Value, as defined by the appraisal institute is "the future benefits to be derived from the purchase of the property".
What does this mean? Value and quality of life factors go hand in hand!
You're about to buy your dream home and although you feel sure you'll live in it forever, it's rarely the case! That being said, what should you take into consideration to ensure you make a sound real estate purchase that will enjoy good equity growth?
First, ask yourselves, what would other people value about this house? We call this resale value. What might negatively impact the value when you decide to sell? Think twice before buying a house fronting or backing onto a busy street. The noise factor may not bother you, and sure you will pay less, but this will affect your equity growth and resale value. It's better to think long term!
Factors to look at to ensure that the home you buy is a sound real estate investment:
1) Location - We've all heard the number one rule - it's location, location, location! Why is this so important? Consider the following location issues:
Good neighbourhood
Neighbourhoods have reputations among the real estate community, and a similar house in two different neighbourhoods can differ widely by tens of thousands of dollars. Also areas within a neighbourhood will differ in value. Going round the bend on a street can mean different values.
Often the differences will be apparent to the discerning eye, like general upkeep of homes and ambiance of the street, but not always. Differing values can have to do with what appraisers call a negative neighbourhood influence, for example, a rental apartment block or a group home close by.
Even the collective opinion of real estate agents about a neighbourhood or area can affect resale values, and only a knowledgeable agent can advise you of that.
Your assessment of the neighbourhood should also include its 'life stage'. Is the neighbourhood improving, stable, in decline, or in renewal? All affect the long-term resale values.
What is the value of the home in relation to those around it? Being the most expensive home in the area means the lower values around you reduce your home's value. On the other hand, if yours is the least expensive, its value will be raised by the overall value of the neighbouring homes. This is the principal of progression and regression.
Setting
Backing onto a park, ravine or other greenspace is highly desirable, and you can expect to pay more. In new home developments, builders are now charging huge premiums for the privilege of backing onto greenspace. Even backing onto a 60 foot wide walkway can cost an extra 30,000 dollars.
If there is vacant land nearby, check with the planning department of the city regarding the zoning and whether there is a possibility it will be rezoned, and for what use.
2) The lot - A large lot is always a benefit for resale, and typically costs more.
Of equal importance, is the placement of the home on the lot. This has become particularly important in the new developments where the yards are considerably smaller.
The way the neighbours to the side and rear are positioned in relation to your property is critical. Are the neighbours behind on higher ground? Do you feel squeezed in? Does the view look bleak and can it be softened with landscaping? Be careful of having seeing too much of the neighbour's walls. You will be surprised how much this can vary on similar sized lots, and it is something that you will need to assess in each house that you see.
Corner lots can be great or awkward, depending on positioning of the house and access to the yard.
Curb appeal is important for resale, and a private and well landscaped yard is the prospective purchaser's first impression and important to their quality of life.
3. Good Bones - These are the physical things that you can't, or are unlikely, to change.
Layout is critical - does the house have a pleasing and functional design and flow? Open concept designs are popular today.
Space is a luxury; the main floor is the most important consideration as this is where you spend most of your time, and square footage in this area tends to be more valuable than on the second floor.
Well proportioned and well sized principal rooms can give a feeling of space even in smaller homes. It is all part of good design and functionality.
Easy flow between principal rooms and between indoors and out enhances value. For example, if you want to barbecue, can you easily access the backyard from the kitchen? If functionality is hampered, appraisers call this functional obsolescence, and make a downward adjustment on value.
Visual access is equally important for year-round enjoyment of the yard, and the level of light is important to some people. This is largely determined by exposure - what direction does the rear yard face?
Make the distinction between well cared for and well maintained. Learn to look beyond the cosmetics, particularly in older homes. A home can look lovely, decorated in the latest tones, be neat and immaculate, but have few upgrades or improvements.
Specifically, look for major components that affect value and could be a major expense including: roof and eaves, furnace and central air, and windows. What is the life left in these components?
Next, consider cosmetic updating of bathrooms and kitchens. Painting is the least expensive, and flooring is second. A home improvement mortgage can be a worthwhile solution for improvements that you would want to make right away, and makes more financial sense than saving up!
