When you’re buying a home, the cost can feel overwhelming. It’s important to know what you can afford before starting your search so you don’t get stuck with a mortgage that’s too big or has to make sacrifices that will hurt you in the long run. But when considering cost, many homebuyers focus almost exclusively on the price of the home store itself. In reality, several factors go into determining the final price tag on any given piece of real estate. Some may be more important than others, depending on your situation and financial goals. Fortunately, we have the resources and information available to help us understand what makes up the value of a house and how it relates to our circumstances.
What’s the Biggest Factor in Determining Home Value?
Before we dive into the impact of each of the major factors that go into home value, let’s first identify the most important thing that sets a house’s price. The area in which a home sits will have a major impact on its price. It is generally the biggest factor when it comes to home value. Of course, it’s not the only thing that goes into the price of a house, but it is the biggest. Understanding this single factor is key to understanding the process of buying a house.
Real estate analysts often refer to this as “location, location, location.” When estimating the value of a home, you’ll often hear them mention the number of “cars per acre” or the “walkability score.” Put simply, these factors help determine how close a home is to major roadways, commercial areas, convenience stores, parks, and other important local landmarks. More importantly, they help determine how easily a home can be accessed by others.
Why is Property Location So Important?
Simply put, a home located in a desirable area will be worth more than the same home in a less desirable area. Again, this comes down to the “cars per acre” or “walkability score.” Areas that are close to major roadways, commercial areas, and other important landmarks are going to be more desirable than those that are not. Again, this is just an estimation, but it’s based on data that’s been collected and analyzed for years.
Other Factors That Affect Home Value
Beyond location, several other factors will impact your home’s value. The state of the local economy: While the global economy affects all of us, the local economy is something we have more control over. If an area is experiencing a strong economy, home prices in that area will likely be higher. If an area is experiencing a weak economy, home prices will likely be lower.
The condition of the home: While the state of the local economy has an effect on all homes in an area, the condition of a home is unique to that home. A home in excellent condition will likely be worth more than a home in poor condition. Areas with a high percentage of well-maintained homes will be more desirable than areas with a lower percentage of well-maintained homes.
Is the Seller Financing?
Many buyers are surprised to learn that the seller of a home doesn’t have to finance the sale. Many sellers will opt to finance the sale themselves so they can get their money now rather than wait to be paid at closing. If the seller is financing the sale, the buyer will need to account for the seller’s debt in the final purchase price. This may not be a deal-breaker, but it is important to understand this difference before you start hunting for a home. Once you’ve found a home that meets your needs and you’ve been pre-approved for a mortgage, you can get an estimate of the final purchase price to ensure that it falls within your budget.
How to Estimate Renovations
Finally, it’s important to account for any renovations you’ll need to make to the home. If a house needs a new roof or furnace, that will likely affect the value of the house. If a house needs a new kitchen or bathroom, that will probably affect the value of the house more significantly. It’s important to estimate how much these renovations will cost. And include them in your estimate of the final purchase price.
Unfortunately, there’s no one-size-fits-all formula for estimating the cost of renovations. There are, however, some basic guidelines that can help you make an educated estimate. First, determine how much work must be done. This might include removing an old furnace or putting in a new roof. Next, get at least two bids for the work. This will ensure you get a reasonably accurate estimate of the cost of the project. Finally, account for the cost of materials. This will help you get a better idea of the cost of the renovations as a whole.