There is no formula for directly measuring property value. Various factors are at play and more often than not, they are at a continuous state of fluctuation.
One necessary distinction that has to be made, however, is the difference between what you call home price and the final valuation of the property after the appraisal has been made. The property price laid out during the offer between buyer and seller is not the final number. The bank or lending institution orders an appraisal to be done on the property in order to determine what the property is really worth based on existing market conditions and factors.
So what are these factors that influence the pricing and valuation of a property? If you are a seller, you can use this knowledge to set right pricing – and expectations – of your property. Or, if you are a buyer, you can use this information to make a reasonable offer on a property of interest.
Amenities and Accessibility
Properties that have a good “walk to” score has a good appeal. That means the property is close to areas such as the subway, the bus station or where public transportation is easily accessible. Buyers are also willing to pay more for properties near good neighborhoods or schools. Homes within these zones are more pricey, yet there are more buyers who are willing to pay, so set your price right.
Marketing Experience and Expertise of Your Real Estate Professional
Hiring the right real estate professional is more important than you think. The right person does far more than just put the sale sign on your yard. The best and most skilled people put up a superb marketing strategy to gain interest on your property. They also negotiate on your behalf and their level of expertise could mean the difference between getting the best deal or not.
Diverse Growth Factors
Economy drivers are important factors to consider in determining the price of a property. Is the industrial, scientific, and technical services in the area thriving? That could haul in more employment opportunities. In which case, people will want to move where work is available. Demand is a prime factor that pushes property prices up in an area.
Facilities / Upgrades
Buyers have specific qualities they look for in a home. Though taste is relative, the most common qualities being looked for in a home include being in style (modern houses, for example, are in trend), upgradesin key home facilities such as the kitchen and the bathroom, the landscape, etc. Other facilities that might ramp up price include a second floor or a pool, although some other conditions may counter these features and void their impact on pricing.
Some buyers just want to customize. So as much as possible, they want a home that is as close to their imagined outcome. Layout definitely comes as first consideration. If the house is not structured the way they want it and thus would need more changes during renovation, chances are, they are not going to buy it. However, this could be overruled where other elements weigh more in importance such as proximity to parks, schools, a peaceful neighborhood, etc.
Low Interest Rates
Today’s near record low mortgage interest ratesattract many homebuyers to purchase a new or a second home. A decrease in interest rate creates a surge in demand, which in turn, causes property prices to spike up. Add that to the scarcity of affordable homes todaywhich is already putting the US housing market in a critical dilemma.
Nearby Transactions / Local Real Estate Market Conditions
Timing is everything. Even if you have the most beautiful home in the block and your facilities had been duly upgraded, if demand is low and there is abundant supply in your area, you cannot expect to end up with the same price as when it’s the other way around. On the other hand, if you are looking to buy, home prices go down when there is less demand and many listed homes within your area of interest.
Neighborhood / Location
Is the home you are looking for near the shopping mall? Too close to the subway? Located in a reputedly bad neighborhood? Locale is a factor that could make or break a deal. Homebuyers understand that if they want to stay within a residence for a long time, they would have to make sure it is safe and conducive for them and their families.
Physical State of the Property / Condition of the Home
Homebuyers are meticulous. So are appraisers. If you wish to sell your home at top dollar price, especially in today’s sellers market, better present your house in the best light. Paints, wall coverings, the floors, even the countertops could be determining factors as to how much your property would be worth after the appraisal. You can make a reasonable offer too and if the buyer sees that the price is commensurate of the house’s condition, they would be more likely to respect what is offered or stay within a good price range.
Some sellers list their properties even when they are not in a hurry to sell. These sellers usually put the house at a higher price. So the properties end up sitting in the listings with little interest from potential buyers because of the unattractive price. What they don’t know is it might end up with a final sale price lower than if they offered reasonable pricing from the beginning.
If you are looking to buy a new house in a new neighborhood or area, you may also be more likely to accept lower price for your house just to hasten the sale of your property.
One of the most overlooked yet practical consideration for homebuyers is the view. Usually, it’s a matter of privacy and personal choice. It the same reason why condos with sea views sell.
Zoning Laws and Restrictions
Areal restrictions and zoninglaws affect housing and property prices indirectly. Your state might have laws pertaining to residential and commercial development that could affect housing supply, and thus the demand. It is recommended that you check with the local authorities regarding zoning laws around your prospect home to see if your initial expectations won’t be thwarted by some future inconvenience.
Urbanization and Population Explosion
More people create more demand for residence. As jobs continue to haul people into cities, populations explode, making home prices in these areas hike at unprecedented rates. Take Silicon Valley in the San Francisco Bay area, for example. Gentrification also plays a similar role, as does immigration, which has come to mean differently for the US housing in the 21st century.
Knowing these factors will put you in a better position if you are planning to engage in the home buying or property selling process in the near future. If you plan to invest on a property, know about timing and always keep in mind the factors you need to consider when viewing prospect properties. If you are a seller, don’t rush. The current housing climate is in your favor, but be sure to put a cap to your pricing and be reasonable in your offer.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.