In today's fast-paced market, everyone is curious what there home is worth. And, why wouldn't you be ?! Average days on market has more than halved what it was just five years ago. Home values are increasing. Interest rates are still low. It would make anyone who is currently sitting on their most valuable asset wonder what it's worth.
The truth of the matter is that there are several factors affecting your home's value not just the market. Okay, so it's obviously partially the market, but there is so much more to it!
Let's overview four BIG ways your home's value is determined beyond simple numbers.
Neighborhood & Location
Step outside your home, breath in the fresh air, and take a look around. All the houses surrounding you have an impact on yours. Some neighborhoods are more highly sought out because of their location and the general amenities of the neighborhood.
Think of it as convenience. If you're a cyclist, you will see more value in a home situated close to the trail system. If you're not interested in a lengthy drive to get groceries or go to work, you see value in staying in town.
With this in mind, some neighborhoods, of course, are more highly sought after simply because of what they offer.
Bottom line, the value of your home is partially based on its desirability.
Supply and demand is simple economics. If demand is high and supply is low (which is referred to as a seller's market), home values increase. The current housing boom, which kicked off in 2020, has absolutely created a seller's market. Homes are selling like hotcakes, receiving multiple offers in a matter of days (sometimes hours!) of being on the market.
High demand equals higher home values. The supply has been low- or quickly sold- which increase the desire for your home all the more.
This of course works in reverse as well. During 'slow' markets, listings outweigh the buyers, thus lowering your homes value. Now, we're not talking huge swings here. Home values increase year-to-year (typically) no matter what, so don't freak out! Remember, because there are several factors affecting your home's value, you're not only relying on the market statistics.
Age/Condition & Home Improvement Projects
Many older homes are sought after for their architecture, character, and more. However homes will typically have higher home values.
Older homes, simply because of their age, can be more prone to issues like foundation settling and more. Not all home buyers are ready to handle what may come up and feel more safety in a new home or take on what they see as a risk with the home's age.
Newer homes can have their fair share of problems, too, but not everyone feels comfortable taking a chance on an older home versus something that's fresh off the shelf.
Let's talk return on investment when it comes to renovations. Not all home improvement projects are worth it. There, I said it.
It's so important to understand return on investment when remodeling. Spending a fortune on a new kitchen doesn't necessarily mean that you've exponentially increased your home's value. Depending on the project, ROI for most home projects rarely exceeds 80%. So, putting 10k into an upgraded bathroom might only increase your home value $8,000.
Of course these numbers vary depending on the project, your cost, and what work was done, which is why you need to do your homework if you plan on moving immediately after a remodel.
Renovations will always appeal to home buyers, increasing interest in your home once its listed. It's just important to consider how much (dollars-wise) the improvements can make you in the long-run.
If you're planning to stay in your home for awhile, the return might not be a tremendous concern for you. And, you'll get to enjoy those improvements before passing your home on to the next owners.
Home Size & Useable Space
Price per square foot isn't something that home buyers and REALTORS® spend a great deal of time talking about, but it's absolutely a factor at play when it comes to comparing one home to another.
When REALTORS® price a listing, they take time to look at comparable properties and break down the numbers based on square footage (as one of the many numbers they overview).
It just makes sense that a larger home would have a larger price tag, right? But it's not always that cut and dry.
Useable space is key. Let's say a house has 2,000 square feet between the main and lower levels. That's a ton of space, but all 2k might not be usable. Perhaps the basement ceiling height is lower, limiting its usability and thus lowering that total square footage to a less impressive number.
Other factors such as home layout may affect its desirability but rarely have an impact on the price of your home. So don't freak out if your home doesn't match the 'trending' open floor plan layout. There are buyers for every home- promise!
BONUS: Interest Rates
Home values don't fluctuate a whole lot based on interest rates but they are absolutely tied together. Interest rates affect just how much house a buyer can afford. Rising interest rates, like we've seen in the past few months, are settling the market back down a bit, evening out home values to more normal levels (normal really meaning what we've witnessed in the past).
What does this mean for you as a home owner? Your home value will settle back into the normal range. Remember, house values increase every year no matter what else happens. It's an asset that increases in value the longer you own it.
It also means that you may be looking at a different pool of home buyers. Payments are higher with higher interest rates (makes sense) but this may push buyers into looking at homes priced a little lower than they were before. No worries- remember how there are buyers for every home?
In the end...
It's never a bad idea to check in with your favorite REALTORS® with Twin Power and break down the numbers. Even if you're not looking to sell in this year or even in the next few years, information is power!