5 Factors Which Impact Real Estate Prices

5 Factors Which Impact Real Estate Prices - BillLentis.com


Whether you are planning to sell a house or purchase one, it can be challenging to accurately price the property. Knowing the exact value of a home can help you get a better deal for yourself or your clients. The process will be easier if you consider the key factors that affect the value of properties.

The price of a house on the real estate market is affected by many factors. There are considerations involved when trying to determine the price of a property. This article will discuss the key factors that determine real estate prices.

1. Property Location

Location is the biggest factor that determines the price of properties. Similar types of properties in different locations have different prices. Clients are likely to pay more for a property in a desirable location if the property has the attributes that they want.

There are certain attributes that buyers consider when buying a home. For instance, buyers with school-age children consider the quality of schools in the location where they intend to buy a home.

Those who are within the employment age look out for proximity to employment opportunities. Young buyers consider the proximity of the home to recreational centres. But this is not only limited to younger buyers. Most buyers want a home that is close to social and recreational centres.

These factors are dependent on one another. For instance, most parents would like to easily drop the kids off and pick them up at school without having to drive far from their workplace. So closeness of the property to school, work and recreational avengers are three factors that determine the value of a property. If a home can provide two or three of these attributes, the price will be high and very competitive.

Properties with easy access to major highways tend to sell for higher prices than ones far away.

2. Economy And Consumer Perception

The overall performance of the economy affects the prices of properties because consumer’s ability to pay depends on income growth, employment status and GDP. In an economic recession, economies that have a large number of real estate related jobs will experience depreciation in property prices.

An increase in income growth rate increases buyers ability to spend more on properties and this leads to an increase in real estate prices. When the economy is strong and there is high consumers’ confidence, people will be willing and able to pay for a new property. Perceptions of consumers about a property determine the price they are willing to pay for it.

It is worthy of note that economic shifts don’t affect all types of real estate. For instance, commercial real estate like office buildings with tenants who have paid for a long term are less impacted by an economic downturn than properties such as hotels that get their revenue from visitors who lodge once in a while. In the event of a downturn in the economy, people may not be able to afford to lodge in some hotels. The owners of such property will make less during this period and this reduces the value of the property.

3. Interest Rates And Real Estate Taxes

Mortgage rates are determined by the overall interest rate. The monthly cost for the property owner will be low if the mortgage rates are low. A slight change in the rate can greatly affect monthly expenses. So, one must put the real estate taxes into consideration when buying a home.

When there is a drop in interest rates, the cost to obtain a mortgage to buy a property is reduced. This creates a higher demand for real estate which in turn pushes prices up.

4. Demand And Supply

The economy determines the value of any commodity. In the real estate business, the supply of property is relatively fixed at any point in time. More properties need to be built for the supply to increase. The case is different for demand. It can change quickly and have a significant influence on the value of properties. An increase in demand amidst fixed supply leads to increased in price because there are more buyers than sellers.

Increase in demand has a positive effect on supply because it leads to the development of more properties. The price of properties will increase in the short term before the demand is met. Demand can also increase when buyers have more money to spend.

5. Size And Age Of The Property

The size of the property greatly determines its value. Some buyers consider the price per square foot to determine the real value.

Bigger houses are sold for higher prices than smaller ones. The general layout and appeal of the home also determines the price that buyers are willing to pay because people have different tastes when it comes to aesthetics. A property with a general appeal will have a higher value than others.

The age and condition of the property also affect its value. Newer homes will sell at higher prices than older ones because the burden of maintenance for older homes is more. A well-maintained old home can still sell at the same price as a new home. This is due to the fact that the condition of the home is very important when determining prices.

Most buyers prefer a home they can move in immediately without having to carry out any maintenance. They want everything to be in good shape before buying. This is why some buyers are willing to pay high prices for homes that are move-in-ready.

Real estate prices are mostly determined by factors that one can’t control. It is recommended that a buyer consider both broader market conditions and the specific property he wants to buy to determine the real value of the home. When a buyer has a practical understanding of the actual value of a property he will be better prepared for the process of buying the property.