If you’re buying a home, you want it to appreciate. Even if you realize your own house may not be a great investment, you still want it to hold it’s value and — hopefully — to be able to sell it someday for more than you paid for it. But in real estate, the stuff that catches your eye like new stainless steel appliances or shiny granite countertops aren’t the things that add value to your home.
Never is this more important than when real estate prices are on the rise. And in case you haven’t heard, that’s now. Across the country, the real estate market is slowly tipping in favor of sellers. Foreclosure filings in the US are at a 6 year low, according to Bloomberg. There are more equity sales on the market and a low inventory of houses which is creating bidding wars.
So how do you determine whether a home has lasting value? The easiest answer is by looking at comparables and recently sold properties in your area. (Your real estate agent can provide that information to you). Beyond averaging these “comps,” looking for certain features will help ensure that you are getting a house worth the purchase price.
In 1930, actor Will Rogers said, “I had been putting what little money I had in Ocean Frontage, for the sole reason that there was only so much of it and no more, and that they wasn’t making any more …” This quote is famously paraphrased as, “They aren’t making any more land.”
And it’s true. The size of the plot of land is extremely important to a home’s value. Land is scarce, and as our population increases, the demand for land will also increase. A house with several acres typically sells for more than a similarly located house on a small plot of land, because of its potential. When you buy a house with land, you may have the potential to build and develop more as you choose.
Lot size and shape
Though a greater amount of land usually adds value to a house, the shape of the plot of land also comes into play. A house that has a large plot of land in front but a very small backyard will not fetch as much on the open market as one with a big backyard. In addition, a backyard that is filled entirely up with a large swimming pool will not bring as much value as one with a pool and a grassy area or even one without a pool but with a decent-sized backyard.
Structure and layout
Buying the largest model in the neighborhood is not necessarily a good idea for getting the most value out of your home. The principle of diminishing returns means that if your house is the nicest, biggest, house on the block but you live next to a bunch of dilapidated shacks, they will drag your value down. Inversely, if your house is the smallest one in a neighborhood of huge beautiful houses, you may feel awkward at block parties, but your house is going to gain value from your neighbors’ houses.
Having value in a home means making that home appeal to a wide demographic of buyers. Most buyers are looking for at least three bedrooms and at least two baths. Layout does count. Open kitchens bring more value than those that are isolated, and buyers often look for larger-sized master bedrooms.
Location, location, location!
People often hear that location is the key to the value of a home. The importance of location does not just pertain to the home’s surroundings and neighborhood, but also the accessibility to necessities like churches and grocery stores.
Schools are also a huge determining factor of home value because people want to send their kids to the safest, highest-rated schools. Greatschools.org is one of my favorite websites for researching school ratings and test scores.
Build, age and construction quality
Good construction quality is extremely important to a home’s long-term value.
If you don’t know the first thing about construction, that’s okay. One of the many reasons why I recommend hiring a professional home inspector to inspect the property during the escrow period is not only to discover material defects, but to get an overall sense of the build quality.
As just one example of how building materials could cost you down the road, Polybutylene tubing was commonly used instead of copper piping many years because it’s cheaper. However, Polybutylene had so many issues and lawsuits that it was banned in 1995.
Believe it or not, customizations are not always better when it comes a home’s long-term value. If you bought a house brand new from the builder and got to pick out the type of flooring and granite, that’s great. But if you get so custom with your house that your swimming pool is shaped like a guitar or you put in matching pink carpet and wallpaper, you’re taking value away. Future potential buyers are going to walk into the house and start deducting money in their minds for how much it’s going to cost them to get your custom features back to the way that they would want them.
What qualities in a home that deliver lasting value do you look for when house hunting?
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