Factors that Affect a Home's Appreciation
A home is the largest investment most people will make. Ensure your investment pays off: get insight from agents on how to pick a home that will appreciate
"Regardless of the type of market we are experiencing, most buyers are interested in knowing how they can choose a home that will appreciate in value. Although there is no specific formula which enables us to make such a determination, as much relies on the actual Real Estate Market we are experiencing, educated decisions can be made to at the very least provide a good sense of future appreciation," explains Jennifer Daywalt, Top Realtor since 2004 at RE/MAX Results Realty in Collegeville, PA.
She and other real estate professionals provided insight on how buyers make sure they buy a home with the best chance of appreciation possible. After all, buying a home is probably the biggest investment you'll make in your lifetime.
Get in the Investor Mindset to Get Appreciation
If appreciation is one of your top priorities you have to approach the situation with the right mindset - an investor mindset.
Alan Sims, CEO for The Center for Litigation and Consumer Real Estate Education as well as an expert witness & forensic real estate appraiser laid it out clearly and simply: "Homebuyers in this market will have to evaluate their home purchase as an investor."
Alexis A. Moore, Broker-Associate at Town Center Realty Group, seconds this adding, "Best advice for buyers is to do "homework", don't buy on passion rather on reason which is tough to do for most who are buying a home since it is a personal purchase."
If you start out in this state of mind you'll be able to focus on what really matters and keep your emotions in check.
Location's Affect on Appreciation
The golden rule of real estate, location, is probably the biggest factor of how a home's value will change over time. But there are a numbers of things that affect whether an area is a desirable location.
"If it backs to power ines, don't buy, If it backs to a busy highway, don't buy, If it backs to open space with mountain views, then buy," says Michael Garard, GRI at Garard & Associates, LLC.
Other things to look out for are:
- Nearby parks
- Amount of traffic
- Easy commute for residents
- Safe environment
- Natural beauty and nature
- Close proximity to shopping
- Areas around colleges
It's what's around the home that really matters, what Tanya Marchiol, President of Team Investments, calls 'neighborhood presence'.
Colette Gerber, Realtor at RE/MAX in Vancouver, BC, Canada provides another tip on how to find a location with the potential for appreciation. "Choose your property in an area that is “hot” – whether an up-and-coming neighborhood or the “it” place to live."
Growth & Investment in the Area
If the local government and businesses are investing in an area chances are good that buyers will as well.
Dameon V. Russell, Dir., Business Systems MAE Capital Mortgage, says, "Buying in the path of development can provide certain associated appreciation; given it’s the right kind of development. You’re looking for opportunities to get in on communities newly emerging. These are areas where housing communities, subdivisions have been planned and are built and being built. Where retail strip centers, major grocers, cinema complexes, schools, parks, etc have recently been built and are in the General Plan. Unbeknownst to most, the General Plan and Specific Plans for any township, city or municipality are always a matter of public record. Look for planned developments, or facilities that serve, enrich, or enhance a community. Essentially any added desirable feature or facility will add home values within proximity."
Tanya Marchiol, President of Team Investments, points out that this development also creates another desirable feature - good employment. " The bottom line here is jobs create housing demands, which intern creates higher home values."
Also look out for areas where the homeowners are remodeling and improving their property which is a sign that people are still investing in the neighborhood says Matt Muscat, Director of Marketing at Treadstone Funding.
A Good School System = Good Appreciation
"Schools are another key factor that keep people coming to certain communities. A good school district will keep a neighborhood full and houses remodeled," says Tanya Marchiol.
Even if you don't have kids, a lot of other buyers do and the schools district can make a huge difference in whether or not they want to consider your neighborhood. A good school system will make an area more desirable and therefore help your home hold its value.
Neighborhood Statistics and Demographics
Dameon V. Russell, Dir., Business Systems MAE Capital Mortgage, points out that buyers should, "Inquire about turnover rates and inventory levels. Is it a community of home owners or renters? Ask for a full Property Profile Report which will include community attributes, statistics, school ratings, demographics, etc."
Other statistics and demographics that need to be considered include crime rates, vacancy rates and foreclosure rates. Nothing will drag down home prices quicker than foreclosures.
Appreciation is in Homes That Need Improvements
One of the most popular pieces of advice on appreciation is that it's best to buy a home that needs a little TLC rather than one that's in perfect condition.
Jennifer Daywalt offers this recommendation: "Purchasing a home that is in need of some repair including cosmetic changes is the best chance a buyer has of seeing appreciation, especially if the buyer can complete the repairs themselves. It is quite possible in today’s market to purchase a home that needs these updates/repairs for a good price. Taking the time to improve the house will add instant appreciation. As with any upgrade be careful not to over-improve the property or you will risk pricing yourself out of the neighborhood.
Updated kitchens, baths, hardwood floors and great landscaping are just a few of the items that can add appreciation to your home. Earth colors on the walls with white trim, hardware to cabinets in the bathrooms and kitchens, stylish window treatments, updated bright lighting and hardwood flooring are a few of the least expensive updates that can provide a return to a home owner."
Don't Buy the Best Home in the Neighborhood
To add to the point above, you shouldn't buy the best home in the neighborhood if you're looking for appreciation in the short and long term.
If you want to see appreciation in as little time as possible Michael Byrd, Broker at SLO Home Store suggests, "To speed things up, pick the lousiest home in a great neighborhood then fix it up if you can. Conversely, buying the best home in the neighborhood will result in your neighbors being a drag on your appreciation."
For long term appreciation Alexis A. Moore says you should, "Find the listing that is not the biggest home in the neighborhood and not the smallest and buy from there as the prices rise/drop the homes situated in the middle between the two always fair the storm where the priciest homes and the cheapest homes may not be able to weather the turbulent real estate storms as well."
Homes with Good Bones Tend to Appreciate
Regardless of a home's size or whether it's already been improved and updated, if it doesn't have good bones then won't increase in value as well as other similar properties.
Tanya Marchiol of Team Investments puts it this way:
"First and foremost is it [the home] in good condition now, is it constructed well and does it have curb appeal, does the floor plan make sense for the typical suburbia family, and to a large amount of buyers whether they are investors or personal buyers."
The general quality of the structure and layout are hard to change and improve upon which is why these two things are so important to the overall value of a home.
Look at the History of the Area
Has your preferred area already hit its peak? Has it ever been a prime real estate area? How do past home sales compare to today's asking prices?
Cynthia Bauer, Realtor at RE/MAX Premier Properties, Chicago, Ill., said, "Buyers increase their odds of future appreciation if they make a smart purchase, and that starts by really knowing the dynamics of local market - what homes have sold for and how their differing features and location impact their value. That is where a good real estate agent can be so helpful. Knowing the home-sales history of an area is important. If home prices there have been relatively stable in the last few years, chances are good that values will rise as the economy improves."
Re/Max Broker Stephen O'Hara agrees, adding that understanding the 'history' of the individual home is an important part of determining if the home is priced correctly with the market, so that the home value will rise as the market rises.
A Knowledgeable Agent Helps You Find Appreciation
The easiest way to estimate a property or area's potential for appreciation is to enlist the help of an agent. As Jennifer Daywalt pointed out, a good agent will have access to valuable information.
"Buyers should be sure to align themselves with a full-time Realtor highly experienced in the neighborhood they are purchasing. This Realtor can provide the buyer with comparables of the home they are purchasing WITH renovations completed. These comparables should provide reliable estimate for the (ROI) Return on Investment on a specific property and will enable the buyer to make a good bid. Appreciation of any home is attainable in any market with a savvy buyer and experienced Realtor working together towards the same goal."
A knowledgeable agent will already be analyzing the history of homes in their area and have a good understanding of what's more likely to gain value both in the short term and long term.