If you’re interested in investing in a single-family home (or even a two-unit property like a duplex), understanding that property’s market value can help you make better financial decisions. What really is market value, and what are the things that influence it?
Size & Usable Space
In most cases, the larger the home, the larger the valuation. This isn’t always the case, but it’s a reliable factor. Home values are usually estimated in a dollar amount per square foot, which can vary greatly depending on things like the amount of that space that’s considered livable. For example, if a home has 3000 square feet, but 900 of those square feet are inside an unfinished basement, that portion of the home is not considered “usable”.
Age & Condition
Newer homes tend to appraise much higher than older homes, but once again, there are some exceptions to the rule. As homes age, things like the plumbing, wiring, and even the appliances become major concerns among buyers. However, if the seller improves the condition of the home by replacing the wiring, patching holes, and installing a new roof, these things can raise the value of an older home. Buyers will pay top dollar for newer move-in ready homes, so be sure to keep that in mind when placing a bid or selling a home.
Upgrades & Updates
If you’re investing in an older home, upgrades and updates are fantastic ways to increase the home’s market value. Kitchens and bathrooms are especially important; new fixtures and appliances can net you a significant return on your investment. It’s important to consider the market you’re in and make your updates accordingly. In some markets, finishing a basement is the most valuable update, but in others, adding high-tech smart home features will net a larger return.
The Local Market
The local housing market is one of the biggest influences on a home’s value. Things to consider include:
- The number of properties for sale in the city, county, or even neighborhood;
- The condition of the nearby properties;
- Crime rates and school systems;
- The number of buyers in the market compared to the number of sellers; and
- The state of the local economy.
The Local, State, & Federal Economy
The local, state, and federal economies can have a tremendous impact on the value of any given property. As such, it’s important to do your research and stay up to date not only with the current economy but also with future predictions. Some of the biggest local economic indicators to watch include the job market, the unemployment rate, and the cost of living. As for the state economy, things like wage growth or stagnation and population increases or declines can be very helpful. At the federal level, things like interest rates, stock markets, and current tax laws can affect a property’s value.
Before you buy a home, it’s important to understand the current market value. The five factors above have the greatest influence on that value but keep in mind that the local market will influence all of these factors. When researching a property, be sure that you keep these things in mind. Doing so will help you get the most out of your investments, both now and in the future.