What Factors Really Drive Real Estate Prices?

real estate loanAccording to the National Association of Realtors, home prices in the Pacific region of the US rose 14.9% between December 2013 and the previous year. For buyers trying to find the best deals and sellers working to optimize their sales price, decoding market trends can be a challenge. What can each demographic do to maximize their chances of reaching their real estate goals, within the current market context? Here is a closer look at the factors that drive housing prices, and how individual consumers can get the best read on what is currently happening.

A breakdown of the factors at play

At the end of the day, the factors that influence home sale prices and real estate trends are numerous. Specific, anomalous events such as an earthquake or a conflict in a foreign market can have unseen economic consequences that trickle down to the local level and impact home sales. But aside from these unpredictable fluctuations, there are a core set of factors that remain consistently important to determine home prices. These include:

  • Local market dynamics: The local housing market dynamics play an important role on pricing specific properties. Some elements of this include history of sales on comparable properties in the previous ninety days, similar properties on the market today, and the strength of the competition.
  • Condition of the property: This relates to the overall “curb appeal” of a property, the architectural design, the quality of construction materials, and overall structural integrity. The more meticulously a property has been maintained and landscaped, the higher the selling price will be.
  • Unique features: Unique features on a property can add to or detract from the selling price. Features that can add value include a metal roof, a swimming pool, or a beautiful view, for example. Unusual touches that overly personalize a property to its previous owner can actually lower the value, if subsequent owners are likely to renovate.
  • Location: In real estate, location is everything. Communities, neighborhoods, and other location-based factors – such as access to school systems – add to the desirability of certain properties.
  • Demographic trends: Demographics refer to basic statistics about a populations such as age, gender, and income levels. Demographic trends can have an unexpected influence on the market. For example, many baby boomers are retiring and considering options such as downsizing or purchasing vacation homes to enjoy during their retirement. These moves, when made en masse, can impact the overall trend of the market, including which properties are in demand.
  • Economic trends: When the overall economy is strong, the real estate market fairs better. When unemployment levels and inflation rise, sales tend to slow and prices drop.
  • Interest rates: Another economic factor that drives sales is interest rates. The lower interest rates, the more likely buyers are able to afford the properties on the market.

The importance of a knowledgeable Realtor

It is possible for consumers to evaluate a range of factors that influence home prices, from national market trends to comparable properties on the local market. However, working with the right Realtor can save you hours of research, data compilation, and analysis. Select an experienced real estate agent with a strong presence and knowledge within the local market that you are buying or selling. Their expertise, combined with access to specialized tools, can quickly determine the right asking price for a seller’s property as well as a likely sale price (in the case that there is a gap). An experienced Realtor can also guide buyers toward well-priced properties within their budget.

Making a move to buy or sell a home is a major commitment. Identifying the right real estate agency is an important step. They’ll take the time to help explain the market, and make informed decisions about the next appropriate steps. What trends are you seeing on real estate prices in your local market? Let us know in the comments below.