Factors that influence home value

Factors that influence home value

It is important for investors to comprehend how potential land values affects property returns in order to make more informed choices.

Many home buyers especially for those buying for the first time imagine physical characteristics of a home will lead to increased property value. But in actuality, a property structure depreciates with time and the land appreciates instead.

Over time land appreciates due to its limited supply. As the human population increases, demand for land rises increasing its value as well. The magnitude at which land depreciates and/or physical obsoletion differ from one property to another but if abandoned land continues to depreciate until eventually adding no value.

There are numerous factors that affect the worth of a property. Below are some points to consider and help you determine the worth of your investment property.

 

1.     Size and space

Many times, the market value of any property is determined by price per square foot ( Total sale price divided by the property’s square footage).

Another factor to consider is the usable space of a property. Spaces like basements, garages and attics are normally not inclusive of the usable square footage. More consideration is on spaces like bedrooms, bathrooms etc that notably add value to the property.

2.     Location

Location is a prime consideration in terms of property value. Property close to amenities like schools, shops, public transport, restaurants and the like tend to be more pricey. City centres have more market value (in terms of prices) because of the nature of businesses that operate around therefore it becomes a sought-after destination.

The more popular and accessible a property investment is, the more value the property will have. But for most home buyers who have families tend to gravitate towards the more quiet locations and the more they’re willing to pay the more it’s worth.

 

3.     Updates and upgrades

Any renovations done on a property increases property value immensely, especially more older properties. Some spaces that can really make a significant effect on the value of a home are like the bathroom and kitchen.

The outer appearance of the home can also increase value. One should consider tarting up spaces like the garden which can increase value upto 20%.

4.     Home age and condition

Home age plays a major role in value. Normally when a property is brand new it attracts more buyers/investors and are willing to pay more because they will not incur any major real estate renovation costs or repairs.

Condition of the home is another consideration buyers look into, they would rather buy a house that is well maintained than a new one that requires major renovations.

5.     Comps

It is important to check the sale price of similar properties in the neighbourhood in order to establish the proper value. You can compare in terms of;

  • Construction year
  • Number of bedrooms and bathrooms
  • Square footage
  • Type of home
  • Location (amenities around)

 

6.     Supply and demand

This is another major indicator, If the supply is fixed and demand is high then the price will rise due to increased buyer interest. Supply can be heightened by dividing large structures into smaller units or constructing new property. But when the supply surpasses the demand, prices will considerably drop.

7.     Interest rates

If banks decide to increase interest on loans, loaners will follow suit. This is bad news for the debtors as they will be required to pay higher monthly mortgage repayment which equates to property being sold on at a higher price. Consequently a reduction of interest rates will make properties more affordable.

8.     Building regulations

Property construction requires regulations which entail technical aspects of the building process and planning permission which is the size, design and shape of property.

Failure to abide by the policies set may result in property demolition.

9.     Renovation potential

A lot of buyers/investors are interested in potential property renovations. It could be potential to expand the floor space, add extra storey or bedroom, add an outdoor patio or pool or garden.

Buyers like to customize or improve their properties once purchased so if an opportunity presents itself in the potential property they are about to acquire then the value will be higher.

10. Economy

If the economy is flaky, people tend to worry about salary freeze, price rise, being fired etc which would put them at a risk of losing their property. However when the economy is booming, more opportunities for people to earn more money therefore increases buying power.

It is necessary to keep up with the prevailing conditions of an area before setting a price for any property.

11. Population and demographics

There is a big demand for properties in the suburbs since many people want to live there. Simutalneously, the type of people living in a particular area will influence property value. If young families are dominantly the demographic group in the area most likely the type of houses are multi-bedroom houses which will be more sought-after as compared to smaller apartments.

12. Energy efficiency

A property constructed of high quality materials is likely to have a higher value, because it makes the property easier to heat and cool given the high price of electricity and gas bills, items like solar panels, insulation and double-glazed windows hence adds more value and appeal.

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