8 critical factors that influence a home’s value

May 25, 2018 — Written by Lauren Bowling

Selling a home can be a stressful experience.

There’s the challenge of determining a list price for the home, which can be a delicate balance. Price the home too high, and you run the risk of scaring off buyers. Price it too low, and you’re potentially leaving money on the table.

Understanding the things that affect what a house is worth is crucial during this process.

We have outlined some of the most important factors that influence a home’s value:

1. Neighborhood comps

When evaluating how to price your home, start by looking at past prices of comparable homes in your area (a.k.a. “comps”).

It’s most helpful to take into account the prices of recently sold homes that are of the same size and condition, and with similar amenities, in your neighborhood and within a few miles or streets. When you sell your home, an appraiser will use comps to prepare an appraisal report for your buyer’s lender. Lenders generally need an appraisal report to approve a mortgage amount. This means comps are the most significant favor when it comes to what you’ll be able to fetch for the home you’re selling.

2. Location

Your current home may be the ideal location for youclose to your job or near your parent’s house — but when appraisers determine how much value to assign based on the location of the house, they’re looking at three primary indicators, according to Inman:

  • The quality of local schools
  • Employment opportunities
  • Proximity to shopping, entertainment and recreational centers

These factors can influence why some neighborhoods command steep prices, and others that are a few miles away don’t. In addition, a location’s proximity to highways, utility lines, and public transit can all impact a home’s overall value. When it comes to assessing a home’s resale value, location can be more important than even the size and condition of the house.

3. Home size

When estimating your home’s market value, size is an important element to consider, since a bigger home can positively impact its valuation.

The value of a home is roughly estimated in price per square foot — the sales price divided by the square footage of the home. Say a 2,000 square foot house is listed for $200,000. The price per square foot if the home sold at list price would be $100.

The number buyers will pay per square foot can vary greatly. Depending on where you’re buying, $100 per square foot may be a bargain or far more than it’s common to pay.

home size factor for home value

In addition to square footage, a home’s usable space matters when determining its value. Garages, attics, and unfinished basements are generally not counted in usable square footage. So if you have a 2,000-square-foot home with a 600-square-foot garage, that’s only 1,400-square-feet of livable space.

Livable space is what is most important to buyers and appraisers. Bedrooms and bathrooms are most highly valued, so the more beds and baths your home offers, the more your home is generally worth. Adding bedrooms and bathrooms can increase a home’s value by nearly 20 percent, according to the National Association of Home Builders.

4. Age and condition

Typically, homes that are newer appraise at a higher value. Parts of the house that might require upkeep are new and therefore less likely to break down, like plumbing and electrical, roof, appliances. If a roof has a 20-year warranty, that’s money an owner will save over the next two decades, compared to an older home that may need a roof replaced in just a few years.

Most buyers desire a well-maintained home in good condition and will pay top dollar for a move-in-ready home. This is why most buyers require a pre-closing inspection — they want to ensure everything in the home is in tip-top shape, and negotiate repairs if it isn’t.

5. Upgrades and updates

Updates and upgrades can boost value, especially in older homes that may not always have modern amenities. Not all renovations, however, are equal.

Replacing the entry door, for example, generally recoups more than 90% of the cost when the home is sold, while only 48% of the expenses on backyard patio improvements will be recouped.

bathroom updates factors influence home value

According to the National Association of Realtors, upgraded bathrooms and kitchens are among the most important home improvements cited by home buyers because they represent a major expense (and headache) if the buyer has to upgrade them. However, keep in mind that buyers will check to see if any improvements you made are up to code, and if they’re not this may show up in inspections.

Check out our comprehensive guide for more in-depth insights on home improvements that can increase your home’s value.

6. The local market

Even if your home is in excellent condition, in the best location, with premium upgrades, the number of other properties for sale in your area can impact your home value. If there are a lot of buyers competing for a small number of homes it’s a seller’s market. Conversely, a market with few buyers but many homes on the market is referred to as a buyer’s market.

If you’re buying in a buyer’s market, you’ll have room to negotiate on the home’s price because sellers are competing for a limited number and want to do what they can to ensure the sale. Although if you’re selling in a buyer’s market, your home may not sell for as high a value as you hoped.

In a seller’s market, you can typically list your home for a higher value. Expect to receive more offers with significantly less efforts. In this market, buyers have only a set number of homes to choose from, so they may bid up home prices, and thereby increase local home values.

7. Economic indicators

The real estate market and the economy often mirror one another, so if things aren’t good economically, the housing market may also be slow. When the stock market is low, this generally means slow job growth. If employment or pay slows, then people can’t afford to buy. They aren’t relocating for new opportunities. If jobs are high but wages stagnate, inflation may take a larger portion of a person’s salary, making it harder to save for a home, or repairs and upgrades.

This is why it’s important to keep up with current events, especially when you evaluate the best time to sell your house.

8. Interest rates

Interest rates are another factor to keep in mind when evaluating a listing price. Higher interest rates mean bigger monthly mortgage payments. Potential buyers may not qualify for a larger amount when factoring in higher interest.

For sellers, higher interest rates may lower the number of available buyers in a given price range, particularly if the home is priced on the higher end of your neighborhood. On the other side of the coin, rising interest rates can incentivize first-time buyers on the fence about buying, as they may want to take advantage of lower rates while they last.

Final thought

Finally, remember that it’s easiest to avoid home-selling mistakes when you’re in the know about the most relevant factors that influence your home’s value. By pricing your house with these factors in mind, you will be able to make your home selling process less stressful, and move on faster to the next chapter of your life.

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