How to Add Value to Your Custom Home

In addition to providing shelter and safety, purchasing a home can also contribute to financial security. According to the Habitat for Humanity International evidence brief on wealth building, “homeownership can be a catalyst to wealth building.” The brief notes that “homeownership promotes wealth building by acting as a forced savings mechanism and through home value appreciation.”As homeowners pay down the principalon their mortgage,they increase equityin their property.

 

Home values alsotypically appreciate more quickly than inflation, meaning that homeowners can build wealth by “realizing greater proceeds if they sell the home or borrow against the additional equity.” Over the last year, home values have exploded across the United States and areonly expected to increase further. In her article “What Is the Average Appreciation of Real Estate in the U.S.?” for Million Acres, Liz Brumer writes that “the current average appreciation rate is 14.5%, a stark difference from 4% in 2019.” By May 2022, economists anticipate average increase in home value to reach 14.9% across the US. In California, the typical value of a home is now $700,828 according to Zillow’s “California Home Values” page.

 

This means that California’s home values have increased “21.2% over the past year.” There are a number of factors that drive real estate appreciation. Below, we explain how to analyze home value appreciation at a local level. We will also outline how to improve property value, focusing on how to add value to your custom home in 2021.

Factors that Determine a Home's Value

There are six key factors that determine a home’s value. These include infrastructure, amenities, local development, policy changes, the state of the economy and each individual neighborhood. Individually, these six elements either contribute to or detract from a home’s value. Follow below to learnmore.

 

Infrastructure

Infrastructure can be a somewhat nebulous term, but it typically refers to the network that supports a populated area. Tanya Svoboda explains further in her article “What Exactly is Infrastructure and Why Is It Important to Homeowners?” for The National Association of Realtors. Svoboda writes that infrastructure refers to “‘the fundamental facilities and systems serving a country, city, or area, as transportation and communication systems, power plants, and schools.’” This includes everything from “roadways and wastewater transport” to “telecommunications and healthcare.” Infrastructure should matter to homeowners because “your community’s ability to provide a good quality-of-life to you and your neighbors is directly tied to the health of its infrastructure.”

When a home is located in a neighborhood with well-developed, well-maintained infrastructure, that home will likely have “a higher value than one whose systems are outdated or in disrepair.” E orts made to improve local infrastructure -- such as building a metro or adding a medical center -- can positively impact property value. Writing for The Financial Post in their article “Does new public transit boost home prices? If it's underground, the answer is usually yes,” Murtaza Haider and Stephen Moranis elaborate. Referencing recent research, Haider and Moran is write that “property values appreciate when e    cient and reliable transit service becomes available nearby.” As such, Svoboda encourages prospective buyers to look out for neighborhoods with “new infrastructure projects in the works.”

 

Amenities

Amenities represent another contributing factor to home value. In his article “How To Add Winning Amenities To Multifamily Investment Properties,” Forbes Council Member writer Rod Khleif explains. According to Khleif, amenities can be broken down into two categories -- “unit amenities and community amenities.” Unit amenities apply to “items or finishes” added to an individual home or property. On the other hand, community amenities “are items that are added to benefit the community as a whole.” While both types can contribute to home value, not all amenities are equally helpful.


The Trulia guide “8 Neighborhood Features That Increase Your Home Value” outlines which community amenities reliably increase home value. Fitness amenities like local gyms and hiking trails typically improve home value. Natural surroundings also boosts home value, according to Sacha Ferrandi of Source Capital Funding. Ferrandi notes that “‘the more natural a neighborhood is — regarding trees — the higher the neighborhood value is.’” In fact, a recent survey from the University of Washington State found that “‘trees in one’s front yard add 3% to 5% to the home value.’” In neighborhoods with already high property values, “‘neighborhood trees can increase the area’s value by up to 15%.’” Generally, walkability, historic homes, dog parks, retail and essentials nearby, community groups and future amenities also improve home value.

 

Local Development

Local development can also improve home value, though its impacts are not always positive. Robert Stammers explains in his article “Top Things that Determine a Home's Value” for Investopedia. According to Stammers, “future development can change the value of a property for better or for worse.” When developers build “ new schools, hospitals and public infrastructure,” property values of surrounding homes usually go up. However, some developments can bring the values of single-family homes down.

Stammers writes that condos, townhouses and apartment complexes can all detract from single-family home value. This is because apartment complexes significantly increase housing availability “on small parcels of land.”  Increasing local supply of housing “could potentially drive down prices for all area homes.”

Policy Changes

Changes to local, state and federal policy can also impact home value. When the government alters interest rates, introduces new subsidies or removes certain tax credits,home values can either su   er or benefit. In his article “How Interest Rates A ect Property Values” for Investopedia, Troy Segal explains. According to Segal, as with any other investment, “interest rates have a profound e ect” on real estate values. One interest-related factor Segal identifies is mortgage rates. Segal writes that “it is important to focus on mortgage rates because they have a direct influence on real estate prices.” In addition to mortgage rates, interest rates can also a   ect the demand for property, as seen in the unprecedented seller’s market of 2020 - 2021.

As interest rates rise, fewer buyers will apply for mortgages, reducing competition for homes and there by lowering sales prices. Just as interest rates alter consumer behavior, so do government policies and subsidies. Also writing for Investopedia, Joseph Nguyen elaborates in his article “4 Key Factors That Drive the Real Estate Market.” Nguyen writes that federal and state governments might o  er “tax credits, deductions and subsidies” in order to “temporarily boost demand for real estate.”

 

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The Economy

The current state of the economy can also influence property values, with economic depressions lowering values and booms increasing values. In his article “How Does the Economy A ect the Housing Market?” for SF Gate Tony Guerra explains. Guerra writes that the economy not only impacts housing sales, but also housing starts. Economists track new home construction as a means of tracking buyer demand and the overall health of the market. When an economy is booming, “people are more likely to buy new homes, and in weak economies, they're less likely to do so.” During economic depressions, the number of buyers able to purchase homes slips because “the supply of money tends to become more restrictive.” When banks restrict borrowing during a recession, buyers are less likely to find financing and are thus less likely to purchase homes.

As such, “the supply of money in an economy is critical to its overall health and especially to housing market health.” If money's too difficult to borrow, housing starts and home sales can dry up. If money's too easy to acquire, too many buyers enter the housing market, driving up prices for a while until the inevitable market correction or even crash occurs. In a robust economy and healthy housing market, “housing construction and home sales markets should align with economic activity.”

 

Your Neighborhood

The neighborhood that surrounds your new home will also a ectits value. In fact, according to Anna Johansson in her article “6 factors that influence a home’s value” for Inman “the neighborhood is one of the biggest influencers of a home’s value.” Your neighborhood is “responsible for both qualitative and quantifiable aspects of a home’s appeal.” Local crime rates and school scores all influence home prices.

 

How to Choose a Home that Will Retain Its Value

When building or buying a home, most homeowners want to know if and how their property will retain its value over time. Thankfully, there are a few ways to give your new home the best chance of attracting buyers, breeding competition and selling for top dollar down the road. From picking the perfect building location to including ample storage, follow below for our tips to buying a home that retains and increases its value over time.

 

Property Location and Lot Size

As detailed above, the plot on which your home is located and the neighborhood in which that plot is situated are both incredibly important. In her article “The 5 Factors of a 'Good' Location” for Investopedia, Tara Struyk writes that “location is key to valuable real estate.” Whenever possible homeowners should opt for homes in neighborhoods that are well-developed but still have large lots. This is because “homes in cities that have little room for expansion tend to be more valuable than those in cities that have plenty of room.”

Additionally, fixer-upper homes located on large lots are often more valuable than turn-key properties on small lots. As Struyk notes, the home on your property will depreciate in value as it gets older and more outdated. However,the lot on which your home was built “will maintain its value or likely appreciate relative to the house. Given this, homeowners should prioritize acreage over a house’s quality because “a less attractive house can always be updated, added on to, or replaced altogether, but the lot can't be changed.”

 

Multiple Beds and Baths

With more American residents living in multigenerational households than ever before, demand for larger homes is also growing. Buyers are prioritizing homes with multiple bedrooms and bathrooms that can easily accommodate multiple generations under a single roof. According to Brenda Richardson in her article “Buyer Survey Reveals What's Hot And What's Not In Home Features For 2019” for Forbes, today’s “buyers have a strong preference for...two or two-and-a-half bathrooms and three bedrooms.”

Writing for The National Association of Realtors in her article “Most, Least Desirable Home Features Right Now,” Melissa Dittmann Tracey agrees. She cites a “full bath on the main level” as one of the most desirable accessibility features, with 80% of buyers requesting it. Given that economists expect multigenerational households to continue increasing in number, opting for a home with multiple beds and baths is a safe bet for retaining value.

 

Ample Storage Space

Another product of the rise in multigenerational households is the need for ample storage space. As such, adding lots of storage to your home can help retain its value. The Markets Insider article “2020 Closet and Storage Trends Driving Homebuyer Satisfaction” identified storage as a “must-have” for buyers last year. According to the article, ““79% of homebuyers want more storage than builders provide.” Today’s homeowners are looking for built-in storage features like

walk-in pantries, large garages and flexible clothing storage.

 

In fact, the value of a multi-car garage is mostly in its storage capacity rather than its ability to house vehicles. Writing for Homelight in her article “You’re Planning to Build a New Attached Garage: Will It Add Value?” Valerie Kalfrin notes that “85% of home buyers want garage storage as a feature.” In a recent NAHB survey, 36% of respondents identified garage storage as “‘a must-have.’”

 

Property Age

If you plan to sell your home within a few years, purchasing a newer construction is a great way to retain the value of your property. Melissa Holtje explains in her article “Buy For Now, Plan for Later: 16 Resale Factors Homebuyers Need To Consider” for Homelight. According to Holtje, your home’s age “a ects the resale value because buyers start to think about the lifespan of major elements.” Major functional features of your home, “like the roof, appliances, windows, electrical systems, plumbing, and HVAC systems” only appeal to buyers when they are new. Not only do newer features generally perform better, but older features might not even be covered by insurance. For example, Holtje warns that “most insurance companies will not fully insure roofs over 20 years old.”

Unlike older homes, “new construction is always in demand.” However, some older homes may actually be more valuable than new constructions. Older houses with lots of charm and original architectural elements “enjoy the value-added benefits of being in a desirable historic district.” In most cases, homeowners consider “the potential maintenance costs of owning an older home” and turn towards newer homes instead.

 

Active Homeowners Associations

Though homeowners associations can be unpleasant to deal with, they might actually contribute positively to your home’s value. In fact, Realtor.com writer Jamie Wiebe includes oversight from a homeowners association as one of “7 Promising Signs the Home You’re Buying Will Have Good Resale Value.” According to Weibe, HOAs can boost home values because “HOAs usually keep everyone in line” and prevent the neighborhood from falling into disarray. HOAs demand neighbor scare for their lawns, keep up the exterior of their homes and avoid eyesores. When unmanaged, all these “things that could ding the value of your home.”

 

How to Increase New Home Value

When investing in a new construction, homeowners should prioritize energy e ciency, square footage and integrated home tech. They should also opt for low-maintenance building materials in order to easily keep their homes tidy and attractive over time. Recently conducted surveys support these claims. In a recent article for Inman, Veronika Bondarenko acknowledged the value buyers place on square footage. Referencing a survey from Redfin, Bondarenko writes that sales of large homes “between 3,000 and 5,000 square feet” increased significantly last year. Redfin credits this change to “a widespread desire for more space a mid the coronavirus outbreak and shelter-in-place orders.” Homes with easily maintained, attractive exteriors also tend to retain their value.

According to Tara Mastroeni in an article for Million Acres, “curb appeal can increase your home's value by up to 7%. ”Lastly, many different types of homebuyers -- from Millennials purchasing their first homes to Boomers retiring and relocating -- are prioritizing home tech. The Forbes article “15 Most Desirable Home Features To Today's Buyers” notes that “smart home technology is gaining ground” across demographics. Quoting Nancy Wallace, Forbes notes that “‘homebuyers are looking for the latest smart home technology to control their energy costs, make communication with their loved ones easier or just simply secure their homes.’”

 

Why Investing in a New Home Offer Greater Value

Though older homes can have their charms, new constructions usually appreciate in value more reliably. As mentioned above, buyers prioritize homes with newer roofs, HVAC systems, appliances and other features. Given this, investing in a new home is often the better option for homeowner shoping for a higher resale price. Investing in a new home also o   ers lower maintenance and operations costs for the current owner.

The Zillow guide “New Construction or Existing Homes: The Prosand Cons of Both” explains. According to Zillow, newly constructed homes could cost as much as “20% more” than pre-owned homes, “but they are initially less expensive in terms of maintenance and utilities.” This is because newer windows, insulation, “appliances and home systems are more energy efficient.”

 

Tax Deductions and Credits Offered to Owners of New Homes

Furthermore, some new home constructions qualify for tax deductions and/or credits. Danielle Smyth explains in her article “Common Tax Deductions for New House Construction” for SF Gate. Smyth writes that the “mortgage interest deduction...is the most beneficial tax savings related to a new home.” The interest paid on the mortgage of a new home can be deducted from the owner’s taxes. In some cases, the interest on construction loans can also be deducted.

Your state or federal government might also offer residential renewable energy tax credits in order to encourage the construction of efficient homes. Homeowners who install “solar panels, wind turbines, solar water heaters and similar energy-efficient devices” in new homes can credit these purchases “against taxes owed.” Those who “install energy-efficient windows, insulation or doors” in their new homes can also “claim portions of these costs on their taxes to reduce the amount owed.”

Steps to Measure Your Home Value

Measure your home’s value by utilizing online valuation tools, working with a seasoned realtor, paying for a professional appraisal and collating your own comps. Taking advantage of each of these resources should give you the best estimate of your home’s current and future value. Knowing your home’s value not only helps homeowners establish an appropriate listing price. It can also help homeowners determine the equity they have in their home and how much they could borrow against the value of their property.

 

How to Find and Use Online Valuation Tools

In his article “4 Best Ways To Determine Home Value” for Rocket Mortgage, Jamie Johnson explains how to find online valuation tools. Johnson writes that using online home valuation tools is actually “one of the easiest ways to determine the value of your home.” Online mortgage companies and real estate marketplaces like Zillow, Redfin and Rocket Homes “typically offer these tools and rely on recent sales in your area to determine your home’s value.” Unlike working with a realtor or an appraiser, online home value estimators provide homeowners with “an immediate estimate.”

 

Working with a Realtor and Appraiser

Hiring local real estate appraisers or licensed realtors with local knowledge can also help determine your home’s value. Beth Buczynski explains in her article “How to Determine Home Value and Why It Matters” for NerdWallet. According to Buczynski, hiring realtors or home appraisers to determine your home’s value is a popular choice amongst homeowners. In fact, “more than one-fourth (28%) of U.S. homeowners determined their home’s value through an appraisal.” Appraisers and realtors base a home’s value on the current market, the “characteristics of the house” and comparable properties in your zip code. When combined, this cost information is used by the realtor or appraiser “to create a final opinion of value for the home” which is delivered to you via a report.

 

Creating Your Own Comps

Lastly, homeowners can create their own comps to help determine the current value of their property. With access to the MLS and other current and historical data, realtors and appraisers often use comps to establish a home’s value. The Quicken Loans learning resource “Real Estate Comps: What You Need To Know” notes that “comps” is short-hand for “comparable sales.” Quicken Loans defines comps as “recently sold homes that are similar to the property you’re trying to buy or sell in terms of location, size, condition and features.” These comparable features are “are used to determine a home’s fair market value through the sales comparison approach to pricing property. ”Homeowners can usually determine the value of their home by “finding out how much it would cost to purchase a similar, equally desirable property” in their neighborhood.

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