The newsLINK Group - Why Property Classification Matters

Editorial Library Category: Multi-Family & Property Management Topics: Property Classification Title: Why Property Classification Matters Author: newsLINK Staff Synopsis: The market provides the only concrete way to determine the actual value of a property. If someone will buy or rent a property for a specific amount of money, well, then that is what that property is worth … at least until the next time it is sold or rented. Editorial: Why Property Classification Matters 4064 South Highland Drive, Millcreek, Utah 84124 │ thenewslinkgroup.com │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 1 The market provides the only concrete way to determine the actual value of a property. If someone will buy or rent a property for a specific amount of money, well, then that is what that property is worth … at least until the next time it is sold or rented. Unfortunately, a property’s price tag when it sells isn’t much help when it has been a while since it was on the market, or when market forces have thrown values off. The most expensive property on the market used to be a triplex penthouse in London that sold for $221 million in 2011 at the One Hyde Park Development. In December 2015, that record sale was broken by a Chateau Louis XIV mansion near Paris with a 56-acre park that is located between Versailles and Marley-le- Roi. The price tag for the mansion was $301 million. Admittedly, it has an aquarium, a cinema, a wine cellar, a fountain with gold leaf on it, marble statues, a maze built with hedges, and bridle paths. The mansion and its undoubtedly beautiful, expansive setting took three years to create. Here’s a question for you: Does the mansion make the triplex less valuable? And when the Louis XIV mansion sells in years to come, what if there is no one who can afford to pay $301 million for a building that is no longer the oldest and grandest around? The relative and changing value of real estate suffers from the same problem you find in the art world. A work of art might be worth millions, for example, but not if no one can afford to buy it because of a recession, a depression, or a war. Even restoration has its hazards: Greek statues were originally painted. Art curators in the 1800s blasted the paint away because they liked the idea of a nice, white statue better than a painted one. During the same era, “experts” covered Michelangelo’s David with wax, and then removed the wax with hydrochloric acid. The acid destroyed the statue’s original patina. Anything valuable, whether it is a piece of art or a piece of real estate, can have its value reduced or destroyed by the wrong care. One good thing about being in real estate, however, is that at least you won’t ever end up being the subject of an internet story about ruining a priceless work of art. An upgrade to a real-estate property is more likely to enhance property value than to destroy it, as long as the work is done professionally. At this point, two issues should be clear: The real-estate values you set, like everything else, are inescapably subjective. Once a property has been built, its value is determined by the interaction of so many different factors that it becomes essentially impossible to come up with a single, objective measurement. Just understand that your best guess is still a guess, even if you go about the process as methodically as you can. You still have to try. The goal is a fair price that people are willing and able to pay and that will be high enough to keep you in business. If you do a poor job of setting your price, either your business will fail or you won’t make as much money as you could have. You need to understand your market, in other words, and then you need to evaluate the commercial worth of your properties accordingly. That means ranking them as best you can. Some people evaluate the worth of a property by its beauty, starting with curb appeal. Others opt for the age of the building, or the price per square foot. Each has its shortcomings. If you think a particular property is beautiful, other people might not agree. This is why so many properties have bland paint and carpet; at least if a building has a relatively neutral color palette, other factors — the furniture, the textiles, and the art, for example — can

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