What Factors Influence Property Value?

Real estate is among the most unpredictable investments one can make. That is primarily because the market is full of price fluctuations, with each month coming with an increase or decrease in home values. For instance, the Toronto housing market recorded a slight drop in average home price by 3.5% in May 2024, despite having a promising upward curve at the beginning of 2024.

The question most real estate investors ask is, what causes these shifts in property values? While home demand and supply could be the primary cause of price fluctuations, there is more that affects home values than the overall market state. Here is a look at some factors that drive the home’s value.

1.     Property Location

Location is probably among the constant factors that determine the prices of homes. As a homeowner, you can modify the condition of the property to attract as many buyers as possible, but the location will remain the same. Therefore, when setting a property's asking price, most home appraisers look at neighborhood factors and prices of recently sold homes.

Some of the location factors that drive home prices include:

·       School system: Most families desire to buy homes in locations with excellent school systems for their school-going family members. That means a neighborhood with a robust education system attracts many home seekers, which makes its home sell quickly.

·       Neighborhood desirability: Certain neighborhoods are more desirable due to their safety, massive job and recreational opportunities, or historical factors. Homes in such locations always have a higher price tag than those in less desirable locations.

·       Proximity to transportation systems and neighboring cities: Homes located within a half-mile of the public transportation system have higher values than those located far from the transportation services.

·       Lot location: Certain lots within a neighborhood can also be more desirable than others. For example, less busy streets and private lots have higher home values than busy and easily accessible lots.

·       Future developments: A community with possible future developments such as new business centers, schools, and recreational facilities can also attract high prices on its homes.

2.     Size Of the Property

The size of the property affects its price significantly. For instance, a large home with a more livable space tends to have a higher price tag than a smaller home. However, it is worth noting that not all the space is considered when setting a home's value. That is because most buyers want a well-designed home with usable space. That means adding too much space to the property will make it challenging for home appraisers to evaluate it when comparing it to similar homes within the same location.

Some primary factors that drive a home's value based on its size include:

·       Number of rooms such as living room, kitchen, home office, kid's playroom, and storage room.

·       Number of bedrooms

·       Number of bathrooms

·       Lot size.

·       Extra square footage around the property.

3.     Market Shifts

Several market factors can determine the price of homes within a specific location or the entire national market. For example, a change in national property taxes can affect how property owners set the price of their homes to maximize their return on investment. Also, the withdrawal of a major employer from a local market can significantly affect its economy, leading to a drop in home prices.

When evaluating properties, therefore, market experts consider the real estate sales trends and market shifts to ensure the property value matches the current home demand and supply. Other two market shifts that property evaluators look at are:

·       A buyer’s market: A buyer’s market has more homes available, which also take more days on the market to sell. Buyers also have more negotiation powers, which significantly reduces homes’ values since sellers have to adjust their asking prices to accommodate most buyers’ budgets.

·       A seller’s market: A seller's market has fewer homes with many buyers competing for the available listings. This gives sellers more negotiation powers, allowing them to set higher prices to take advantage of the scarcity of homes.

4.     Home Updates and Renovations

Making major updates and renovations on an aging home in poor condition can also increase the home’s value. However, not all renovations guarantee a home’s appreciation. For example, while updating a new HVAC system can add value to your home, renovating an outdated kitchen floor will not have a significant effect on the home's value.

Therefore, when determining a property's value based on upgrades and renovations, it is wise to consider major aspects that appeal to most buyers. Some of the major updates include:

·       Curb appeal: A well-maintained exterior and attractive interior makes a great first impression to buyers. Although you may not need to do a landscaping overhaul, tidying up the property and giving it the latest touches makes it more appealing and attracts high-budget buyers.

·       Installing new systems: Replacing old systems with new installations can increase the home’s value. For example, most buyers want property with good security, plumbing, electrical, and air conditioning systems.

·       Updating the kitchen: Remodeling a kitchen and adding new kitchen appliances can catch the attention of many buyers and convince them to pay the higher listing price.

The Bottom Line

As a property owner, you may not have control over various factors that determine property value like economic dynamics, market changes, and location. However, you can easily increase your property’s value by updating the home’s conditions such as new systems, curb appeal, and usable space. Therefore, as a rule of thumb, it is always recommended to focus on what adds value and view the property from the buyer’s eye.