What Is It With Real Estate Agents and Location?

Why Agents Talk About "Location, Location, Location"

Streetscape, Queenston, Ontario, Canada
••• Getty Images/Barrett & MacKay

"Location, location, location." You may have heard this mantra when talking to an agent about home values. In a nutshell, it means that homes can vary widely in value due to their locations. For example, the median cost of a single-family home in Decatur, Ill., is $107,900. The median cost of a single-family home in the Honolulu, Hawaii, area is $813,500. Location is essential when it comes to the value of a property.

Appraisers consider a home's location when they determine property values. They compare the home and land to similar properties within the same geographical area, which is another reason why location is emphasized as much as it is when determining property value.

Key Takeaways

  • Location is one of the most significant factors affecting a home's value.
  • Fundamentally, location has to do with supply-and-demand differences when comparing different neighborhoods or regions.
  • Nearby attractions, scenic views, and schools are all factors that can drive up the value of a location.
  • Crime rates, hazardous conditions, and nearby commercial or industrial properties can drive values down.

Location and Value

Much like a stock on an exchange, a home has a value that fluctuates. The initial price of a home is based on the value of the land at the time of the purchase, the cost of construction of the home, and a percentage of markup for profit for the builder.

The property value then rises and falls with the value of the properties around it and the commercial or recreational activities that develop nearby. Many factors can influence the value of a home, but the surrounding area is one of the most influential.

Value is an elusive concept—something that is valuable to one person might not be valuable to another. Real estate value is a bit different in that a home has a rough market value based on the size of the home, the size of the lot, when it was built, and, of course, location.

Locations With Higher Home Values

Home values are driven by supply and demand. When there's a high demand for homes but an insufficient supply, home prices go up. Why are some locations more in demand than others?

  • Homebuyers with children are concerned about their children's education and often will pay more for a home that is located in a school district with high test scores and a good reputation.
  • Homes near the ocean, rivers, lakes, or parks tend to have higher home values due to the great views and outdoor recreation opportunities.
  • Some homes sell quickly, and for top dollar, because they provide sweeping panoramic views of cityscapes. Even a glimpse of the ocean from one window is enough to substantiate a good location. Other sought-after views include mountains, greenbelts, or golf courses.
  • In many cities, you will find that homes located within walking distance of entertainment or recreation opportunities like movie theaters, parks, and golf courses are more expensive than those located farther away.

Look for Stability

Neighborhoods that have stood the test of time and have weathered economic downturns are more likely to have stable home values.

Locations With Lower Home Values

Locations with lower home values have a higher supply of homes and less demand. More people want to live in Honolulu than in Decatur. Home values also vary from neighborhood to neighborhood within a given area. Which factors lower home values?

  • Commercial buildings close to residential property can lower real estate values. Part of the reason is that homeowners can't control the noise, traffic, and other activities that come with commercial developments. Another factor is that commercial property is valued differently from residential. The types of commercial buildings also have an impact on home values. Retail developments can increase home values after construction is finished, but during construction, home values may drop.
  • Homes close to railroad tracks, overpasses, airports, and busy intersections may have higher noise, which can also reduce property values.
  • Higher crime rates in an area typically lower property values.
  • Hazardous conditions in an area can reduce property values. While housing developments are initially located far away from any hazardous situations, problems can develop over time. Toxic emissions from industrial plants impact air quality and lower home values. Sinkholes have been appearing for several years in Florida, lowering property values in vulnerable areas.

Where Are Millenials Moving?

Generational trends can also impact home values. The top five areas for Millenials are Seattle, Washington; Omaha, Nebraska; Madison, Wisconsin; Grand Rapids, Michigan; and Durham, North Carolina, according to the National Association of Realtors.

When Circumstances Change

​Even when you do find a home in a desirable location, at what seems like the right price, it never hurts to consider additional factors that may affect the property in the future. Ask about any new or planned construction nearby or vacant land that could be developed.

Sometimes, in new home developments, zoning and building plans change. One example could be a buyer purchasing a home just as new construction brekas ground in a vacant field behind it. Instead of putting up single-family homes as originally planned, the developer could build apartment buildings, which would change the whole landscape, and the homeowner's formerly appealing views would then be obstructed. That could lead to a lower sales price.

Final Thoughts

"Location, location, location" is repeated because it's a significant factor when it comes to home prices. If you're considering buying a home, be sure to keep this mantra in mind, and remember that home prices fluctuate. A home's value today might not be its value in the future.