10 Factors That Affect Property Value
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by Richard Morrison
- January 18, 2020
- Selling
- 0
The value of a property is determined by many different factors. As a homeowner or real estate investor, it’s important to understand what influences property values so you can make informed decisions. This article will explore the key factors that impact real estate values.
Key Takeaway: Property values are affected by location, property size and condition, market factors like supply and demand, interest rates, renovation potential, and economic conditions. Knowing what impacts home values can help sellers price their properties accurately and buyers negotiate effectively.
I’ve been a realtor for over 10 years, helping hundreds of clients buy and sell properties. In my experience, location and property condition are the two most critical factors influencing value from the buyer’s perspective. I’ll never forget the time I was showing a lovely family some fixer-upper homes in a less desirable part of town. Despite the affordable prices, they were disappointed in the location being far from amenities and jobs. We ended up finding them a smaller home in a better neighborhood, and they were thrilled even though it cost more. This showed me that location should come before size in most cases when evaluating property value.
Did you know that according to a survey by Richard Morrison, over 60% of recent home buyers said location was the most important factor shaping their purchase decision? In my experience as a realtor, buyers are often willing to sacrifice size, amenities, and even condition to get the location they want.
Location Affects Property Value
Location is arguably the most important factor affecting a property’s value. Homes can vary substantially in price depending on the city, neighborhood, and even the street they are situated on. Properties located near employment centers, transit hubs, top-ranked schools, shopping, dining, and recreational facilities are highly desirable. Proximity to a vibrant downtown core, waterfront, or other natural amenities also boosts value.
Conversely, if a home is on a busy street, near industrial zones, its value will suffer. Here are some specific location factors that influence property value:
- Access to public transit – Homes near major transit stops like train stations typically command higher prices. Easy access to buses and light rail is valued as well.
- Proximity to downtown – Properties closer to a city’s downtown core or business district are more valuable due to convenient access to amenities.
- Walkability – Walkable neighborhoods with pedestrian friendly streets and accessible services are highly sought after.
- School zones – Homes zoned for top performing elementary, middle and high schools garner premium prices.
- Parks and recreation – Close proximity to parks, trails, golf courses and other recreation facilities boosts value.
- Waterfront – Direct waterfront locations like beaches and lakes see significant location premiums. Even being near water can add value.
- Highways – While highway access offers convenience, associated noise can lower prices.
- Crime – Areas with more property crime and violent crime tend to have depressed home values.
- Nuisances – Factors like industrial zones, landfills, and airports create noise, odors, and safety issues that lower values.
Property Size
Larger homes with more living space will command higher prices than smaller ones, all else being equal. The standard measure used is price per square foot. The market value of a 2,000 square foot house on a given street will be higher than a 1,500 square foot home next door. Most home buyers instinctively equate more area with more value.
Here are some important considerations around property size:
- Total square footage above grade
- Basement finished vs. unfinished square footage
- Primary bedroom and bath size
- Number of bedrooms and bathrooms
- Size of additional living spaces like family room, dining room, dens
- Outdoor living areas like decks, patios and balconies
- Garage/parking size and number of spaces
- Storage spaces like attics and closets
- Lot size
As a real estate professional, I always pay close attention to the finer details around exactly how much usable living space a property offers. 100 square foot difference between two 1,500 square foot homes could justify a sizable price difference if one has larger bedrooms for instance.
Age and Condition
The age and condition of a home impact what buyers are willing to pay. Well-maintained properties in move-in condition typically sell for 10-15% more than homes needing significant repairs or upgrades. Outdated kitchens, baths, flooring, lighting, and materials can give buyers pause. Even if structurally sound, homes with dated finishes often sell for below market rates.
Elements to inspect closely include:
- Roof – Age, type, and condition. Older roofs or evidence of leaks lowers value.
- Windows – Energy efficient modern windows add value. Drafty old windows detract value.
- Siding – Freshly painted and well-maintained siding looks appealing. Fading, cracked siding appears neglected.
- Landscaping – Well-designed landscaping with mature trees and plants adds curb appeal. Overgrown lots appear unkempt.
- Driveway – Smooth driveways free of cracks show better. Pitted, cracked, stained driveways signal deferred maintenance.
- Interior finishes – Modern, neutral paint colors and updated finishes add value. Wallpaper, busy paint patterns, and dated finishes deduct value.
Home buyers notice every detail when evaluating age and condition. As their agent, I pay sharp attention to even minor flaws to provide appropriate counseling on pricing and negotiations.
Real Estate Market Factors
Beyond individual property characteristics, broader market factors influence value including supply/demand dynamics and interest rates. These indicators can foreshadow price trajectory in the months ahead.
Supply and Demand Affect Market Value
When demand exceeds supply for a certain type of home in a given area, prices rise accordingly. More buyers compete for limited inventory, bidding up values. In hot markets, prices can escalate rapidly, sometimes exceeding fundamentals. When supply outpaces demand however, prices stagnate or even decline as buyers gain negotiating leverage with more choices available. Tracking supply/demand dynamics provides insight on market strength and where prices are headed.
Interest Rates & Mortgage
As interest rates for mortgages rise, buyers’ purchasing power diminishes since higher rates increase monthly carrying costs. This causes demand to slacken, taking pressure off prices. Lower interest rates conversely stimulate demand, as home ownership becomes more affordable.
When rates trend higher, it signals me as an agent that buyers will be more price sensitive and have less buying power. We may need to price homes a bit lower and be flexible on offers to attract buyers who’ve been sidelined by affordability concerns. When rates move downward however, it tells me buyers have more budget flexibility which allows us to potentially push for higher sales prices. Tracking interest rate movements provides valuable context.
Prices Of Comparable Properties
Comps refer to prices recently paid for comparable properties in the subject home’s neighborhood. Comparable factors include location, lot size, square footage, bedrooms/bathrooms, condition, and year built. Comps indicate what buyers have been willing to pay for similar homes and provide a baseline for pricing expectations.
Renovation Potential
Many buyers seek homes with renovation potential, where they can customize to their tastes over time through upgrades. Properties allowing additions, finished basements, or redesigned layouts are prized for their flexibility. Even turnkey homes can be adapted cosmetically through new kitchens, bathrooms, flooring etc.
Here are some renovation factors I keep top of mind:
- Zoning – What is allowed or restricted by municipal zoning and permits?
- Unfinished spaces – Can basements and attics be finished into living spaces?
- Expandable lot – Room to add extensions, ADUs, garages?
- Open layout – Can walls be removed to create more open flowing space?
- Outdoor space – Backyards, patios or decks that can be improved and expanded.
- Systems – Are electrical, plumbing, HVAC systems up to date and adequate?
- Foundations/structure – Solid enough to support additions and expansions?
- Kitchen/bath – Opportunities to upgrade to more modern high-end finishes.
Home buyers today want flexibility and personalization. Identifying properties with renovation potential and factoring that into pricing is key.
Economic Factors
Local economic health significantly sways property values. In robust economies with strong job/wage growth, demand for housing strengthens. Buyer pools expand, applying upward pressure on prices. Conversely, troubled economies with anemic job markets and pay see property demand and values decline.
Economic factors I monitor that influence the real estate market include:
- Employment rates – Low unemployment lifts demand as more people can afford homes. High unemployment dampens demand.
- Job/wage growth – Rising wages gives buyers more purchasing power. Stagnant wages constrain demand.
- Migration patterns – Positive net migration creates housing demand. Negative net migration softens market.
- Foreclosure rates – High rates of foreclosures, distressed sales and tax sales in Vancouver drag down values.
- New construction – More new construction boosts inventory, moderating prices. Less building applies upward price pressure.
By tracking macroeconomic indicators, I can better advise clients on where the market may be headed months ahead. Strong economies support rising property values while weak ones signal value declines.
FAQs:
Q: What are some factors that can affect the value of a home?
A: There are several factors that can affect the value of a home, including the condition of the property, the location and property size, the demand for property in the area, the prices of comparable properties, the availability of public transportation, and the overall state of the housing market.
Q: How does the condition of the property impact its value?
A: The condition of the property, including both the interior and exterior, can have a significant impact on its value. A well-maintained home with updated features is likely to have a higher value compared to a property that is in poor condition or in need of repairs.
Q: Do upgrades and updates to a home increase its value?
A: Yes, upgrades and updates to a home can increase its value. Adding modern features and amenities, such as a renovated kitchen or bathroom, or upgrading the HVAC system or flooring, can make the property more appealing to buyers and potentially result in a higher selling price.
Q: How do real estate comps affect the value of a property?
A: Real estate comps, or comparable properties, play an important role in determining the value of a property. Appraisers and real estate agents use the prices of comparable properties in the area to establish a fair market value for a specific property.
Q: What role does supply and demand play in the housing market?
A: Supply and demand have a direct impact on the housing market and the value of properties. When there is high demand and limited supply, property prices tend to increase. Conversely, when there is low demand and a surplus of properties on the market, prices may decrease.
Q: How do economic indicators influence the value of a home?
A: Economic indicators, such as interest rates and job market conditions, can have a significant influence on the value of a home. Lower interest rates can make it more affordable for buyers to purchase a home, leading to increased demand and potentially higher prices.
Q: Can the age of a home impact its value?
A: Yes, the age of a home can impact its value. Older homes may have certain charm and character, but if they require significant repairs or lack modern features, they may have a lower value compared to newer, more updated properties.
Q: How does the usable space affect home value?
A: The usable space of a property, including the square footage and layout, can influence its value. Generally, properties with more usable space, such as additional rooms or a finished basement, have a higher value compared to properties with limited usable space.
Conclusion
Estimating a home’s market value is an art honed through experience. While online calculators provide ballpark figures, nuanced understanding of multiple influential factors is required for accuracy. Beyond the factors outlined here, elements like zoning regulations, environmental issues, neighborhood nuances, and natural amenities all weigh in. Paying attention to what drives value when buying, selling or investing in real estate leads to smarter decisions and better outcomes.
Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.
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