Factors That Determine Home Appreciation
The factors that determine home appreciation are very important and must be considered. Home buyers often allow their emotions to rule the process when purchasing a home, instead of looking at all the factors a house represents. You must look toward the future when considering purchasing a particular home, especially since it is such a major investment.
Financial considerations in the home buying process go far beyond whether or not the home is priced appropriately for the neighborhood and the market and whether or not you can negotiate a better deal. While there is no formula to determine the home’s future value, there are many things for you to consider to help you make a wise choice.
So, what determines the future value of a home?
Many factors can be used to determine a home’s current market value. These factors can also be considered when trying to determine whether or not a particular home will hold that value or even increase in value. These factors include; location, land values, market conditions, the economy, condition, size, age, layout of the home and the types of updates a home has.
The two main predictors to concentrate most on are land values and location. The location of a home has an enormous impact on its value. Where it’s located within a town or city, the street it sits on and even the plot of land on which it’s situated, are all determining factors.
For example, a cul-de-sac location is usually considered one of the best locations for families. Next will be homes located deeper within a subdivision. One rule of thumb often used by realtors, is not to buy a home; on a main road, backing to a main road, or backing to commercial property.
While these homes will be less expensive, there is a reason for this. It usually will be evident first with the appraisal. An appraiser is required to use ‘like properties’ in the process, so if you are considering a home backing to a commercial property, the appraisal will also include a similar home. Unfortunately, if there is not a recent home available to use as a comparable ‘sold’ – the appraiser can go back further in date or even further out in location, which can negatively affect the value of your property. This may benefit you when buying the home, but it may do just the opposite when you go to sell, a fact most buyers have no knowledge of.
Next, homes located near good schools have a much higher value then homes located near poorer performing schools. Schools can impact home prices more than anything in some areas. So, if the home is near a school, check its rankings. Sit in the neighborhood when kids are coming home from school, and don’t be afraid to ask homeowners how the schools are and what their neighborhood is like. You will find out a great deal of information, like the age of kids in the neighborhood, which can be important if you have younger or older children. So, you can see there are many things to consider about a neighborhood when buying a home.
There is one huge factor that you really must consider – buying the most expensive home in the neighborhood. This is something you really want to avoid at all costs, with one exception. If a neighborhood has many smaller homes, and several have been torn down, maybe under new construction or major renovations, you need to do more homework. Land is the major determining factor here. I have seen dozens of neighborhoods, with large lots, completely turn over from small ranch homes, to neighborhoods which are being rebuilt into 4-5,000 or larger square foot homes. This is a huge opportunity, if you can find one of these smaller homes. You may wish to hold it as an investment, or build your dream home in the future. Just remember, don’t buy the best house in the neighborhood, if there are not additional homes that are being remodeled or rebuilt.
How to use this information when home shopping
Fight those emotional responses when house hunting. Yes, we get that it’s exciting to finally find the kitchen of your dreams in the 100th house you’ve viewed. But, unless you plan on living in the home until you die, you will sell it someday and even the most impressive chef’s kitchen won’t boost the home’s value if it has other factors working against it.
Then, do some investigating. Start with the location and check municipal records to learn of any land use changes or other plans that may have an impact on the future value of the home. Consider the following as red flags and a possible drain on value:
- The rerouting of traffic through the neighborhood in response to new development (commercial or residential) nearby.
- Plans for a nearby hospital, shooting range, power plant or waste facility.
- The neighborhood’s zoning. A multifamily designation may mean that you will one day be living next to an apartment building.
- Check local regulations if you’re concerned about the possibility of losing your view or even the amount of sunlight your landscaping receives if your neighbor decides to add a second story to his or her home. A view is worth money – lose it and you lose value.
Other nearby amenities that boost home values include:
- Parks – passive use parks (those without playgrounds, ball fields, etc.) tend to raise home values while active use (mainly because of the traffic and noise they attract) do not.
- “Active” transportation amenities, such as bike lanes, walking and biking paths and trails — homes in what are considered bike-able and walkable neighborhoods are worth far more than homes that lack these features.
- Nearby Walmart, Target, Starbucks or Whole Foods – these businesses actually have a positive impact on home values. Some however, such as Starbucks, have shown to cause a corresponding rise in property taxes.
If the home is located in a managed community, it is of the highest importance to check out the Homeowner Association documents which will let you know how residents are allowed to use the neighborhood. From landscaping requirements to parking prohibitions, this is important information that my impact the home’s future value, either negatively or positively.
Advice about how to improve a home before putting it on the market is great, but if the home’s location is undesirable due to any number of factors, all the improvements known to man and woman won’t raise its value. The time to ensure you’ll realize a return on your investment is before you invest the money.
Wendy Weir Relocation – Real Estate Agent, Relocation Specialist, Birmingham, MI
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