EQUITY AND EMOTIONAL EQUITY

Home Equity is the difference between what you owe on your property and what it is worth.  The more you put into your house the more equity you have.  Anything that increases the value of your home increases your equity.  This can include paying down on the mortgage, certain home repairs, and increased appreciation.  If you personally do the work on repairs or upgrades, this is called Sweat Equity because your own work and sweat was an investment that increased the value of your home.

Emotional Equity is the emotional investment  you put into a house.  It has nothing to do with the actual financial value of  the property but it has a greater value to you emotionally.  This doesn’t come without cost.  In an emotional sense you have spent or invested feelings in the property and this makes it more valuable to you.

Emotional Equity is a reason some home buyers will pay more money for a property.  At times this can be appropriate because it is hard to place a financial value on what you like and what is really important to you.  Some buyers strongly regret not having purchased the house of their dreams because it seemed financially overpriced.

 Other times Emotional Equity is inappropriate because you pay too much for a property because you are so emotionally invested.  Beware of emotional mistakes some home buyers make.

Buying a home is an incredibly emotional experience for many people, much more so than other financial investments. That's because we're choosing the place we're going to call home. It should be safe and secure, and in some way touch your emotional core. But because the process calls upon us to reconcile our dreams with the realities of our checkbooks, it also plays upon our emotions. And once emotions are involved, it's difficult to inject the distance you need to make an objective choice.

Can you fall in love with a house? Certainly. You may also be encouraged down that path by a real estate agent who says things like, "Oh, this house was meant for you." "It really suits you." and "I can tell this is the perfect house for you. Don't you just love it?"

You have to remember that love fades. After a while, you'll start to see the flaws every home has. Nothing's perfect, and if you haven't based your choice on what you actually need, you may find yourself owning the wrong home.