Row of homes in neighborhood with good home value.

8 Factors That Affect Home Value

Carla Ayers6-minute read
December 08, 2021

Understanding the factors that affect home values is important for buyers and sellers alike. For sellers who want to sell their home for the highest value possible, they need to incorporate several factors to price their home competitively. For home buyers, it’s important to understand how homes are valued so you don’t overpay.

We’ll discuss some of the factors that contribute to a home’s value and ways to increase the value of your home.

Factors That Affect The Value Of Your Property

There are a lot of factors that are considered when estimating a home’s value. We’ve pulled together some of the most important elements that can affect a home’s value, many of which would be considered during a home appraisal.

1. Location

Location is the cornerstone to a home’s value. You can modify a house to fit your needs, but the location will always stay the same. The location of a home and its proximity to desired resources are often the most important deciding factor for a buyer. Buying a home in a popular area of town can help maintain or increase the home’s value and hedge against economic down turns that cause the average home value to decrease.

Here are some location factors that can impact your property value:

  • Neighborhood desirability: A neighborhood can have a personality that an appraisal can’t define but will add to your resale value. For some, their ZIP code is more than where they lay their head at night. It can provide community and an identity, that to some, could be priceless.
  • School system: Education can play a huge role in a family’s decision to plant roots in a community. The National Bureau of Economic Research found that for every $1 spent in schools, area home values increase by about $20. Homes located within desirable school districts maintain their resale value and tend to sell quickly once listed.
  • Proximity to highway access and mass transit: For some, having quick and easy access to major highways is important to their daily commute and it can be important to your home’s worth. A joint study by the American Transportation Association and the National Association of REALTORS® found that homes located within a half-mile of public transportation services had higher home values than homes located further away.

Every home buyer’s needs are different and some of these factors may not make much of a difference to the right buyer. But it’s great to keep these things in mind when thinking of the features and benefits of your home and how they affect its value.   

2. Size

Second to location is size when placing value on a home. A home with more livable space will likely be worth more than a smaller home in the same market because livable space is highly valued in real estate. Some spatial factors that could impact your home’s value include:

  • Number of rooms
  • Lot size
  • Number of bedrooms/bathrooms

But not all space is good space. When looking to add value to a home, adding on too much square footage can make it difficult to find comparable homes in the area to help determine the property value.

If you’re looking to add value to your home, understand where your current home value sits compared to others in your neighborhood. If your neighbors have a finished basement but yours is partially finished, it might be worth the investment to finish the entire basement to stay competitive in your market.

You can see this played out with our friend, Cam. Cam recently received a bonus of $10,000 and is looking for ways to improve their home’s value. If Cam chose to build a nice deck, their home’s value could increase a few thousand dollars. If they added a bathroom to their finished basement, the value added could be as much or more of the cost of the investment itself because bedrooms and bathrooms add the most value when remodeling because they’re adding livable space.

3. Housing Market Factors

Housing market supply and demand is one of the primary drivers of housing market conditions. While national trends give hints to what could be happening in your local market, it’s important to do research in your area. There could be other factors at play in the local market like the loss of a major employer or local laws causing shifts in real estate sales trends.

In a buyer’s market, there are a lot of homes available to purchase and they tend to stay on the market a little longer. In some instances, buyers can better negotiate terms in their favor. A seller may need to adjust their price to accommodate a buyer’s budget because the home’s market value is lower than a seller anticipated.

In a seller’s market, there is less inventory available and therefore more competition among buyers. In a seller’s market, those selling their home can dictate the type of loan they are willing to accept and often have multiple offers to choose from. Understanding whether your local real estate market is a buyer’s market or seller’s market can help you determine the market value of a home and whether it will sell quickly.

Neighborhood trends at your fingertips.

Check your local market.

4. Age And Condition Of The Home

A home’s age and condition are high on the list of considerations when evaluating a home’s value. A newer home will have a newer infrastructure and modern amenities like plumbing, electrical, roof and appliances that will require less maintenance and upkeep. Because of this, buyers are likely to pay more for the convenience of a turnkey home with all the bells and whistles.

If a home has been well maintained with upgrades throughout the years, it too can appraise well. While the market value may dictate a sale price, the value of the home’s intrinsic value could be priceless to certain buyers. Architectural features or the historical significance of a home can be priceless to some buyers and its value cannot be quantified with comparables.

With older homes, buyers will want to have a thorough home inspection to ensure the systems in place are safe, efficient, and have some useful life left.

5. Renovations

Making improvements can add value to your home, especially an aging home that might have out of date technology and appearance. It’s important to remember that not all home improvement projects will add as much value as you think. In an older home, updating the electrical system could make more of an impact to the home’s value than a new kitchen floor.

On the other hand, a newer home may benefit from a new kitchen floor to bring the home’s aesthetic up to current home design standards. It’s important to follow current home trends if you want to make renovation decisions that are a worthwhile investment and will stand the test of time.

6. Curb Appeal

First impressions are a big deal in real estate. Curb appeal is a home buyer or appraiser’s first impression of your home. A clean and well-maintained home won’t guarantee an increase in your home’s value, but it does let the public know you care about the property and spend time and money to maintain its value.

Next time you come home, take note of the things you like about your home’s exterior and what you don’t like. If you’re looking to increase value, it may be as simple as changing a lightbulb or painting your entryway.

Below are a few ways you can increase curb appeal without breaking the bank:

  • Improve exterior lighting: Install new light bulbs in all exterior fixtures. Use the brightest bulb the fixture will allow and be sure to purchase bulbs of the same color temperature.
  • Clean or power wash exterior living spaces: Concrete and wood can attract mildew, dirt, and other unsightly stains. Some stains can be easily sprayed away with a hose. For more stubborn areas, renting a power washer could make the task a snap and more affordable than concrete replacement.
  • Update the mailbox: Simply putting up a new mailbox and making sure the area is clean and tidy lets people know the smallest of details are tended to.
  • Buy new home address numbers: Address numbers are available at most hardware stores and won’t break the bank. Fresh updated numbers can add visibility and pull together a home’s exterior theme.

7. Future Development

As a community changes, so do property values. Staying up to date on the upcoming developments in your area can give you insight into the future value of your home.

For example, our friend Cam purchased a home located near a proposed new shopping center being built with Whole Foods as an anchor store. The neighborhood is nice and with better access to a grocery store and other shops, Cam’s home value could increase significantly over time.

8. The Economy

The national and global economy can impact your local home values and real estate trends. During an economic downturn, jobs become unstable or nonexistent. With fewer qualified buyers looking for a home, you may need to lower your sale prices to accommodate the market value.

During an economic uptick, many more Americans are equipped to make larger, longer financial commitments and have more discretionary income to do it. Keeping up to date on local sales trends can help you determine the best time to sell your home to get the most value.

The Bottom Line

If you’re looking for ways to increase the value of your home, start by looking at what you have. Make a list of what you do like and what’s not so great. Your home might be partially updated and just finishing a few projects could put your home value where you want it to be. For others it could be as simple as screwing in a few light bulbs. Whatever it is, we’re here to help.

If you’re ready to learn more about your home’s property value, use the Rocket HomesSM home value estimator to see how much your house is worth.

Carla Ayers

Carla is a Realtor® with a background in commercial and residential property management, leasing  and arts management. She has a Bachelors in Arts Marketing and Masters in Integrated Marketing & Communications from Eastern Michigan University.