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4 Factors that Affect the Long Term Value of a Home

Erik Wicklund
There are four main factors that influence the long term value of residential real estate and they are:
  1. Location
  2. Lot
  3. Floor plan
  4. Finishes

Recognizing these factors when shopping for a home will help you set priorities and make it more likely that the home you buy will 1) appreciate in value and, 2) accommodate improvements you'd like to make as your needs change in the future.

 

1 - Location

Great locations are areas that you (and plenty of other people) love now and will continue to love in the future.

Factors that make locations valuable:

  • Abundance of quality, well kept homes
  • An easy commute to one or more major job centers
  • Close to amenities like shops, restaurants, beaches and parks
  • Attractive surroundings and views
  • Access to desirable schools
  • Likeable people who care about the local community
  • Safe and low in property crime

Property values go up in these locations when the economy is healthy and holds steady when the economy slows. Values rise even faster in these areas when it's hard or impossible to add additional housing supply. This is why homes in Seattle neighborhoods and other established areas are more likely to appreciate in value than homes in areas where it's easier to add new housing.

 

2 - Lot

Lot quality is most important when you're buying a home in a neighborhood with a wide variety of lot sizes. Homes on lots that are too small, oddly shaped or ill positioned have far less long term value than homes on good lots.

What to look for:

  • Size - larger the better, especially if adding onto the existing home in the future is important
  • Street - the lot needs to be located on an attractive street that isn't busy
  • Topography - flat or gentle slopes are ideal
  • Setting - the surrounding properties should be as attractive as possible
  • View - mountain, lake, city and territorial views all add value
  • Sunlight - having good exposure to sunlight from the south & west is ideal

You've heard the line:

Buy the worst house in the best neighborhood

If the lot is bad, this is terrible advice.

Better advice:

Buy the worst house on a great lot in the best neighborhood

Lot Size Consideratoins - The lot needs to be big enough to accommodate a home of ideal size for the neighborhood because eventually you or someone else is going to want to build that ideal home.

A large portion of Seattle homes are built on 5,000 square foot lots that are 50' wide by 100' deep. Most new homes in Seattle would fit on that type of lot. It's not overly spacious but it works. A 4,000 square foot lot can work but there won't be much yard, especially if the house is large or there's a detached garage. Anything under 4,000 square feet is going to limit the size of a single family home. Lots 7,000 square feet and up are pretty special. Land in Seattle is scarce and large lots in good neighborhoods are very valuable.

Topography - Flat lots are better than sloped lots for usability. Homes on sloped lots often have views but can be expensive and complicated to build on so make sure the views justify it.

Setting - Look for lots on quiet streets with appealing surroundings, even if the house isn't as up-to-date as others you're considering. If long term value is a priority, remember: It's land that appreciates over time, not structures.

 

3 - Floor Plan

The general layout and size of the house is the next most important factor. If a house is older but has a good floor plan, you (or the next owner) will be able to renovate and make it feel new without having to do major construction. Good floor plans have tremendous long term value.

What to look for:

  • Overal Size - Larger the better up until about 4,000 sqft where the added size has diminishing returns
  • Square footage on the main and second floors
    • Homes with more square footage on the main and second floors are far more valuable than homes with large portions of their square footage the basement or on a third floor.
  • Main gathering areas like the kitchen, family room and dining area are large and connect together comfortably
  • An ample number of bedrooms, preferably all on the same floor.
  • Connection with the outdoors - Ideally the kitchen and/or family room opens to the backyard
  • Tall enough ceilings - Homes with a 8' or 9'+ ceiling height work well. Under 8' may limit the long term value of the home
 

4 - Finishes

From a long-term standpoint, the current finishes of the home are the lowest priority because they can be improved later. Finishes like appliances, fixtures, flooring and paint depreciate and lose value as tastes change. You may love a certain style but unless you get lucky, the next owner won't notice or like the same finishes you do, especially after 5 to 10 years have gone by.

Finishes can always be updated later so if you have to sacrifice something when making a buying decision, it should be the finishes.

What about systems? Yes, some items have both cosmetic and utility value.

For example:

  • New / efficient HVAC systems
  • High quality double pane windows
  • New roofs.
  • Updated electrical and plumbing

These items are indeed valuable which is why people often update these items when getting ready to sell their home. Just remember, high quality and long lasting beats trendy, cutting-edge when it comes to re-sale value.

 

Summary

Ideally, you'll find a home with the right location, lot, floor plan and finishes in your price range. If you find that house you'll probably be buying it.

If you have to prioritize and long term value is important, remember: LLFF, in that order and down the road you'll be glad you did.