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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 a home. Knowing them will help you set priorities if you're buying a home and appreciation and future flexibility is important. The four main factors are: location, lot, floor plan and finishes - in that order.
 
 

1 - Location

Valuable locations have great schools, attractive surroundings, likable people, less crime and easy commutes. Great locations are areas that you (and plenty of other people) love now and will continue to love in the future. 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

The size, slope, view, orientation, setting and future buildability of the lot is the second most important factor in long term value. You've heard the line: buy the worst house in the best neighborhood. If the lot is also bad, this is terrible advice. Better advice: buy the worst house on a great lot in the best neighborhood.

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.

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.

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.

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.

  • Choose homes with more square footage on the first and second floors.
  • Basements and third floors have value too but not as much as the main and second floor.
  • Pick homes where the main gathering areas like the kitchen and family room are laid out comfortably.
  • Pick homes with an ample number of bedrooms and preferably on the same floor.
  • Pick homes with a 8' or 9'+ ceiling height, this is hard to improve later.
 

4 - Finishes

From a long-term standpoint, the current finishes of the home are the lowest priority because they can be dealt with later. Finishes like appliances, fixtures, flooring and paint depreciate and lose value as tastes change. You may love the style but unless you get lucky, the next owner won't notice or like the same finishes you do. Finishes can always be updated later so if you have to sacrifice something, it should be the finishes. Some items have both cosmetic and utility value. For example, efficient furnaces, quality windows and new roofs. These items are indeed valuable just remember, high quality and long lasting beats cutting edge.

 

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.