Property prices are typically built upon a set of factors that are determined by local real estate market conditions as opposed to national market trends. It’s no secret that a cape cod home in suburban California is going to fetch a far higher price than the exact same property situated in a rural Midwest location.
Market variables are constantly changing, but certain components are often used in the construction of a property’s price:
- Foundation: Value of nearby homes – When a property is appraised, one of the factors which plays a major role in the final valuation is what similar-sized homes are selling for in the neighborhood.
The price of a 2,400 square-foot home with four bedrooms and two baths may be affected if a similar home across the street just sold last week. If the sale was closed at a higher than anticipated price, it would not be surprising to see an increased price on the home across the street.
The opposite is true as well. If the home across the street sold for a low price, the property still on the market may not be able to command its original asking price.
- Framework: Size of property – This is evaluated by lot size and the home’s number of bedrooms, baths, and total square footage. “Additional” square footage, such as a partially finished basement or an enclosed porch, are secondary to the main living space.
- Fixtures: Number of improvements (structures) – The home is the primary improvement on the property. Other structures might include a detached garage, storage shed, barn, workshop, greenhouse or poolhouse.
Beyond the home itself, if additional structures on the property are in good shape, they can enhance a property’s value. Conversely, if a garage is in dilapidated condition, it can detract from a home’s selling price.
- Walls: Condition of property – How does the home look on the inside? Is it bright, airy and comfortable with newer plumbing and electrical wiring? Is it a freshly constructed home that will sell the minute it hits the listings? Or perhaps it is a 50-year-old home with a 50-year-old bathroom and kitchen that have never been updated.
In the big picture, appraisals are generally based on actual square footage, rather than décor details. But the interior’s appearance will influence the home’s value in prospective buyers’ eyes.
- Topping: Amenities – Features beyond the property’s size, condition and improvements can affect real estate pricing. Common “extras” can include kitchen island, built-in dishwasher, fireplace, hot tub and walk-in closets.
Amenities are not limited to a home’s interior. Has the yard been professionally landscaped? Is the garage detached or attached? Is there a deck on the front or back of the house?
Sometimes what one person regards as a plus can be viewed as an obstacle to someone else. For instance, some sellers are convinced that an in-ground pool enhances their property’s value. What they may not realize is that a pool can be perceived as a problem to certain buyers, who may not want the maintenance or safety responsibilities that a pool requires.
The correct approach is to try to contemplate how the majority of buyers will feel about every “extra” on the property.
- Finishing Touches: Curb appeal — Here is a factor that is sometimes overlooked because so much of the real estate pricing process is fixated in factual information. From a buyer’s perspective, a home’s curb appeal can motivate them to get out of the car, or just keep on driving.
The way a property looks from the street can be a crucial element in determining what a buyer will pay. It should emanate an element of warmth that invites prospective buyers and investors to walk through the home’s front door.
- Extras: There are a myriad of other elements that can also affect real estate pricing. Sometimes they are foreseeable, other times they are not recognized until after the fact:
* Trees can be a negative influence if they are too mature and located too close to the house. Trees can also be a plus if a buyer wants a closer connection to nature.
* Nearby main thoroughfares can be a plus for someone who wants to get to work quickly or ride public transportation. Busy streets can be a detriment to others who worry about vehicular noise or crossing the road safely.
* A wood-burning stove could be desirable to certain-minded individuals, who might perceive it as a value. There are other individuals who might be concerned about having one in their home.
* Swimming pool – Here’s something that can either enhance a home’s value or detract from it, depending on the buyers’ preferences. If the buyer wants a swimming pool with the home, it can be a plus. If the buyer really likes the home, but does not want a pool, it can be a deal-breaker.
Fortunately, no matter how a real estate price is constructed, it can always be rebuilt to adapt to the conditions that guide the market.