Looking to check the value of your home? Whether you are a homeowner, looking to sell your home, an investor wanting to branch into property investment, or just plain curious, we will be sharing with you the factors you need to consider and how to evaluate the prices of homes in this blog post.
Determining the value of a property in the UK can be a complex process. There is no exact formula that we can give you, but understanding the factors that contribute to its worth is essential for both buyers and sellers. As such, let us first discuss the:
FACTORS THAT AFFECT PROPERTY PRICE
Location, Location, Location
LOCATION, LOCATION, LOCATION
You have most likely heard this one before, that the location is of utmost importance and must never be left out. The reason this persists is because of the undeniable truth within it. Properties in prime locations, such as central London, tend to command a premium price, while those in less desirable areas may be cheaper. But why is location essential? Why is population density greater in some cities? Below are some of the factors that are greatly dictated by location:
Crime rate is usually ignored but is a contributing factor that needs to be considered in property valuation. According to a study by Braakmann (2017) on England and Wales, "each case of anti-social behaviour per ten population in the same street leads to an approximately 0.6–0.8% drop in property prices, while a corresponding increase in violent crime decreases prices by roughly 0.6–1.6% and a corresponding increase in non-violent crime by about 0.2–0.4%"
increase in violent crime decreases [house] prices by roughly 0.6–1.6%
In short, crime decreases prices and violent crime leads to more crime leading to further price regression. You may be in a prime location but if your street has above average crime rate than the surrounding neighbourhood, expect your home to be slightly less pricey as compared to the comparable property half a mile away.
You can also expect insurance costs to be higher in crime hotspots while rental income is much lower. This leads to investors staying away from the area, leading to further decline of the community, which then causes more crime. Unless significant actions are taken, it is best to avoid these areas.
If you want to check the crime rate in your area, we highly recommend ADT. Simply plug in your postcode in the provided field to check out the crimes near you. Do note that crime can also vary greatly within a city or neighbourhood, and the effects on property prices can vary depending on the severity and frequency of crimes, location, and the area's overall market conditions.
Have you dreamed of living in walkable cities? How about a town with less air and noise pollution due to the absence of cars? So do we! And so does a good bunch of people.
According to Banister & Goodwin (2011), the construction of a metro led to a cumulative increase of approximately £59 million in residential value to the nearby homes. The reason for this is simple, nearby houses suddenly became much more desirable to everyone. The homeowners didn't even need to refurb their homes and even then, your average refurb project won't lead to a significant jump.
the construction of a metro led to a cumulative increase of approximately £59 million in residential value to the nearby homes
If you're not satisfied with our simple explanation, let us take a deeper look at why these homes suddenly increased in price. Luckily for you our dear reader, we already listed the reasons below:
Reduce traffic congestion and improve air quality.
Reduce noise pollution.
Increase accessibility and mobility for all populations, especially those without access to private vehicles.
Stimulate economic development and job creation through small and medium enterprises.
Improve public health through increased physical activity.
Reduced carbon emission and support of sustainable development
Promote government investment to parks and public facilities.
In summary, good public transportation increases your overall quality of life, which made it desirable for everyone, and made them want to shell out more to secure their dream home.
Local amenities mean schools, parks, shops, community centers, libraries, gyms, and even public transport. Similar to public transport, local amenities increased the demand and prices of the area due to improvements in the quality of life they bring. In short, the convenience and accessibility of daily needs increases the perceived desirability of the neighbourhood.
the convenience and accessibility of daily needs increases the perceived desirability of the neighbourhood.
As opposed to the crime rate, the boosted community appeal attracts investors, further developing the area, which further increases house prices. As such, if you got wind of a developing city with multiple government projects or investments, it may be wise to verify these claims and seek to own a piece of the land as your property investment will naturally mature much more than others given enough time.
(We are in a quest to find investment hotspots so make sure to share it with us as well!)
Assuming its in the same area, larger homes will most likely command a higher price. Larger families would want to stay in a larger home so that even young Timmy gets his room. Newlyweds or young couples will look into homes with 2-3 bedrooms in anticipation of children. Below are what to look out for when comparing properties in terms of size:
Number of bedrooms
Number of bathrooms
Separate kitchen and dining room
Total Area (Square footage)
Do note that a 2-bed property may have the same total area as a 3-bed property as such, it is important to double-check the total area. You may also want to check if one of the bedrooms is a converted attic or basement.
The overall condition of the property, including the state of repair, the quality of fixtures and fittings, and the level of maintenance, will also affect its value. Buyers will usually take into account the costs of refurbs in their maximum offer. As such, it is important to keep your home presentable and well-maintained. Small repairs, or cleaning and painting here and there will yield unexpected value if done correctly.
Small repairs, or cleaning and painting here and there will yield unexpected value if done correctly.
This doesn't mean that you have to cover up the issues. Property investors will usually hire professionals to evaluate the condition of your home before purchase so you won't be able to hide anything anyway. A good buyer will appreciate the vendor's transparency regarding the issues of the home and may even take you up on your preferred price due to being upfront and honest.
Market conditions and trends will also affect the value of a property. Simply put, if there is a sudden high demand for properties in a particular area, prices may rise, while if demand suddenly decreases, prices may fall. This may be due to market speculations or simply the ebb and flow of the property market.
The one common thread, however, is that property prices will almost always increase as time passes by. This is due to the ever-decreasing availability of already limited spaces in desired areas, while the population count is ever-increasing.
property prices will almost always increase as time passes by.
Now that you are knowledgeable about the factors, it is time to learn about comparable properties. The best way to determine the value of a property is to look at comparable properties that have recently been sold in the same area. This will give you an idea of the current market price for similar properties. Make sure that the comparable properties are in a similar state of repair, size, number of bedrooms, and other factors that we have discussed above to your property.
Basically, you look into homes in your area as close to your own as possible and check their selling price. The more recent the sale, the better. As an example, property prices significantly increased during the pandemic within the span of a few months.
HOW DO WE DETERMINE HOUSE PRICES
Using what we learned above, we look for comparable properties. First, go to Rightmove's Recently Sold House Prices. Second, enter the postcode of your property. Next, adjust the filters. Start by setting the property type and then choosing 'This area only' and 'Last 1 year'. You may safely ignore the tenure. You should find at least 3 comparable properties unless you find a near-perfect replica of your home. Adjust the distance to 'Within 1/4 mile' and check the properties. If there are still not enough comparable properties, adjust the distance further up to 1 mile. That should give you enough comparable properties.
We do not recommend looking at properties sold for more than a year since the market saw recent price spikes in the last few years.
PROFESSIONAL PROPERTY VALUATOR (OPTIONAL)
Now that you got a good idea of the value of your property, it's time to hire a professional in the property industry to verify your estimate. They will give you a good idea of the current trends in your area and give you a more accurate assessment of the value of your property. They may know some relevant information about the area not easily accessible to the public.
If you think the value given to you is wrong, then trust your gut. Remember, you can always rehire a different valuator if you think the estimate given to you is way out of your expectations. Just like how patients would request a second opinion from a different doctor, you can also get the opinion of a different evaluator.
How can Property Store help?
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Looking to start your property investment career? Check out our blog about the things we wished we knew when we first started in property investment so that you can be 2 steps ahead of the competition.