"Location, location, location." You may have heard this mantra when talking to an agent about home values. In a nutshell, it means homes can vary widely in value due to their location. 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.
- Location is one of the most significant factors affecting a home's value.
- Fundamentally, this 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 purchase, the cost of construction of the home, and a percentage of markup for profit for the builder.
The land and home 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 may not be valuable to another. Real estate value is a bit different, in that homes have 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? Some locations are in demand because:
- 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 properties located further 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 Decatur. Home values also vary from neighborhood to neighborhood within a given area. What factors lower home values?
- Commercial buildings close to residential property can lower real estate values. Part of the reason for this 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 than residential. The type of commercial buildings also has 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. This 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, lower 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 in the future.
Sometimes, in new home developments, zoning and building plans change. An example could be a buyer purchasing a home just as new construction broke ground in a vacant field behind the home. Instead of putting up single-family homes as originally planned, the developer builds apartment buildings. The apartment buildings change the whole landscape, and the homeowner's formerly appealing views are now obstructed. This could lead to a lower sales price in the future.
Location, location, location. This mantra 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 may not be its value in the future.