Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure
What influences a property’s value?
Changes in house prices regularly make headlines, but here’s a look at why.
From supply and demand to location to planned infrastructure projects, many factors can influence property values. Let’s explore what drives property prices up, what pulls them down and how you can find out what your home is worth.
Factors that affect property value
Some of the main factors that can influence a property’s value include:
The location of a property is the most obvious factor that affects how much a property is worth. However, a lot changed in 2020 during the pandemic. While cities have historically been highly sought-after locations, many people are leaving cities in favor of more suburban spaces.
Some location factors that can drive up prices:
- Housing density of the neighborhood
- Walkable neighborhoods, restaurants and cafes and cultural attractions
- Availability of open spaces, walking trails and parks
- Proximity to public transportation, shops, schools and restaurants
Locations that offer a good standard of living and allow people to enjoy their free time will be more expensive.
Some suburbs also have better reputations than others due to factors such as unemployment or crime rates and highly rated schools.
Supply and demand
When there’s a high demand for properties and low inventory, home prices will almost always rise. The more people in the market chasing after a smaller number of properties makes those properties more valuable.
2020 saw an unprecedented number of home price bidding wars as buyers competed against each other to secure their dream home.
When the Federal Reserve System — or, the Fed — changes monetary policy, this can affect property values. If the Fed raises the federal funds rate and mortgage lenders around the country follow suit, the average monthly mortgage payment goes up.
This has a huge impact on property affordability, so there’s less likely to be competition in the real estate market and a price drop will likely follow. Conversely, an interest rate cut makes it more affordable to buy a house and property prices might increase.
A basic rule of thumb: The cheaper the interest rates and the more credit available to borrowers, the more property values tend to rise.
The overall health of the economy can also have a big impact on the property market. If the economy is experiencing growth along with strong employment and labor conditions, more Americans can afford to purchase homes, leading to rising property values.
Property market performance
The performance of the real estate market in your local area can also affect how much your property is worth. If there’s little demand for houses in the neighborhood and the properties listed are selling for well below the asking price, expect values to fall.
Population and demographics
The more people who want to live in a particular suburb, the greater the demand for properties in that suburb. At the same time, the general population in the area will also influence property values. For example, if young families are the dominant demographic in the area, multi-bedroom houses will likely be more sought-after than smaller apartments.
Size and facilities
The features and overall size of a property will also influence its worth. A four-bedroom house is likely to sell for more than a two-bedroom house in the same area. And features such as extra bathrooms, garages, office space, swimming pools and outdoor entertaining areas can also have an impact on property value. In busy cities, the absence or abundance of parking space is another critical factor.
The curb appeal of a property should never be underestimated. First impressions are very important in real estate. The way a house looks from the outside can instantly add or subtract tens of thousands of dollars from its value.
The potential for growth is important for both homebuyers and investors — the potential to add an extra bedroom or extra story, the potential to increase the floorspace or the potential to add a pool or outdoor patio. If there’s scope for a buyer to improve and personalize a property through home renovation, the resale value of that property will increase.
The value of a property is also influenced by the potential it presents to investors. Factors such as the rental income an investor can expect from a property and the capital growth they will enjoy when they later sell the property all play their part.
A property made of high-quality materials is likely to have a higher value, in part because this makes the property easier to heat and cool. Given the high price of electricity and gas bills, items like solar panels, insulation and double-glazed windows can add value and appeal.
Bank valuations vs. market valuations
When you apply for a home loan, your bank or lender will arrange to have the property you’re purchasing appraised. But many home buyers are surprised when their bank’s valuation doesn’t match the property sale price.
Sometimes the bank’s valuation of a property will come out lower than its market value. This is because the bank valuation of your property’s value is a conservative estimation of how much a home is worth. Banks need to get an idea of how much they’ll be able to get for your property if you are unable to make mortgage repayments, and they must sell the home quickly to pay off the loan. The bank uses this valuation to determine how much it can responsibly lend you and how much money it can reasonably expect to recoup if you default on your loan.
A market valuation, on the other hand, reflects the true value of a property when sold at the right time and under the right market conditions.
Property values are notoriously fickle and can change rapidly from month to month and year to year depending on a range of market conditions — 2020 being a case in point.
According to research from Zillow, “The full US housing stock gained about $2.5 trillion in value last year, including $2.2 trillion from appreciation of existing homes and $274 billion from new construction.” In other words, it was a remarkable year for property values.
While 2020 was indeed unusual, keeping an eye on the market trends in your area is the best way to determine how much a property is really worth, as well as the right time to buy or sell.
How to find out the value of your home
If you’re looking to buy a home or sell your current residence, you need an estimate of how much your property is worth.
While online tools can be useful, they won’t always give you an accurate quote. Although these services can take into account factors such as the size of the property and recent market trends, many other factors can impact property value, which are not included in the calculations.
With this in mind, the best way to calculate your property’s value is to enlist the services of two or three independent real estate agents who can provide a professional valuation. Agents have expert knowledge and experience when it comes to property values in your local area, and they can give you a much more accurate idea of your home’s true value, which can be especially helpful if you’re considering refinancing your home and you’re preparing for a home appraisal
Compare mortgage lenders
Compare top brands by home loan type, state availability and credit score. Select See rates to provide the lender with basic property and financial details for personalized rates.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
More guides on Finder
How an FHA Streamline Refinance works
FHA Streamline Refinance: The pros, cons and benefits to borrowers.
Compare HELOC rates in Florida
What to know about HELOC rates in Florida to get the best rate.
Interfirst mortgage review
Learn about Interfirst’s $0-origination-fee mortgages.
What is a home equity loan and how does it work?
Also known as a second mortgage, this type of loan turns your home’s equity into a lump sum of cash.
Guaranteed Rate vs. Rocket Mortgage
How Guaranteed Rate and Rocket Mortgage stack up against each other.
Credible vs. SoFi
How Credible and SoFi stack up against each other.
SoFi vs. LendingTree
How SoFi and LendingTree stack up against each other.
New American Funding vs. Rocket Mortgage
How New American Funding and Rocket Mortgage stack up against each other.
SoFi vs. Rocket Mortgage
How SoFi and Rocket Mortgage stack up against each other.
Veterans First vs. Veterans United
How Veterans First and Veterans United stack up against each other.
Ask an Expert