When you are trying to determine the value of a home, there will be many different factors you will want to keep in mind. It’s important to always carefully inspect and examine the home before making a purchase, even if you don’t plan on living there for very long. In fact, failure to closely examine the underlying value of a home can potentially cost you tens of thousands of dollars—especially if you are an out-of-state investor trying to enter into a fast-growing market.
Nevertheless, there is still no denying that location is the factor that should be considered the most important. If you are in the process of trying to determine the value of a home, you should start by looking at pricing trends in the nearby area. Let’s take a look at why “location, location, location”—far more than anything else—will directly affect the underlying value of a home.
1. Location is Unchangeable
Perhaps the most obvious reason why location matters is that location, unlike almost any other aspect of a home, is something that cannot be changed. Every physical component of your home, at least in theory, could potentially be replaced over time. The location, on the other hand, is something you must accept when you decide to purchase a home.
One of the reasons the “unchangeable nature” of a home’s location is so influential on price is that location-related risk increases a property owner’s exposure to variables they simply can’t control. The build-up or break-down of a neighborhood will directly affect the value of every property within it. When the population is increasing and development is high, home values will tend to rise. When the population is decreasing and there is little investment in the area, home values will tend to go down. For better or for worse, these factors will affect all homeowners—even if there is nothing that they can do to directly control it.
2. School Districts
In most parts of the country (with many exceptions), where a home is located will directly determine the public schools that the people living in that home can attend. With roughly 50 million students attending public schools in the US, the quality of an available public school district is something that will inevitably affect the lives of many homeowning families.
The outcomes of a school district’s performance will be directly reflected in the value of an available property. According to the New York Times, “economists have estimated that within suburban neighborhoods, a 5 percent improvement in test scores can raise prices by 2.5 percent.” Of course, there is still a lot that will need to be considered when looking at these figures (including the correlation-causation fallacy) but there is no denying that school districts play a major role in the broader real estate market.
3. Zoning Laws and Development
The zoning laws that apply to any property will depend on where exactly it is located. Both what is—and, perhaps even more importantly, what isn’t—allowed to be built in a given area will directly influence how much people will be willing to pay for a home.
There are a lot of different types of developments that can have negative impacts on the value of a property. Some of the least desirable properties include cemeteries, strip clubs, power plants, shooting ranges, and homeless shelters. On the other hand, parks, restaurants, schools, and libraries will usually have a positive impact. Be sure to check which future developments a neighborhood likely has in store.
4. Property Taxes
Property taxes will also significantly influence the perceived value of a property—for multiple reasons. While people will individually want to pay low property taxes personally, they will also often value neighborhoods where property taxes are higher. But no matter which direction property taxes influence the underlying values of these properties, there is no denying that property taxes are currently location-dependent.
Currently, the five states with the highest property taxes are New Jersey (2.49 percent), Illinois, New Hampshire, Connecticut, and Vermont. The five states with the lowest property taxes include Hawaii (0.28 percent), Alabama, Colorado, Louisiana, and South Carolina. But of course, there are other factors that will need to be considered—including where in each state the property is located.
5. Urban Consolidation
As the 2020 US census revealed, the country—as a whole—is generally moving towards a state of urban (and suburban) consolidation. After roughly 60 years of urban flight in many parts of the country (particularly the densely populated Midwest and Northeast), urban counties are now growing at a much faster rate than rural counties.
Within nearly every state, the counties with more urban development have been increasing in population at a much faster rate. This places even higher importance on a property’s location. Take a look at the map above to see where the US population is rising fastest, making it easier to tell where upward pressures on housing might be strongest.
The more research you can do when buying or selling a house, the better your housing estimate will be. By taking a close look at all location-related factors, you can find the ideal price point.
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