HOW YOUR NEIGHBORHOOD AFFECTS THE PRICE OF YOUR HOME

 

 

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How your neighborhood affects the price of your home

No home stands alone.  Instead, each home is part of a large, constantly changing market place.  As such, when you decide to sell your home prospective buyers compare it to other similar homes on the market to see how it stacks up in terms of price and features.  Also affecting the price are social and economic factors and whether it’s a seller’s, a buyer’s or a balanced market.

The following is a selected list of some of the factors a good real estate agent will take into account when determining an ideal listing price for your home.

Progression-

In a neighborhood with dissimilar homes, a poorer property will gain value by the presence of properties with higher values.  In other words- it can be a good idea to buy the worst house on the best street.

 

Regression-

The opposite of Progression, this principle states that the best house on the street will lose value due to the presence of poorer properties.  An extreme example- a mansion situated in a trailer park will not be as valuable as the same mansion surrounded by other mansions.  

Change-

Social and economic factors are always at work and changes affect the real estate market.  For example, if a large local employer closes down and hundreds of jobs are lost as a result, many homes may be put on the market.  The swell in housing inventory increases the competition for buyers and drives the price of homes down. 

Consistent Use-

When land is in transition towards its maximum potential it cannot be appraised with one use allotted to the land and another to the building.  For instance, if a particular property would be most valuable with an office development, but currently has a small bungalow on it, the appraisal would reflect only the value of the land with the office building.  The house’s value would not be added on top.

 

Contribution-

The value of an upgrade is measured by how much it adds to the market value by reason of its presence and how much it detracts from market value by its absence. The value of the upgrade is not determined by its cost but upon its contribution to value.  In other words- a new bathroom costing $18,000 may only add $5,400 of value to a home.  Alternately a home lacking the convenience of a second bathroom may lose value.

External Factors-

Real estate is subject to prosperity as well as economic slowdowns.  Government policies and requirements can greatly affect the marketability of a property.  For instance, significant improvements in various municipal services can dramatically increase property taxes and in turn, affect property values. 

Substitution-

A principle stating that a prudent buyer will not pay any more for one property than he would to find a desirable substitute.  Buyers are great at comparison shopping and they will avoid overpriced homes.

Supply and Demand-

If the demand for homes is greater than the supply, a seller’s market exists and accordingly, the prices will rise. If the supply of homes is greater than the demand, a buyer’s market exists and prices will fall.  If the homes to buyers ratio is balanced than home prices will remain steady, if no other factors are taken into account.

 

Increasing and Decreasing Returns-

Upgrades added to your home add value up to a certain point- the point of diminishing returns.  For instance a home with a two car garage, in a neighborhood with mostly one car garages may command $20,000 more.  Adding a third garage won’t likely add a further $20,000 to the price.

Anticipation-

When buying a home, buyers anticipate certain future benefits of the home and the present price is based on these anticipated benefits.  For example, if there are two similar homes one priced at $200,000 with a deck and fireplace and the other, priced at $185,000 without these feature, the buyer will picture his family sitting by the fire and enjoying warm spring days on the deck. He is mentally deciding whether the future benefits justify the additional cost.

For more information on pricing your home or for a free Market evaluation please call your local Halton Hills realtor Bill McNally at 905-873-6111 or email him at [email protected]  Bill McNally represents iPro Realty Ltd. Brokerage and is able to help you with all your real estate needs.

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