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When It Comes To The Value Of A Home, These Are The 3 Most Important Appreciation Indicators, That Impact Property Value.
Indicator #1 – How does housing inventory affect the value of this property?
Generally, the #1 factor in home appreciation is a sustained period of time with a shortage of homes. In parts of California, houses don’t double in value because the seller puts in new kitchen cabinets, or new light fixtures, rather homes can double in value because there is a shortage of housing over a period of a few years.
Just like any product that is in demand, when there are lots of buyers, the price goes up. Buyers don’t like the idea of a shortage of housing choices while you are shopping. But later, over the years, if the shortage continues, typically your home will escalate in value.
Positive momentum in the real estate market is like “the wind is to a sailboat.” Both are needed to move things forward.
Indicator #2 – How do failed or expired listings affect property values
Once again, a very easy concept to understand and not addressed when people use the price per square foot approach. Failed businesses, failed relationships, act like guideposts for us in life. They tell us what won’t work. We learn life’s lessons from things that didn’t go right.
Failed (or expired listings) do the same thing. Agents understand that “failed listings” are actually like guideposts. They help agents see “what prices and features the prior months buyers rejected.”
Three of every 10, is typically how many listings expire in a normal market.
Keep in mind, like relationships, like some businesses, not all listings were meant to be. When there are 40-50% of listings expiring, this is an indication that buyers do not agree with many seller’s asking price and property value is likely declining. A very low expired rate, for example 10-20%, demonstrates that high buyer demand and homes are usually appreciating.
“Is this house priced right?”
“Will the house sell for more than I paid for it?”
Indicator #3 – When too few properties sell over the asking price, how can that be a bad thing?
When a lot of buyers pay over list price, that is a healthy sign of a hot market. About 3 out of 10 is what is expected in a normal market. When you see 5-6 out of 10 selling over list price, it shows that there is extremely high buyer demand and most likely favorable annual appreciation. When only 1-2 out of 10 sell at or over list price it can actually be a warning sign that the market is in a slow down period.
If this property is in above average condition, compared to the others you have viewed, and it has a superior location and lot, it may be a candidate to sell with more than one offer. If the “days on market are high” chances are the listing will not be sold over list price.
A HomeZoop Buyer Smart Report calculates, the asking price of $400,000, at $222.33 price per square foot, which is 12.3% higher than the average price per square foot of properties that closed in the last 12 months.
Again, is that good or bad? Should you offer 12.3% lower? Most likely, the answer is NO. Some sellers deservingly get far above the average price per square foot because they have better features than the average property.
Ideally you compare and contrast the differences in: kitchen updates, baths, parking spaces, views, usability of the lot, proximity to stores, schools, entertainment, and of course condition and market momentum. An insightful agent can be very valuable both on the buy side and if you have a property to sell.
Keep in mind, home sales nearby are being negotiated 3.5% off the asking price or $12,200.
Ready To Make An Offer?
Buyers want to know “why is the seller selling” often times in order to get a competitive edge. Your buyer’s agent will do their best to discover the seller’s motivation. Additionally, it is important to find out if you are competing against other offers.
Keep in mind when buying, one of the most important things that you will want to know is “what is the momentum in the local market?” That more than anything, more than the school district, or any other factor, has long-term effects on your property’s increase in value.