As a homeowner, you have the power to influence the value of your property through careful maintenance and updates.
However, it’s important to remember that numerous factors, both big and small, impact the overall housing market and local real estate performance.
Unexpected global events that shake consumer confidence can cause a sudden drop in homebuyer demand and put downward pressure on prices.
On the other hand, the development of a new shopping center near your neighborhood can potentially increase your home’s value by thousands of dollars over time.
While national trends are significant, what’s happening in your local area is equally important.
To fully grasp real estate property values, you need to understand both sides of the equation.
With that in mind, let’s delve into the top factors that influence residential home values and explore their impact.
What Influences Home Value?
When estimating a home’s value, several factors come into play.
Let’s take a closer look at some key elements that can influence a home’s worth, which are often taken into consideration during a home appraisal.
One of the most significant factors impacting a home’s value is the supply and demand dynamics.
Additionally, factors such as the location, age, condition, and other details of the property all play a role in determining its value on the real estate market.
So, let’s explore these elements further to gain a better understanding of how they affect a home’s overall worth.
1. Location
Location is crucial when it comes to the value of a home.
You can tweak a house to suit your needs, but the location remains unchanged.
The proximity of a home to desired resources and its overall appeal are often the most significant factors that sway a buyer’s decision.
Purchasing a home in a popular area of town can help maintain or even boost its value.
This acts as a safeguard during economic downturns when average home values tend to dip.
There are several criteria used to evaluate a home’s value with regard to its location:
Neighborhood Desirability:
Some neighborhoods are simply more desirable than others, whether due to their location, amenities, or local prestige.
Homes in highly sought-after neighborhoods, ZIP codes, or even specific areas of town tend to command premium prices.
School System:
Education plays a pivotal role in many families’ decisions to settle in a particular community.
Research by the National Bureau of Economic Research reveals that every $1 invested in schools results in approximately $20 increase in area home values.
Homes situated within coveted school districts tend to maintain their resale value and often sell quickly once listed.
Proximity to Transportation:
Quick and convenient access to major highways is a key factor for many individuals in their daily commute, which in turn influences a home’s value.
A joint study by the American Transportation Association and the National Association of REALTORS® discovered that homes located within a half-mile of public transportation services generally have higher home values compared to those located farther away.
Lot Location:
Even within a neighborhood, certain lots are deemed more desirable than others.
This could entail homes situated on cul-de-sacs or corner lots.
Generally, homes on quieter streets or lots that provide more privacy tend to command higher prices compared to smaller, busier locations.
Understanding how location impacts home value can help buyers and sellers make informed decisions and navigate the real estate market more effectively.
2. Comps
Comps, short for comparable sales, are the closed sale prices of recently sold homes in your neighborhood.
They serve as the foundation for a unique comparative market analysis (CMA) that helps determine the right list price for your home.
But what exactly do comps have to do with your home’s value?
Well, it all comes down to what consumers are willing to pay for products.
Comps focus on sold homes because they reveal what buyers were recently willing to pay for homes similar to yours.
This is in contrast to the prices set by your competition for their currently listed houses, which only indicate how much your neighbors want for their homes.
Understanding this distinction is crucial.
Knowing sold prices gives you insight into actual market value, while current list prices may or may not reflect accurate pricing determined by thorough research.
For a property to be considered a viable “comp,” it must be comparable to yours in terms of location, size, age, and condition.
The timing of the previous sale also plays a role, ideally looking at homes sold within the last six months.
So, when determining your home’s value, comps provide valuable information and help ensure you set the right list price based on actual buyer behavior.
Tips for Finding Comps
- Recency: It’s important to prioritize recently sold homes. The more recent the sale, the better indication it provides of the current market conditions.
- Feature Similarity: Look for homes that closely resemble yours in terms of features. Consider factors like the type of home (such as two-story or ranch), the year it was built, the number of bedrooms and bathrooms, and the square footage. This helps ensure a more accurate comparison.
- Distance: Whenever possible, focus on homes within the same subdivision as yours. This is because properties just a block away might not make good comps if they belong to a different subdivision with distinct rules and regulations, a separate school district, and so on.
- Location: If your home has unique characteristics, such as being situated on a busy street, near a golf course, or waterfront property, search for comps that share the same placement. Similar location attributes play a crucial role in determining value.
By considering these factors and conducting a thorough search, you’ll be better equipped to find meaningful comps that can assist in making informed decisions.
3. Home Size, Age & Layout
When it comes to estimating your home’s market value, the size of the property plays a significant role.
A larger home tends to have a positive impact on its valuation.
To get a rough estimate, we usually consider the price per square foot, which is calculated by dividing the sales price by the total square footage of the house.
For instance, if a 2,400 square foot house sold for $240,000, the price per square foot would be $100.
However, it’s important to note that the price buyers are willing to pay per square foot can vary significantly depending on the location.
$100 per square foot might be considered a bargain in some areas, while in others it could be much higher than the average.
Apart from square footage, the usable space within the home also plays a crucial role in determining its value.
It’s worth noting that garages, attics, and unfinished basements are typically not included in the usable square footage.
So, for instance, if you have a 2,000-square-foot home with a 600-square-foot garage, the actual livable space would be 1,400 square feet.
Keep in mind that what matters most to buyers and appraisers is the livable space within the home, particularly the number of bedrooms and bathrooms.
Generally, the more bedrooms and bathrooms your home offers, the higher its value.
However, it’s essential to remember that these trends can vary significantly depending on the local market.
If you’re interested in learning more about home renovations check out our blog post on how to boost your property’s value.
4. Renovations & Upgrades
If you’re considering home renovations to add value, it’s important to keep in mind that not all improvements yield the same return.
In the case of an aging home with outdated technology and appearance, updating the electrical system could potentially have a greater impact on its value than new kitchen cabinets.
On the flip side, a newer home might benefit more from new kitchen cabinets to elevate its aesthetic and align it with current design standards.
Staying up-to-date with home trends will help you make renovation decisions that prove to be worthwhile investments in the long run.
Let’s take a closer look at how some popular renovations factor into determining a home’s value:
Curb Appeal:
First impressions matter!
Curb appeal plays a vital role in attracting potential buyers.
While a complete landscaping overhaul might not be necessary, sprucing up the front yard and exterior is a good place to start.
It can have a significant difference in enhancing your home’s overall appearance.
Updated Kitchen:
Kitchens often steal the spotlight for home buyers.
A well-remodeled kitchen can easily catch the eye of potential buyers.
Consider consulting with your real estate agent to decide whether a full renovation or small updates would be more suitable to modernize your kitchen.
New Systems:
Buyers frequently prioritize the age and condition of a home’s systems, such as HVAC and roof.
If the system is extremely outdated, it may be worthwhile to replace it entirely.
Even for newer systems, being able to market them as recently serviced, cleaned, or updated can be advantageous.
By strategically approaching home renovations, you can make informed decisions that optimize your investment and ensure your home stands the test of time.
5. Housing Market
The housing market is influenced by the interplay of supply and demand, shaping its conditions.
While national trends provide some insights into your local market, conducting research specific to your area is crucial.
You should consider factors such as the loss of a major employer or local laws that may influence real estate sales patterns.
It’s highly recommended to collaborate with a real estate professional who specializes in your area.
They can offer valuable insights into the local housing market and help determine if it’s currently a buyer’s or seller’s market.
In a buyer’s market, the number of available homes is relatively high, so houses tend to stay on the market for a longer duration.
Buyers may have the advantage of negotiating terms more favorably.
In some cases, sellers may need to adjust their prices to meet the budget of potential buyers, as the market value of the home may be lower than anticipated.
On the other hand, in a seller’s market, there is limited inventory, creating more competition among buyers.
Sellers in a seller’s market have the luxury of choosing from multiple offers and can even dictate the type of loan they are willing to accept.
Understanding whether your local real estate market favors buyers or sellers can help you estimate the market value of a home.
It can also help you to estimate how long it will take to sell your property.
6. Interest Rates
Have you ever wondered why interest rates matter?
Well, let me break it down for you.
Short-term interest rates are what you pay on a credit card.
Long-term interest rates are what you pay on a mortgage.
They both have a significant impact on your ability to afford a home, but in different ways.
Let’s start with short-term rates.
When these rates rise, not only does it affect the interest on your savings, but it also makes short-term debt more expensive.
So, if you find yourself spending more money paying off a credit card or a short-term loan, it’s likely that you’ll have less money available in your home-buying budget.
Now, here’s the interesting part.
Short-term interest rates don’t directly impact long-term interest rates.
So, when the Federal Funds rate increases, it doesn’t necessarily mean that a 30-year, fixed-rate mortgage will become more expensive.
Long-term rates are influenced by various factors like Department of the Treasury yields, investor sentiment, and inflation rates.
But here’s the bottom line.
As interest rates go up, it becomes harder for people to afford homes.
And guess what?
This can actually impact the value of your own home when it comes time to sell it.
So, remember, understanding interest rates is crucial because they play a key role in shaping the housing market and determining how much you can sell your home for.
7. Economy
When the economy is unstable, people tend to worry about various financial concerns such as salary freezes, rising prices, and the fear of job loss.
These worries often extend to the possibility of losing their homes.
Falling behind on rent can result in eviction from an apartment, but missing mortgage payments can have more severe consequences.
It can lead to defaulting on the loan, ultimately resulting in the loss of one’s house and long-term credit damage.
Moreover, individuals who are anxious about potential home loss are less inclined to take the risk of purchasing a new house.
This cautious approach affects the housing market.
Conversely, during a thriving economy, people are more confident in their ability to secure another job, and possibly an even better one, if they leave or lose their current position.
This is why skilled agents pay close attention to economic factors like job growth, unemployment rates, and the Housing Affordability Index.
These indicators greatly impact consumer confidence and sentiment, both of which are vital to the overall economic health of the United States.
In fact, multiple organizations closely monitor these trends.
When consumer confidence is high, people are more likely to make significant purchases, such as buying a house, using the money they’ve earned with confidence.
However, it’s important to note that even during times when the overall trend of home values is on the rise, prices may remain stagnant or even decrease in certain regions due to other influential factors.
How to Value a Home
If you want to get a general idea of how much a home might be worth, there are some useful tools and resources available to help you out.
One option is to use an online home value estimator, which takes into account recent sales and listing prices to predict a home’s value.
Another option is to try the Federal Housing Finance Agency’s House Price Calculator.
This tool uses a home’s most recent selling price to project its current value based on the average appreciation rate of similar homes in the area.
For a more accurate estimate, it’s a good idea to work with an experienced real estate agent who knows your local market well.
They can help you find comparable properties (comps) and provide valuable guidance.
If the home is being financed, the lender will typically send an independent property appraiser to inspect the property.
The appraiser will consider factors such as the overall condition, size, and number of rooms to assign a value.
Cash buyers or those seeking a second opinion might also want to hire their own appraisers.
By using these resources and possibly getting professional advice, you can make a more informed decision about the value of a home.
Final Thoughts on What Influences Home Value
In the end, it’s important to understand what influences home value and all of the factors that contribute to property value.
This will help to prepare you for what to expect when buying or selling a property.
Ultimately, it is best to go with your gut and trust in yourself and the professionals advising you.
There may be other things that influence home value, so undertake due diligence as part of your research before deciding on whether to buy or sell a place.
By understanding how these factors can work together, making decisions about real estate investments become much easier.
If you have questions or need help getting started with your research, give us a call or feel free to contact us at any time!
Helen Painter Group Realtors is here to offer our expertise and experience in real estate.
A long-standing and trusted Fort Worth real estate agency, we’ve been serving buyers and sellers since 1958.
With over six decades of success behind us, you’ll surely have peace of mind knowing your best interests are being represented each step of the way.