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The Critical Factors That Influence a Home’s Value

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The Critical Factors That Influence a Home’s Value

Most people selling their homes receive 100% of the asking price. Although most of them had to reduce their home price at least once, these statistics are still promising.

Home sellers tend to subjectively increase the price of their homes, especially due to their emotional attachment to the property. This can cause home values to become unfairly skewed against buyers.

If you're trying to determine a home's value, you need to look at it objectively. Keep reading to learn how.

How Is Home Value Determined?

Home value is an educated estimate of what current buyers in the market are willing to pay for your home. While each buyer is different, your home value is the best price you can calculate while considering various real estate factors.

Not every buyer and seller will agree with the price. But, this is the best way to project a home's selling value.

Neighborhood Comparisons

First, you may want to consider the price range that similar homes in your area are going for. Known as "comps," homes that are similar to yours may give you an idea about the amount that you can list your home for. 

There are a few factors you should consider while you're looking for comparable homes in your area:

  • Homes that were recently sold
  • Homes that are the same in type, year, room number, bathroom number, and square footage
  • Homes that are close to yours, such as those in the same subdivision or nearby subdivisions in the same school district and - if possible - under the same homeowners association
  • Homes that have the same placement as yours (necessary for lakeside homes, homes by golf courses, or similar locations)

Looking for neighborhood comparisons is the same process that agents and home appraisers follow. So, your estimate should be similar in price.

However, you should keep in mind that no two homes are going to be exactly the same. You shouldn't expect your home price to be the same as another similar home. 

There may be small differences to consider, such as vaulted ceilings or a new air conditioning system. To get a more complete view of your home's value, you should look at multiple comps.


The idea of a good location is different for everyone. Depending on your work location, you may think your home is in the best place possible. But, this may not be the opinion of another person looking to buy your home.

This is why appraisers stick to looking at these three indicators of a home's value as determined by location:

  1. The quality of schools near the home
  2. Employment opportunities near the home
  3. Shopping, entertainment, and recreational options near the home

These factors differentiate home values in various neighborhoods. And, it explains why a very high-priced neighborhood may be near a medium-priced neighborhood.

In addition to these factors, you should consider public transportation, highway proximity, utility options, and other important factors.

Size and Useability

Each home gets a price that is roughly based on the number of square feet it has. For example, a 1,000-square-foot home that goes for $100,000 has a price per square foot of $100.

The bigger your home is, the more it's worth in a sale.

While the price per square foot may seem like a consistent measurement, it is not the same comparatively across different locations. $100 per square foot may be cheap in one area and expensive in another. So, you should look at the price per square footage across comps.

Additionally, you should consider usable space, which appraisers count as a part of the usable square footage. Unfinished basements, attics, and garages may not count towards this square footage.

So, you should subtract unusable square footage from total square footage to find the usable square footage. Then, you can estimate the value of your home based on the usable amount. 

The most valuable parts of these usable spaces are bedrooms and bathrooms. The more of each you have, the more your home will be worth.

Age and Condition

Newer homes tend to sell for higher amounts. They have updated appliances, a new structure, efficient air conditioning, modern home systems, and more features that grab the interest of buyers.

With new plumbing and electrical systems on top of a new roof, buying a new home could be cheaper over time. Many of these systems come with warranties and they're less likely to break or need frequent maintenance.

If your home is on the newer end, you can expect a greater home value.

Updates and Upgrades

Homes with updates and/or upgrades may have a higher market value. These are especially useful for older homes. 

Each upgrade that you make is likely to give you a pretty penny back.

However, you should consider your location and how your home upgrade performs in that area. For example, finishing a basement in one city may not be worth as much as finishing the same basement in another city.

Upgrade value also depends on the kind of home you have. Cheaper homes tend to gain a higher market value with kitchen remodels or room additions. On the other hand, more expensive homes tend to get a higher value with the addition of a pool or new hardwood floors.

Local Real Estate Market

Considering your home itself isn't enough to determine the sellability of your home. You have to consider what the real estate market is like in your area.

Are there buyers that might be interested in your home? Is there a lot of competition with other home sellers?

You've likely heard the terms "buyer's market" and "seller's market." Understanding these terms can help you determine whether your home will sell for more or less given your local market conditions:

  • Buyer's market: a market with a lot of homes for sale but not a lot of buyers to compete with
  • Seller's market: a market with a lot of buyers but not a lot of selling homes to compete with

If you're selling your home in a buyer's market, you'll need to adjust your offer to attract buyers. You may have to make concessions, too.

However, you won't have to make these changes in a seller's market. Your home is more likely to sell quickly in a seller's market because of the multitude of buyers looking for homes for sale.

Economic Indicators

The greater economic health of the country also affects your local real estate market. In slower economic conditions, the housing market slows as well.

If the employment rate drops or wages slow, fewer people are going to buy homes because of affordability problems.

Alternatively, economic booms can help boost the housing market, which leads to more sales.

Interest Rates

Lastly, you should consider interest rates. Both short-term and long-term interest rates can affect a family's ability to afford a home.

A rise in either or both kinds of interest rates can reduce the amount of spending money that a family has. If you're spending more money on your credit cards or loans, you will have less money to spend on buying a home.

How to Determine Your Home's Value

Considering all of the above factors can become overwhelming. Unless you're a professional appraiser, it's unlikely that you'll be able to come up with a solid dollar amount for your home with the above factors.

Although you may be able to get close, you might want a more accurate option for calculating market value.

Use Online Value Calculators

An online home value estimator can help you find a very close estimate for your home's market value. While these calculators can't determine value based on internal factors of your home, they can determine an objective calculation.

If you have imperfections on the inside of your home that you don't plan on fixing, you should consider those in your calculation.

Talk to Your Realtor

Your realtor is a great resource when it comes to evaluating a home's value. They can use a comparative market analysis system to figure out how your home compares to others in the area.

This comparative system is more objective than a personal evaluation of the local market.

Invest in a Professional Appraisal

When a buyer considers investing in your home, they have to hire an appraiser to appease whoever they're getting a loan from. The bank needs to know that they aren't loaning out too much money in comparison to the home's actual value.

Sellers aren't required to get appraisals, but it can help you get an accurate idea of your home's value. Appraisers can give an impartial opinion about your home's value. They aren't emotionally attached to your home like you are.

Sell Your Home Today

If you were thinking "how much is my house worth?" you now have the tools you need to determine the market value of a home.

Once you're ready to sell your home, you need to find a real estate agent and get your house on the market. By looking at comps and thinking about your home objectively, you can price your home competitively on the market.