Which Home Is Worth More?

Location premiums differ from city to city. In one area, proximity to the downtown district may increase value, while in another city, close-in homes may sell for less. In most places, waterfront homes carry a higher price tag, as long as flooding isn't a regular threat. Great views--of mountains, cityscapes, natural areas or water--also command higher price tags.

Proximity to amenities can certainly increase price. Being near (but not right next to) good schools, medical facilities, shopping and employment is likely to increase a home's value. In metropolitan areas, being able to walk from a home to public transportation, parks, cultural centers and stores often increase a home's worth.

There are other factors, however, that influence the value of homes. Supply and demand in the real estate market has a tremendous influence on home prices. In seller's markets, where housing inventories are low, a two-bedroom, one-bath home may sell for many thousands more than a four-bedroom, two-bath home in an economically depressed area where many homes are for sale. (Again, it's a location issue at core.)

Size counts when comparing homes in a specific area. The more bedrooms, baths and square footage, the more a home is likely to sell for. So too, a larger lot will usually cost more.

Age can also be a factor. Generally, a new home sells for more than a comparably sized older home in the same area. However, smart homeowners recognize they can close the age-value gap by updating appliances and decor and by returning the home to like-new condition.

Upgrades, especially in kitchens and bathrooms, certainly add value to older homes. Other improvements, such as new carpeting, flooring, cable or wiring for modern electronics, or new windows, pay off for sellers, especially if the neighbors haven't kept up. Notice, these are all cosmetic enhancements. The basics--plumbing, electric, roofing, air conditioning/heating systems--are expected to be in working order, though some people might pay a premium for gas heat, copper pipes, and better quality construction.

Good condition can also increase a home's value, if only because buyers prefer a home that's ready to move into. A home in good working order, with easy-care landscaping and neutral interior colors, appeals to the most buyers. When buyers have to compete for such a home, its price goes up.

Current buyer preferences also influence price. Today, island kitchens, screened porches, sunrooms, office space, skylights, garden tubs and other special features all help a home sell at a higher price compared with have-not homes. Buyer preferences do vary from place to place, however. In some locales, a swimming pool might help bring in top dollar, whereas in cooler climes a pool can actually lower the home's value. Also note, what's popular today may not be so sought-after tomorrow.

Condominiums have their own value-added amenities--generous closet space, a washer/dryer unit, better views (usually each higher floor costs more in a high-rise), pet-friendly policies, quality of management, and a good owner/renter ratio.

"You get what you pay for" applies to homes just as it does to other commodities. But most of us can't afford to buy the home that "has it all." As a home buyer, you can help ensure the long-term value of your investment by, at the very least, purchasing the value-increasing features that can't be added later--location, view, architectural style.

Tap Your Home's Equity With Care

Many lenders are offering real bargain rates and minimal (or no) fees. Homeowners, however, are advised to exercise caution:

  •Payments on the amount borrowed should be easily affordable, no matter how willing a competitive lender is to provide low-rate, attractive financing.

  •A second lien on a home could open the door to foreclosure in case payments are missed. Be sure you retain a cash buffer for emergencies.