Facts And Factors What Affects Home Prices

Dated: 01/12/2017

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The Main Factors That Affect the Price of a Home

Median home sale prices have risen on a year-over-year basis for 52 consecutive months. In June, they reached yet another all-time high. Sure, from a macro view, we all understand that it’s a matter of supply and demand — not enough homes for sale in the major employment centers.

But what about your house, or the house that you want, in the city where you live? What drives the price of a specific home in a specific place?

The three factors that matter most

Rick Singh, the elected property appraiser for Orange County, Florida, says the price of a home hinges on three factors: location, product and timing.

Product and location are intertwined, meaning “the right home in the right neighborhood,” Singh says. Timing, though, can be tricky, especially when it comes to selling your home.

“You don’t want to list a home when there [are] 50 other homes on the block for sale, because the law of supply and demand will kick in,” Singh says. “You want to essentially list when there’s scarcity in the neighborhood.”

How appraisers value a home

The last word on the value of a particular house comes from an official, independent appraisal. After all of the buyer-seller negotiation, it’s what banks require to do a deal.

Appraisers value a house by beginning with a detailed physical inspection of “the main ‘bones’ of the house,” says Sam Heskel, president of Nadlan Valuation, an appraisal management company based in Brooklyn, New York. He says that means examining the roof, the boiler, the bathrooms and the kitchen — everything from front door to back, from floor to ceiling — all to get a feel for the condition of the home.

Then an appraiser considers the neighborhood, he says, which includes comparing similar homes and recent sales to narrow down the value, adjusting the appraised price for similarities as well as differences.

The home features in biggest demand

That raises the question: Which home features have the most impact on the price of a home?

“Granite countertops used to be the hot thing. I think today it’s becoming the norm,” Heskel says, adding that it’s a feature particularly used by investors looking to prepare a property for sale.

He adds that interior colors have changed from beige and brown to shades of gray.

But consumer preferences are determined by each individual real estate market, Singh says. For example, having a pool or second floor may not add value in some areas.

“It’s all market-driven,” he adds.

How home sellers can add value

Sellers looking to get the most for their home should be sure there’s no deferred maintenance. “You may put off fixing that dishwasher or that garbage disposal for four or five years, or whatever,” Singh says, “but when an inspection report comes in after you’ve listed the house, you’ll probably have to end up paying a premium to get it fixed.”

That maintenance should include things like landscaping — “ensuring that your home is the nicest home on the block,” he says.

Value traps buyers should avoid

Buyers can fall into a trap, particularly in hot markets flush with bidding wars. In those situations, a would-be buyer might see a home fail to appraise for its contracted sale price, which means the sale might fall through.

“People tend to buy with their stomach, not with their head,” Heskel says. “It becomes an emotional bidding war with no logic. The appraiser analyzes the market, the real sales — not emotionally — and it just doesn’t make sense; the numbers are not there.”

It’s tough news to give to a client, their real estate agent — and their lender.

“I see it a lot,” Heskel says.

The article The Main Factors That Affect the Price of a Home originally appeared on NerdWallet.

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