How Much Is That Home Really Worth?
Whether you’re looking to buy a home for the first time or simply checking out the local market, it’s important to know how to determine the real value of a home. Every home has a dollar amount that changes over time as various factors come into play.
Knowing the real value of a house is also very important when it comes to applying for a loan. Typically a mortgage lender will hire someone to appraise the house, also in consideration of other homes in the same area, before determining if it’s really worth the loan you’re asking for.
Having a good idea of the real value of a home prior to deciding whether or not you’re interested will make the home buying process that much easier.
Tips For Determining The Value
- What Is The Local Housing Market Like? The most important factor that comes into play when you’re determining the value of a home is the local market. What are similar houses in the area selling at? The higher the price of other homes in the area, the higher the value of nearby homes will be.
- How Is The Community? Consider the future outlook of the neighborhood and whether or not it is on the rise or the decline. Crime rates, community amenities, and government projects tend to have a huge effect on value. If the house is in a run-down part of town that’s about to hit a renaissance, chances are that it will be worth much more relatively soon, and will be a good investment. However, in instances like this, there are some potentially negative side effects that these changes may have on a property as well, like rezoning or increased taxes.Another important factor that tends to get overlooked is the age of the average neighbor. Younger homeowners tend to bring more monetary value to an area, along with their new jobs and the inevitable growth of their families.
- How Old Is The Home? Obviously, most new homes are going to be more expensive, as these houses will probably require less work to maintain their value over the upcoming years. There are always exceptions, but in general, homes tend to lose value as they get older.Be careful about buying an old house because it’s cheap, only to realize it’s worth half as much two years later when the roof caves in and you discover termite damage.
- How Big Is It? Square footage is obviously a huge factor when it comes to determining a home’s value. The bigger home is the more it should be worth, ignoring all other factors. But the size should be treated as an amenity–if you’re not using it and it’s not an investment, why pay for it? Just like any physical structure, a house and all of that extra square footage will get old, which often means depreciation.
- Is The Sale Under Special Circumstances? Certain things like death and divorce can affect the value of a home on the market, especially if the sellers are hoping to make a deal quickly. It might sound morbid, but by finding sellers that are getting a bit anxious about moving out of their home, you can usually find a pretty favorable price for a higher value.
- What Are The Home’s Extra Features? Certain improvements and features can improve the value of a home, however, it’s up to you to determine whether or not those are worth it to you. Things like a guest bedroom, an extra bathroom, or a pool often mean a home will be worth quite a bit more.However, if you’re not going to be using them, it may be better to find somewhere where you won’t be paying for them. Even just letting them sit there will cost you in maintenance and taxes in the long run.
- Does The Home Match Up With Your Goals? Be aware of certain things that may take away from a good value. For example, a home might have new carpet but if you want hardwood floors, that’s an expensive change. The home might be a good value, but you’ll also have to make additional costly changes to get it to where you want it to be. Perhaps these repairs might even cost enough to make another nearby home with a lower value a better deal after you’ve done your work.
The Bottom Line
A house can have all the awesome features you want and be relatively new, but it may still lose value simply because it’s in the wrong place. If buying a home as an investment is something important to you, start with the location and go from there. The physical part of the house will depreciate over time–you can’t stop that. Many times smaller or less impressive homes can get you the best return on your investment if it’s in the right place.
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