What decides how much your home is worth?
There are a number of factors which determine house prices, some are logical, based on economic theories and population density and some are based on more intangible factors, like street appeal and proximity to family.
We have outlined some of the key factors which effect property prices and how they are determined.
1. Supply and demand
Put simply if demand for houses increases faster than supply, then house prices go up. For house prices to fall the demand needs to fall and the supply stay the same or increase.
2. Interest rates
When interest rates rise this makes the monthly repayments on a mortgage higher, this means some families won’t be able to borrow and subsequently not buy. This deceases demand.
3. Economic growth
As the economy grows and wages increase more people can afford buy a house, this inturn increases overall demand, which increases prices.
As levels of migration increase so does the population and more people means more demand for homes.
5. Location, location, location
This is an obvious one. Homes that are closer to the beach, shops, schools, parkland, CBD or transport tend to sell at a higher price.
6. Room to move
The potential for growth is a key issue in determining the value of a property. This relates to the potential to add on a second storey, increase the number of bedrooms or add a room above a garage or in the garden. Increasing the floor area, will increase the value. This relates back to the value of Location and land size in determining house prices.
7. Second bathroom
If two identical properties were for sale in the same street, the one with the extra bathroom would sell for more. Simple. However, the value of the bathrooms relates directly to the number of rooms in the property. For example a second bathroom in a two-bedroom house would be less desirable than in a five-bedroom house.
We all know that parking is at a premium in our big cities so if a home has parking or even a garage this can significantly increase the value of a home, this is more apparent the closer you get to the city as parking becomes more of an issue.
9. Home improvements
Updating kitchens, replacing flooring, repainting walls and adding landscaping can add to the value of a home. However often homeowners spend too much and don’t get the return on investment when they sell the house, this is called overcapitalising. Before making drastic improvements to your house, be sure to talk with your local real estate agent so that you use your money wisely.
The bulk of value in most residential properties is in its land size and usage (council zoning and restrictions), not the building itself. Land gives capital growth and flexibility for future options to possibly develop and make profit.