What Factors Affect Property Value and How to Understand Them

If you’re buying or selling property, the price is always going to be the most important factor. But the value of property isn’t something that’s dictated by something singular. There are multiple factors that influence the value of a property and the subsequent price tag that’s attached.

If you’re in the market to buy or sell, it’s an excellent idea to know more about property value and how it’s calculated. In doing so you can ensure that you accept a fair price for your sale, or don’t pay a non-market-related price for your new home or investment. 

Here are some factors to look out for that play a role in how much a property is worth:  

Location, Location, Location 

Location is often viewed as one of the most important factors affecting the value of a property. It doesn’t only refer to the property’s neighborhood, but also to its proximity to local job markets, amenities like shops and restaurants and access to transportation like bus and train stops. It can even take the weather in the area into consideration. 

For example, properties near desirable school districts and close to public transport will often be worth more than a similar property located further away. The same principle holds true for properties located near thriving job markets compared to those located further away from economic centers. 

The characteristics of the neighborhood are also important factors to consider when valuing a property. If the neighborhood has littered streets, poorly maintained parks, and limited amenities, then it will be less desirable and the value of the property will decrease. 

To sum it up, if the property is in an accessible and popular investment area with good amenities and a well-maintained infrastructure, then it will be more valuable. 

Age And Condition 

Newer properties tend to have newer fittings and fixtures and are built in ways that meet modern building codes and regulations. The electrical and plumbing work also tends to be more recent and thus has a longer lifespan. This makes them more valuable than an older property that may require renovations. 

However, sometimes buyers prefer to invest in a 20-year-old property with good bones over a newer build that has structural issues or hasn’t been properly maintained. Older properties that have updated features and amenities can be more valuable, as the condition is just as important as age when determining the value of a property. 

Size And Usable Space

The market value of a property is typically determined by the price per square foot. This is easy to calculate by dividing the square footage of the property by the total sales price. 

Generally, the larger the square foot, the higher the value. But this is not always the case. If the larger property has an awkward or inefficient use of space, then it may get valued at a lower price than a smaller property with a layout that’s more functional. 

Usable space is determined by spaces like bathrooms and bedrooms, and not by areas like the garage or unfinished basement. Properties that have more bathrooms and bedrooms are often valued higher than properties that simply have a lot of space but are dominated by unusable areas. 

The Potential For Renovation 

Most buyers would like to be able to add their own flair to a property. If there’s the potential to increase the floor space, add a patio to the outdoor entertainment space, put in a pool, or even build on an extra story, this can add to a property’s value. The amount of usable space can influence the potential for renovation, with more usable space often meaning more potential to renovate. 

Building Codes

Property development is not something that is simply allowed. Building codes will apply to any new builds and to changes made to a property beyond those that are cosmetic. 

If the correct codes were not adhered to during the construction or renovation of a property, it’s at risk of requiring costly changes to ensure it’s up to code, or it runs the risk of getting flagged for demolition if it’s deemed unsafe. If a property meets all the required codes, its value will be far higher than one that does not or requires changes in order to become compliant. 

Comparable Properties 

The prices and values of similar properties recently sold in the same area are an excellent indication of value. Comparing prices based on aspects like the location, amenities, size, space, type of property, and the age of the home will give you a clear idea of what the market value is currently.

The Property Market 

Just like everything else, the value of a property is determined by the market in which it operates. The conditions of both the local and national property markets can affect value dramatically. 

Factors like supply and demand and interest rates influence a property’s value. If there’s a high demand in the area for property, then the value of the properties in that area can be driven up. On the flip side, if there’s a surplus of properties on the market, the value may be lower. 

If interest rates on mortgages rise, then it will become tougher for buyers to secure a loan. There may also be higher monthly mortgage repayments as a result. When buyers struggle to secure finance their numbers drop and supply increases. In turn, this will drive down property value and sales. However, if the interest rates are low, then so are mortgage repayments, which increases investor confidence. 

Local Economics

If the economy of a certain area is booming, then the buying power of the people living there will increase concurrently as there are more jobs and greater earning potential. When this happens, buyers will want to invest in property. This will increase the demand for real estate leads in the area as more people look to buy or sell. At the same time, the supply-demand ratio increases and property prices rise.

However, if the opposite is true and there are high levels of unemployment and wage drops, then there won’t be as many buyers, making the demand and the value of property lower. 

Conclusion

Property value isn’t a straightforward calculation. It’s influenced by numerous variables and can rise and fall quite rapidly. Knowing what factors play a role in valuation is essential, no matter which side of the buying or selling process you're on.

By understanding what makes a property valuable, you can spot the best buy, or get the best price for your sale. Good luck!