November 26, 2019
Location is a massively important component of a property’s value. Any real estate agent will tell you that it’s the most important thing to consider when home shopping, and the reasoning is very simple: a house can be changed, but its location cannot be changed. A small house can be made bigger, or a broken house can be fixed, but the land cannot be picked up and put elsewhere. Land is scarce, meaning that there is a finite supply of it, so if the location of the land is highly sought after the value of the property will increase as demand for land in that location rises.
Let’s look at the factors that influence the demand for a property:
Home buyers want a home that is near their needs. If they have a family, they want a home that is located in a good school zone. If they want to be close to the city, they’ll look for a home located nearby. Because locations like these are in demand, the value of properties that meet these needs are going to increase as buyers compete to get the home they want in that location. And as these sought after properties are bought up, the value of the properties still on the market will continue to increase since the supply is lower, driving buyers to make higher offers.
Have you ever lived in a house right next to a busy street? If not, I’ll just tell you what it’s like: it’s really annoying. For that reason, the demand for a house in a location like that is going to be low. Since demand is low, a property next to a busy street is going to have a lower value than a similar property in a different location. The same concept applies to other things people don’t want to live near or around, such as an area with a high crime rate, a loud industrial zone, an airport, etc. If home buyers don’t like the area, the value of properties in that area will be lower.
Aside from just the surrounding area of a location, the immediate location of a property is also important. For example, people love to have a great view from their house, so home buyers are willing to pay more for a property that gives them access to a view. On the flip side, buyers don’t want a house that looks into the parking lot of a Walmart (or something similarly as unsightly), so they aren’t willing to pay as much for that property. Again, a house can be changed, altered, or upgraded after it’s purchased, but the land it’s built on can’t be raised into the sky to provide a good view.
Outside of the factors that influence demand for a property, it’s also very important to note how the location affects the property value going forward. The house, and all the objects inside it, experience deterioration due to age. Because these things deteriorate and have a limited useful life, their value depreciates over time since buyers desire it less. Land on the other hand instead experiences appreciation in value due to being limited in supply and having the opportunity for demand to increase. If the goal of buying a home is to sell it once the value has increased, it’s much more important to buy a home based on the land it sits on rather than the physical structure, since the structure will decrease in value over time but the land value will increase. A property that has better land (bigger and more ideal location), will experience greater appreciation in value than a property with the same structure but worse land.
To summarize all of this as simply as possible, location affects property value very directly; buyers will pay a higher price for a better location, and a lower price for a worse one.
Contact us today to see where your home fits in location and value. We can buy your house “AS IS” and give you the best possible price for it.