House prices are influenced by a variety of factors, which include age, condition, location, and size of your home.
There are also broader factors, such as the state of the economy and mortgage interest rates. If you are tinkering with the idea of selling your home or obtaining a home-equity loan, it's crucial to understand how property value is determined so you can get the most out of what is likely your most valuable asset.
Let's look at the main factors that make property value increase and how you can figure out how much your home is worth.
You have probably heard that real estate is all about location — this is very right.
When it comes to determining the property value, location is one of the most important variables. Bear in mind that a location which you find ideal, may not be suitable for another person.
For instance, other people may consider:
Size is also a crucial factor when the value of your home is being estimated.
The value of a home is calculated using price per square foot — the sales price divided by the square footage of the home. In addition to square footage, a home’s usable space also determines its value.
Be warned that garages, attics, and unfinished basements are not considered usable space. So, if you have a 1,000-square-foot home with a 300-square-foot garage, that’s only 700-square-feet of livable space.
Comparables ("Comps" for short) is a term used to describe comparable home prices.
The selling prices of comparable homes in the area are one of the clearest indicators of your home's value. Most real estate specialists will use comps to estimate your property's value, whether it's a house appraisal or an agent's comparative market research.
The problem is that no two comps are the same, so you’ll need to make adjustments for key differences. Details like vaulted ceilings, proximity to a good school, or something abstract like a scenic view can take the value of your home a up few notches.
Age is an important factor to consider when purchasing a home.
You'll have to do some math if you're dealing with a house that's been there for a few decades. Newer properties usually appraise for more money. The fact that vital sections of the house, such as plumbing, electrical, the roof, and appliances, are newer and hence less prone to break down, might result in a buyer saving money.
Many buyers will happily buy a home that is ready to move into because it means fewer repairs and maintenance costs. This is why most home buyers demand an inspection contingency in their contract because they want to negotiate repairs to avoid big expenses after the sale.
Don't expect to make a lot of money if your house isn't in good condition.
Home upgrades should be viewed as an investment. As such, It behooves you to do any necessary repairs, as well as upgrades and updates before putting your home on the market, so you can increase the possibilities of a higher sale price.
However, upgrading your home before putting it on the market can be tricky.
You should be careful of spending too much, as you might not be able to recoup what you've spent. Just keep the repairs simple and basic. For example, it would be more cost-effective to have the garage door replaced or the kitchen remodeled than installing a high-end bathroom addition or expanding the master suite.
The economy is the primary factor that affects home prices.
Even if you have upgraded your home, and are still in a relatively nice environment. The current economic cycle plays a significant factor in how your home would be priced.
This is because it determines the number of buyers in the market, and the amount of money in circulation vis-a-vis how much people are willing to spend to get a new home.
For example, if there is inflation, there would be fewer buyers on the market because home prices would be higher. As such, it is critical to stay current on home sales and price appreciation in your neighborhood, especially when you consider the optimum time to sell your property.
Interest rates are an offshoot of the economic condition.
They are usually set by the Federal Reserve in line with inflation levels. If inflation is high, the central bank raises interest rates and vice versa. These interest rates in turn affect mortgage lending rates.
This implies that when interest rates are higher, mortgage rates rise in accordance. As such, it is better to buy homes when interest rates are low, and sell when interest rates are high.
Read this next: 7 Important Things You Need to Know About Getting a Mortgage
There are a variety of ways to check what your home is worth. Let's have a look at some of them below.
Having a home appraised by a licensed or certified appraiser is one approach to find out how much your house is worth.
To calculate your home's fair market worth, the appraiser will inspect it from top to bottom and compare it to other homes in the region and beyond.
You might also do some research on your own to find home comparables.
You can, for example, phone real estate agents who have homes in escrow to finding out what they are selling for.
Another way to check the value of your home is by using a house price index (HPI) calculator.
This tool helps to estimate a home's value over time using data from mortgage transactions. The calculator generates estimates based on the home's purchase price and the changing value of adjacent residences.
This tool is useful for determining how much the home has appreciated over time, as well as any projected future changes in mortgage rates.
Knowing what factors impact your home’s value can help you avoid common home-selling mistakes.
It also clarifies where you need to make adjustments and improvements to optimize the value of your home when you put it on the market. The following factors outlined above can help you attract serious buyers and get the best price for your home.
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