UPDATED: Jun 16, 2023
Home prices seem to go up all of the time, but not all homes appreciate equally. There are many factors that affect home price appreciation and therefore can affect the value of a home you might be trying to sell or buy.
Location and the number of bedrooms aren’t the only factors that affect home value. Keep reading our guide to better understand what makes property value increase.
Home price appreciation is the increase of value in a home over time. Home appreciation is great if you are a homeowner who wants to sell your home and make a profit.
Home price appreciation is affected by factors including, but not limited to:
There are a lot of factors that are considered when estimating a home’s value. We’ve pulled together some of the most important elements that can affect a home’s value, many of which would be considered during a home appraisal.
The factor that typically contributes most to increasing or decreasing a home’s value is supply and demand. A home’s location, age, condition and other details can help measure a property’s value on the real estate market.
Location is the cornerstone to a home’s value. You can modify a house to fit your needs, but the location will always stay the same. The location of a home and its proximity to desired resources are often the most important deciding factor for a buyer. Buying a home in a popular area of town can help maintain or increase the home’s value and hedge against economic downturns that cause the average home value to decrease.
Some of the ways that location is taken into account when determining home value include:
Second to location is size when placing value on a home. A home with more livable space will likely be worth more than a smaller home in the same market because livable space is highly valued in real estate. Some spatial factors that could impact your home’s value include:
But not all space is good space. When looking to add value to a home, adding on too much square footage can make it difficult to find comparable homes in the area to help determine the property value.
If you’re looking to add value to your home, understand where your current home value sits compared to others in your neighborhood. If your neighbors have a finished basement but yours is only partially finished, it might be worth the investment to finish the entire basement to stay competitive in your market.
Housing market supply and demand is one of the primary drivers of housing market conditions. While national trends give hints to what could be happening in your local market, it’s important to do research in your area. There could be other factors at play in the local market like the loss of a major employer or local laws causing shifts in real estate sales trends.
Working with a real estate professional who specializes in your area will be the best way to get a feel for your local housing market and determine if it is currently a buyer’s or seller’s market.
In a buyer’s market, there are a lot of homes available to purchase and the homes tend to stay on the market a little longer. In some instances, buyers can better negotiate terms in their favor. A seller may need to adjust their price to accommodate a buyer’s budget because the home’s market value is lower than a seller anticipated.
In a seller’s market, there is less inventory available and therefore more competition among buyers. In a seller’s market, those selling their home can dictate the type of loan they are willing to accept and often have multiple offers to choose from. Understanding whether your local real estate market is a buyer’s market or seller’s market can help you determine the market value of a home and whether it will sell quickly.
A home’s age and condition are high on the list of considerations when evaluating a home’s value. A newer home will have a newer infrastructure and modern amenities like plumbing, electrical, roof and appliances that will require less maintenance and upkeep. Because of this, buyers are likely to pay more for the convenience of a turnkey home with all the bells and whistles.
If an older home has been well maintained with upgrades throughout the years, it too can appraise well. While the market value may dictate a sale price, the intrinsic value of the home could be priceless to certain buyers.
Architectural features or the historical significance of a home can be valuable to some buyers and its value cannot be quantified with comparables. With older homes, buyers will want to have a thorough home inspection to ensure the systems in place are safe, efficient and have some useful life left.
Making improvements can add value to your home, especially an aging home that might have out-of-date technology and appearance. It’s important to remember that not all home renovations will add as much value as you think. For example, in an older home, updating the electrical system could make more of an impact to the home’s value than a new kitchen floor.
On the other hand, a newer home may benefit from a new kitchen floor to bring the home’s aesthetic up to current home design standards. It’s important to follow current home trends if you want to make renovation decisions that are a worthwhile investment and will stand the test of time.
Here’s how some popular renovations factor into determining a home’s value:
As a community changes, so do property values. Staying up to date on the upcoming developments in your area can give you insight into the future value of your home.
New schools, large businesses and local amenities can make an area suddenly become more appealing – and therefore more expensive – to buy a home in. Similarly, the closing of a large employer or a downturn in school ratings can decrease a neighborhood’s overall perceived value.
The national and global economy can impact your local home values and real estate trends. During an economic downturn, jobs become unstable or nonexistent. With fewer qualified buyers looking for a home, you may need to lower your sale prices to accommodate the market value.
During an economic uptick, many more Americans are equipped to make larger, longer financial commitments and have more discretionary income to do it. Keeping up to date on local sales trends can help you determine the best time to sell your home to get the most value.
Real estate comps are similar homes that have recently sold and might hold a similar value to your home. They can be used in appraisals and to help set the going rate for homes in your area. An increase or decrease in the sales price of comparable homes can affect the value of your home accordingly.
Interest rates are another common factor that affects home value. As interest rates increase, home buyers can afford less of a mortgage for the same monthly payment. So, they will have a decreased overall budget. When loans get more expensive, that tends to drive the overall price of homes down.
Changes in zoning regulations can also affect property value. Land that is zoned as residential-only will not appeal to business owners, and therefore could have less interest in it. Homes that are zoned as mixed-use could appeal to a larger pool of buyers and therefore could drive a higher price.
It can be difficult to determine the fair market value of a home. This is one reason why so many people use a real estate agent for help. Real estate experts will have the best possible understanding of the local economy and comps to help you price your home to sell quickly and for the maximum profit.
Here are some frequently asked questions about home value.
There are many ways to increase home value that you can control and doing home renovations is one of them. In general, you can expect to recoup up to 70% of the cost of renovations on your home. So, discuss any renovation plans with your real estate agent if you plan to sell soon, to be sure you are making a good investment.
It is important to value your property correctly when listing it for sale. If a home is listed too high, it is likely to sit on the market. If it is listed too low, the sellers might miss out on some profit. Getting the property value correct will help the home to sell quickly and for the highest possible profit.
Changes in the local real estate market or overall economy, very niche renovations, damage or age to the home, and variance in comp sales can decrease the value of a home for sale.
If you’re looking for ways to increase the value of your home, start by looking at what you have. Make a list of what you do like and what’s not so great. Your home might be partially updated and just finishing a few projects could put your home value where you want it to be. For others, it could be as simple as screwing in a few lightbulbs. Whatever it is, we’re here to help.
If you’re ready to learn more about your home’s property value, use the Rocket Homes℠ home value estimator to see how much your house is worth.
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