Location, Location, Location: How Location Affects Property Value

Posted by Laine Smith on 9/28/15 11:14 AM

There is good reason behind the real estate catchphrase "location, location, location". When it comes to determining property value, your home's location is one of the most important factors.

How Location Affects Property Value

A "good" location can be determined by dynamics as broad as the economic stability of the community or as specific as to where the home is located within a certain neighborhood. A great house in a poor location can knock a significant amount off the value.

Community, City or Town Dynamic

When determining a good location, you can start by looking at the community, town or city in which a home is located. A community with a viable economy and healthy mixture of residential and commercial districts provides residents with job opportunities and revenue to maintain roads and city services. Communities, towns and cities that are well-maintained boost a sense of community pride, upping the value of homes in that area.

Local Neighborhood Dynamics

"Local neighborhood" refers to the residential area and surrounding necessities of a home, such as grocery stores, gas stations, hospitals, public transportation, etc. Homebuyers are looking for quality and conveniences, including what school district might come along with a certain home purchase.

Even buyers who don't have school-age children benefit greatly from buying a home in an upstanding school district, as those schools ensure a consistent demand for properties with higher values. A 2013 Redfin study found that buyers are willing to pay $50 more per square foot for homes in high-rated school districts than homes in average-rated school districts.

Residential Neighborhood Dynamics

Homes with the highest values within a neighborhood are usually located in the middle of the block or in a cul-de-sac and surrounded by other homes similar in size, style and age. For example, a neighborhood saturated with rental properties can decrease surround home values by as much as 15 percent.

Value-wise you're likely better off having an average house in a great location, than having the best house in an poor location.

When looking to buy a home, remember to look beyond the house itself. Physical structure depreciates over time and aesthetics can be changed, but a home in a great location will give you a significant advantage for a profitable resale.

Looking for more information on buying and financing a home? Our Mortgage 101 Handbook is the ultimate guide for first-time homebuyers.

Download: Mortgage 101 Handbook

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