.
My Plan To Help Keep Home Values From Dropping
I thought a lot about the how quickly and severely the price of the home in our neighborhood dropped, and to me, the reason is obvious: The house is very outdated. Curb appeal is minimal; the family room still has paneling and pink carpet, etc. I honestly believe you could put $10,000 worth of upgrades into the home and it would sell pretty quickly, and at a much higher price. I was then wondering…what if banks that end up owning these homes partnered with contractors to fix up these houses instead of just allowing them to be sold at fire-sale prices? I understand that banks are not in the ‘construction market’ (they are too busy in the ‘flood zone market’, but perhaps they could partner up with a company that was, at least in areas with big markets?
We Could Even Create A New Segment Of Government!
This plan could even possibly help the government. Think about all the abandoned homes that are backed by Fannie/Freddie. Perhaps instead of just dropping home prices by $10,000, that money could be invested in the home in order to increase home value and reduce the amount of time it has to sit on the market. (Warren Buffett could even fund this initiative if he wanted to!) Again, the government would have to get involved in a business they are not currently in, but at least this type of involvement would help increase home prices and provide jobs.
I know that some people justify walking away from mortgages by saying it is just a contract between a homeowner and a bank, and people are allowed to back out of the deal. However, many others get hurt in the fall out too. (Especially considering how little many appraisers put into their reports, these ‘comps’ can really hurt those who want to sell a home or refinance.) Now, if someone had initially come in and paid $10,000 to fix up the house in my neighborhood, I am betting it would have sold for at least $270,000 months ago. The house has a great structure and is quite large. It is just hard to ‘see’ what it would become with it’s outdated carpet, walls, and fireplace. I am guessing that ultimately someone will scoop the house up at some point and renovate. If that is the case, I hope they sell it after the renovation so the ‘comps’ more accurately reflect the real value of the home.
I recognize that my plan is overly simplified. However, think of the jobs that would be created and the possible increase in home prices if the banks (and Freddie/Fannie) could be proactive and actually try to improve the homes instead of just letting these homes languish on the market.
What do you think?