What Makes a Property Value Increase
Simply put, appreciation is the rise in the value of an asset and depreciation is a reduction in the value of an asset. Below is a recap of the leading components that contribute to a home appreciation or depreciation either on their own or as a whole and on which you have control or not.
1. Supply and demand
The law of supply and demand plays the most significant role in home value movements. Property values rise when a low supply of homes for sale meets strong buyer demand, as buyers compete in bidding wars to secure a home from the limited inventory.
2. Comparable sales
Real estate agents and appraisers alike value homes based on the sale price of comparable homes in a given area, known as “comps.” When bidding wars occur in a neighborhood, homes sell for higher prices than their predecessors, enabling new listings to set higher list prices and achieve even higher sale prices if bidding wars continue to occur.
3. Jobs market and population growth
Strong job creation often leads to an increase in buyer demand as prospective home buyers gain financial strength and stability from new jobs to purchase. Property values increase in regions experiencing job growth, as incoming workers compete for the housing supply close to business centers. Often going hand in hand with job growth, population growth increases buyer demand, leading property values in desirable neighborhoods to rise.
4. Cost of borrowing
When mortgage rates are low, more buyers step into the market, seeking to save thousands to tens of thousands of dollars over the lifetime of their mortgage. If the housing inventory in a market goes down behind an increase in demand, then the property values rise in the impacted area.
5. Location in a given community
Property values increase or decrease at different rates in different locations, even at times varying drastically in adjacent neighborhoods. The variation in value from one neighborhood to another in the same city or in the same county is usually the result of the following influencing factors:
5-1). School district quality
Data from the National Association of Realtors reveals that 26% of recent homebuyers were influenced by the quality of the school district when selecting a neighborhood. Among buyers ages 30 to 39, that percentage jumps to 46%, followed by a 36% increase in buyers ages 22 to 29. Therefore, when a school district performs the buyer demand rises in the neighborhoods nestled in that district’s zone, driving property values up.
5.-2). Zoning regulations
Zoning laws dictate how areas of land may be used for residential, commercial, or industrial purposes. When a municipality transitions zoning in a particular area, property values may shift in response to new opportunities to use the land. For instance, when a city rezones a residential zone into a commercial zone. As a reminder, On September 6, 2021, Governor Newsom signed three new bills: SB 9 (Atkins), SB 10 (Wiener), and AB 1174 (Grayson), which aim to help tackle the state’s housing supply crisis and give more opportunities to investors to build new homes for California residents. Learn more.
5-3). New commercial businesses
New or improved shopping centers and trendy businesses drive buyer demand to these neighborhoods, lifting property values in their wake. For instance, research shows homes close to Whole Foods, Trader Joes, and Starbucks appreciate faster than other homes.
5-4). Access to public transportation
Homes located near new or extended public transportation lines benefit from a “transit premium.” According to the American Public Transportation Association (APTA), properties near high-frequency public transportation traditionally hold values 42% higher than those in other areas. The percent of value increase depends on several factors including accessibility, noise, and other neighborhood perks.
5-5). Proximity to nature, trails, and parks
On the other end of the spectrum, proximity to nature helps increase property values, particularly of homes located in urban areas. Research by the University of Washington suggests that homes adjacent to naturalistic parks and open spaces hold a 8%-20% higher value than comparable properties, with the value boost declining to near zero for homes located a half-mile away.
6. Usable square footage
It is stating the obvious that, the usable square footage of a home raises values in the eyes of appraisers and buyers. If you expand a home’s square footage with a home addition, finished attic, or basement, the property value increases to varying degrees. Bathrooms, bedrooms, and kitchens add the most value per square foot. On the contrary, unpermitted added square footage will lower the value of a home and the square footage added illegally will not be included in the total square footage of the property at the time of resale.
7. Property age and condition
Home appraisers rate a home’s condition based on the amount and degree of repairs required, focusing primarily on the integrity of the home’s structure and the functionality of the home systems (heating, air conditioning, water heater, etc.). Buyers in particular take note of the home’s age based on the quality and design of elements like fixtures, hardware, tile, and energy-efficient features. When one maintains a home from a structural and aesthetic standpoint, it always improves the property value.
A few examples of big ticket, value boosting upgrades include: Installing an HVAC system, repairing or replacing the roof, installing energy-efficient windows, replacing the garage door, minor or extensive kitchen and bathrooms remodel, open floor plan, updated fixtures and paint instantly update a home for a relatively small price tag.
8. Curb appeal and landscaping
Sprucing up a home’s exterior so that it shines from the street will pay off. Most agents agreed that amazing curb appeal equals money in the owners’ bank account at closing. Going hand in hand with the exterior appeal, lush landscaping raises property value as believing well-landscaped homes are worth 1% to 10% more than those without landscaping.
Hope this helps. Should you have any questions, feel free to contact me.