WARNING: Do not read while eating

Some things in life are just plain nauseating. If you've been following recent real estate trends, this little gem would most likely fall under that category.

I was watching "My House Is Worth What?" the other day - you know, the show on HGTV where a homeowner wants to know how much their house is worth, so a real estate agent comes by, notes some positive features and some drawbacks, and ultimately arrives at the price where they would list the home.

At this point, I could easily digress and rant about the things that bug me about this show. I'll save that for the end, because otherwise you'd miss this:

One of the homeowners featured on this episode lives in Los Angeles and bought in two years ago (that's right - the peak of the bubble). Her place is older - Spanish 1920s or so - and we don't know exactly what part of town it's in.

Pluses: There is a guest house on the property that she renovated and is renting out. There's also an outdoor patio that would be good for entertaining (is it just me or is that feature very overrated - sure, we would like some nice outdoor space, but just how often do we really use it?)

Minuses: No air conditioning. Washer and dryer literally within arm's reach of the sink in the kitchen, out in plain sight. Kitchen needs major work and has awful looking cabinets and counters. Floors in the kitchen should probably go, too.

She paid $550,000, and spent $25,000 renovating. So, she's in for $575,000. Trust me, it gets better.

Now she's hoping it's "worth" about $775,000 - so that way, she says, she could have a big enough down payment to trade up for a bigger and better place. This doesn't pass the smell test, and you can tell the real estate agent sensed it too - $200,000 appreciation in two years, considering we're now in a major buyer's market?

The agent then asks her: "How did you arrive at that figure?" (What he really means: What the @#$* are you thinking?)

She says: "Well, I've lived here for two years, and I heard you just add on $100,000 a year kind of thing..."

Excuse me while I hurl. This is a prime example of complete ridiculousity at work. That statement concisely sums up why we're in the situation we are now. People have been conned to believe that you can't go wrong with real estate, it always appreciates, blah, blah blah. This is one piece of the explanation as to why prices are now through the roof.

Cue the agent's nervous laugh, and joke about "Well, this is LA, right..." (What he really means: "You nut case! How can you possibly think that your house went up $100,000 each year? Good luck finding a buyer.")

He proceeds to tell her he would list it for $669,000 - still a whopping $94,000 above her costs (and she'd better try to get out now, otherwise she could be in for a surprise as the market continues its downward swing).

Despite what is in actuality very good fortune (and luck) for her, she pouts as we fade to commercial.

Thanks for reading this far. If you can stomach some ranting, then read on. If not, thanks for stopping by and I'll catch you on a later post.


If you're in the mood for more...

I'm no real estate professional, but the title of the show is a red flag. You've got a real estate agent telling someone who obviously wants to hear as high a list price as possible what they will list their house for.

How in the heck does this answer the question the title of this show poses: "My House Is Worth What?" Here's a little secret: It doesn't!

A real estate agent can have any kind of opinion they want about what they would list a house for, and that price could be not even close to real market value - because market value is what the asset would trade for in an open market, not what an agent thinks it could.

Even in the booming 2005 market, only 37 percent of those surveyed in this study reported selling their house for the full list price. That would lead me to believe that the initial listing price says little to nothing about what a house is really worth in the open market.

Two other (of the many) disturbing features of this show include:

• More often than not, the homeowner is not really looking to sell, but to pull equity. On this same episode, a couple was disappointed that their home was only "appraised" at about $150,000 over what they paid because that somehow wouldn't give them enough to finance their dream wedding. That's right - they wanted to pull all their equity out of the house, in a declining market, to buy a ring and spend the rest on a lavish wedding.
• Episodes tend to be fraught with misleading information about what fixing flaws and upgrading your house will do to its value. Again, I'm no expert, but when the real estate agents say things like, "If you do this, you'll get all your money back and more," could make someone believe that just by throwing money at their house, they are increasing the value. Umm...not necessarily. What I would take away from some of these suggestions is more that some upgrades will be necessary because otherwise, buyers will probably be turned off.

To be fair, there are a couple positives about this show:

• In earlier episodes, real estate agents were (not surprisingly) very upbeat about the real estate market and usually didn't dwell on flaws that would certainly turn sane buyers off (functionally obsolete things like 3 bedrooms, 1 bath). I like how the agents in recent episodes tend to be pretty frank about current conditions - they say right off the bat that we're in a buyer's market, and sellers are going to have to be very competitive to get their place sold. The more people that wake up to the truth, the better.
  
• It's good to see some people in complete denial face reality. Of course you're going to attach sentimental value to your house, but that don't mean squat to anyone else. The principle of substitution says no buyer will pay more for a house when they can get an equally as good one (in their eyes) for the same price.

Remember folks: It's just a house/townhouse/condo/cottage/shanty. It's just a place to live. The memories we create there are what hold the most value.