What Makes Property Values Increase? 5 Common Factors

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There are three certainties in life: death, taxes, and real estate value fluctuations. Regardless of the piece of real estate in question, its cost is bound to change, either by increasing or decreasing. 

The question is, what makes property value increase? Are there specific factors which drive real estate value? This answer is "yes!"


What Makes Property Value Increase? 

There are a number of different factors which drive property values. The most prominent of these factors include the following. 

1. Location

One of the most influential factors when it comes to an increase in property values is location. If a property exists in a location that is sought-after, its value is almost sure to increase. 

There are a number of factors which inform the value of a location. Not only do natural resources have an impact, but man-made resources as well. 

For instance, a property that exists next to a popular lake is bound to possess more value than a similar property located in the middle of nowhere. At the same time, a property located in close proximity to a row of popular bars and restaurants is likely to possess more value than a similar property that's located in an industrial zone. 

Other factors which drive the value of a location include the quality of schools in proximity to it, employment opportunities that exist within it, and its proximity to highways and transit. 

This idea is probably best illustrated by the differences in value between rural and urban properties. Because urban properties are closer to restaurants, bars, sporting arenas, universities, and other sought-after entities, they possess more value than rural properties. For example, properties on the outskirts of New York City are generally cheaper than properties contained within New York City proper. 

2. Cost of Surrounding Properties 

Not only does the location of a property affect its value, but so too do the values of properties that surround it. In other words, the values of different properties within a neighborhood drive the values of other properties contained within that neighborhood. 

Let's say a 2-story, 2,500 square foot house that once sold for $400,000 sells for $450,000. This $50,000 increase would generally have an effect on all of the other homes in the neighborhood. Not only would other 2-story, 2,500 square foot houses increase in value, but homes which are smaller and larger would increase in value as well. 

Note, however, that this isn't always true on a neighborhood level. For instance, if one portion of a neighborhood is considered to be more valuable than the other portions, only the houses contained within that portion will be affected by the other property value changes that occur within it. 

3. Renovation 

While most value-altering factors are out of your control, one of them is very much in your control. This factor is renovation or home remodeling. By making aesthetic and functional updates to your home, you can substantially improve its value. 

In fact, many homeowners will go out of their way to enhance their homes before placing them on the market. While making these enhancements costs these homeowners upfront, it usually ends up making them more money in the long-run. This is because home buyers are willing to spend more on an updated home than they are on an antiquated home. 

There are all types of renovations you can make to improve the value of your home. Replacing your appliances, your flooring, your siding, your roofing, and your insulation are all great ways to add value, making your home more attractive to home buyers. 

It's also wise to touch up any imperfections on your home. For instance, having a professional painting company repaint your house will provide it with a more inviting aesthetic. This improved aesthetic will draw buyers in, and provoke them to spend more than they otherwise would have. 

4. Supply and Demand 

Supply and demand are hugely important as well. If a home is located in an area which is heavily sought-after by buyers, its property value will skyrocket. On the other hand, if it's located in a part of town that buyers try to avoid like the plague, its value will plummet. 

Of course, this factor can be affected by the number of houses that are simultaneously for sale in the desired area. For instance, if there is only one home for sale in a highly sought-after area, the seller of that home can essentially name his or her price. On the other hand, if there are 15 homes for sale, the sellers of those homes will have to keep their sale prices down in order to compete with other sellers. 

A good example of this situation can be seen in California's Bay area. Because residents are desperate to live in this area, and because the area has so few homes for sale at any one time, individuals are buying simple two-bedroom houses for well over a million dollars. In other words, the property value of Bay area homes is being driven by supply and demand. 

5. Economic Climate 

One last determiner of property value is the economic climate. Generally, when the economy is doing well, the value of homes increases. In contrast, when the economy is doing poorly, the value of homes decreases.

These are just natural reactions to the circumstances that such economies bring. For instance, when a town's unemployment rate goes up, its average wages stagnate, and fewer residents living within it are capable of buying homes. As a result, sellers must reduce the sale prices on their homes in order to find suitable buyers. 

Not to mention, poor economies typically bring higher interest rates. Home buyers don't want to take out high-interest mortgages on homes that are beyond their monetary means. Therefore, sellers will have to lower their sale prices. 


Brush Up on Your Real Estate Knowledge 

And there it is, the answer to the question of "what makes property value increase?"

Note, however, that while the above-reviewed factors are the most prominent drivers of real estate value, they're far from the only ones. Real estate value fluctuates with the passing of time and is often informed by factors that we don't even notice. 

Looking to brush up on your real estate knowledge and property valuation? If so, My Frugal Business has plenty of real estate-related investment information for you to peruse. 

Take a look at our real estate articles now! 

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