professional appraisers combine when valuing a home: “The Cost Approach is how much capital would be required to replace the improvements, less physical deterioration and other factors, then adding the land value. Secondly is the Sales Comparison Approach—which involves discovering a comparison to other similar nearby properties which have recently sold. Generally speaking, the Sales Comparison Approach is the most accurate indicator of market value of a residential property. The third approach is the Income Approach, which is the best method in appraising income producing properties—it involves estimating what an investor would pay based on the income produced by the property.” Cavender says a walk through on a home almost always ends with someone asking, “What do you think it's worth?” Laughing resignedly, he replies, “That answer is going to take another 10 hours of analysis to determine. I really don't want to go into it with a preconceived idea. I just want to let the numbers fall into place.” Risk The danger of all this high-stakes bidding is that when buyers overbid, they create false value in the market, which may or may not live up to the appreciation hopes of buyers. MLS stats show the average price increased in 2013 at 8.1 percent. Cavender cautions, “This may or may not be appreciation. It could be that buyers can afford bigger houses.” Colorado State University Regional Economics Institute director, Martin Shields, says, “We can cause local headaches because of it [consistently overbidding on houses]. It won't impact the national economy; asset bubbles usually have huge macro implications. And it's not like the Fort Collins housing market would take down the national economy. If it was happening elsewhere, we would be keeping our eye on it, but the data suggest it's a more local phenomena.” Shields says that isolated bubbles like this can sometimes result in overstretched buyers who are more vulnerable to events like rising interest rates. “If there would happen to be a large number of foreclosures—and I'm not predicating that at all—but if it were to happen, those get contagious. Academic research shows foreclosures in your neighborhood cause more foreclosures in nearby properties.” Shelly Hill is sensitive to her clients' desire to live within Fort Collins' city limits. But she suggests thinking out of the box rather than competing for the same houses everyone else wants. “I've encouraged those who dream of Old Town to look along the MAX line. There are some neighborhoods that have been blighted around the mall and in Midtown where development will eventually catch up.” She adds, “For a lot of people, if they're not where they want to be for the next 20 years, they need to figure it out. Interest rates are going to go up. It's inevitable.” In other words, hang onto your hats, cowboys. This game is only going to get hotter. Corey Radman is a regular contributor to this magazine. Find more of her work at www. fortcollinswriter.com.
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Lydia’s STYLE Magazine