Posted on 09/28/2015

Location, Location, Location: How Location Affects Property Value

3 minute read

There is good reason behind the real estate catchphrase “location, location, location.” When it comes to determining property value, your home’s location is one of the most important factors.

A “good” location can be determined by dynamics as broad as the economic stability of the community or as specific as the home’s placement in a certain neighborhood. A great house in a less than ideal setting will have significantly less value than a similar home in a preferred neighborhood.

Community, City or Town Dynamic

To determine a good location, start by looking at the town or the city in which a home is located. A community with a viable economy and healthy mixture of residential and commercial districts provides residents with opportunities to have a good quality of life, and the local government will more likely have the revenue to keep streets and roads in good condition as well as offer reliable city services. Well-maintained towns and cities promote a sense of civic pride, often raising the value of homes in that area.

Local Neighborhood Dynamics

“Local neighborhood” refers to the residential area where a home is situated and the surrounding businesses and services, such as nearby super markets, gas stations and medical facilities, as well as access to public transportation. Homebuyers are looking for quality and convenience, including the school district where the home is located.

Even buyers who don’t have school-age children benefit greatly from buying a home in a well-regarded  school district, since outstanding schools motivate families to locate in a given area and result in higher demand and, with increased demand, higher property values. A recent study found that buyers are willing to pay as much as $50 more per square foot for homes in high-rated school districts than homes in average-rated school districts.

Residential Neighborhood Dynamics

Homes with the highest values in any given neighborhood are usually located in the middle of the block or in a cul-de-sac and are surrounded by other homes similar in size, style and age. For example, a neighborhood with an abundance of rental properties can decrease surrounding single-family, owner-occupied home values by as much as 15 percent.

In terms of value (both for investment and resale), you’re almost always better off having an average house in a great location than having the best house in an poor location.

When looking to buy a home, remember to look beyond the house itself. Physical structure depreciates over time, and you can make changes to the appearance inside and out. However, a home in a great location will give you a significant advantage for a quality investment and eventually a profitable resale.

Looking for more information on buying and financing a home? Our Mortgage 101 Handbook is the ultimate guide for first-time homebuyers.