What determines property prices in an area?

/ By / Real Estate

There is a significant difference between the prices of a property in one area than another. Do you ever wonder why? If not, then you might need to go through this post to know all the details about the factors that lead to the hike of a property in a certain area.

what determines property price in an area

Most of the buyers or the potential buyers think that the price of a property depends on its features, functions, and style. But that is not the case. These characteristics are not the decisive one that can lead to an increased property value in a certain area.

Then What is it?

Not so fast. First, you need to understand that the characteristics mentioned above are just physical conditions. A property’s physical condition depreciates over time. “According to Investopedia, depreciation is an accounting method to allocate the cost of a tangible asset over its useful life.”

Real estate investment is one of the biggest investment many retail investors make in their lives. If you fail to look at home as an investment and didn’t understand what drives the value of it, then you might end up in the greatest blunder of your life. This is the reason you should go to this post to get some insights on how a price of property increases or decreases in an area.

Let’s get you started,

The Micro-Factors That Affects the Property Prices

  1. Location, Location, Location!

Isn’t that a familiar phrase that we heard all day along when we search for a property? This means a lot when it comes to the pricing of a property. There is a term that coined by some marketer which is “hedonic prices”.

what determines property price in an area - location

You might be wondering. 

What exactly that means? Hedonic is nothing but a concept of pleasure. So, pleasure pricing is done simply by the location of the property. How posh the neighbourhood is, or how backward is it? That defines the value of a property. Some of the factors that play an important role are,

  • The quality of schools around the location of the property.
  • What is the probability of employment in the nearby areas?
  • How close is it to nearby shopping malls and other recreational centres.

And these three factors are not independent of one another. So, these factors play a composite role in the price hike of a property.

2.   Level of Upgrades and Updates in your Property.

This is the factor where the retail investor seeks for some upgraded features of the property. Features which can affect the pricing of a house mostly include upgraded kitchen and bathrooms.

These are basic amenities a person looks for in a new house. So, when you are looking for a house, you must observe the base price with the features of the house that are up to date. This will give you a perfect idea that how many hikes the property can get.

3. How Your Property Perform an Inspection Report

There are many investors who actually hand over a property to an independent agency for an inspection report. This situation commonly arises when an investor is evaluating mortgage risk for the property.

If the property is under contract, then a good inspection report can impact visibly on the price of a property. This impact is generally in the negative direction as it uncovers previously undisclosed problems that need to be repaired.

4. Prices of Comparable Property in Your Neighbourhood

What are the rates of the property in your neighbourhood is very important? You can easily grasp an idea how your property will cost when you know the value of your neighbouring properties.

what determines property price in an area- comparable prices in vicinity

Whether you are selling or buying a property, you can easily evaluate the price by asking the average property rates in that neighbourhood.

5. The Formal Pricing of Your Property

The formal pricing of your real estate property is commonly known as the appraisal value. Whenever a loan is involved in the financing of your property an appraisal is a necessity.

So, the appraisal value is actually the standard price of your real estate property. You can get your hands on that value simply by consulting a loan lender. These loan lenders will provide you an appraisal amount as they never approve any loan more than the appraisal amount.

The Macro Factors That Affect your Property Prices

1. The Economic Indicators.

There are certain economic factors that have a direct link with the pricing of your real estate’s property such as unemployment rate, Gross Domestic Product (GDP of the nation) and average income growth.

what determines property price in an area- economic factors

You all remember that recession of 2008-2012, right? It really struck hard on the real estate market which lowers the property prices to the ground. So, these factors really struck hard on the prices of your property. Suppose you live in an area or state where the income growth rate is 1.48%. When you compare that with your nation-wide income growth rate you find that it is around 0.8%. This means that people can spend more on purchasing real estate property. This means you will see a hike in the property rate of yours.

2. Mortgages Interest Rates

This is a prime factor which decides your property pricing. High-interest rates will lead to lower mortgages amount which directly leads to the lowering of your real estate price. Similarly happens with the lower interest rates. This gives you a higher number of mortgages which directly leads to higher property prices.

what determines property price in an area - mortgages interest rates

Concluding Remarks

So, these are the micro and macro factors which can really guide you ineffective pricing your property. If you are looking for a property to buy, then this factor can serve as a guide for you.

Let’s have a look at the factors again in this small summary.

The Micro-Factors That Affect the Property Prices

  • Hedonic is a concept of pleasure. So, pleasure pricing is done simply by the location of the property. How Porsche the neighbourhood is, or how backward is it? That defines the value of a property.
  • Retail investor seeks some upgraded features of the property. Features which can affect the pricing of a house mostly include upgraded kitchen and bathrooms.
  • If the property is under contract, then a good inspection report can impact visibly on the price of a property. This impact is generally in the negative direction as it uncovers previously undisclosed problems that need to be repaired.
  • Whether you are selling or buying a property, you can easily evaluate the price by asking the average property rates in that neighbourhood.
  • The formal pricing of your real estate property is commonly known as the appraisal value. Whenever a loan is involved in the financing of your property an appraisal is a necessity.

The Macro Factors That Affect your Property Prices

  • There are certain economic factors that have a direct link with the pricing of your real estate’s property such as unemployment rate, Gross Domestic Product (GDP of the nation) and average income growth.
  • This is a prime factor which decides your property pricing. High-interest rates will lead to lower mortgages amount which directly leads to the lowering of your real estate price.

I hope that you like the post. Leave a comment and let me know your thoughts. Till then have a great day ahead.