Housing Characteristics

How do you determine the value of a home?

Although location plays a significant role in determining the asking price, there are a myriad of other considerations. How old is the home and is it well maintained?  How does the home compare to others on the block?  What have similar homes in the area sold for recently? These are typical considerations real estate professionals use when attempting to establish a realistic asking price.

But what if the home has an extra bathroom?  What if it is close to a golf course?  What if it has a useable attic or a sitting area in the master bedroom?  How do these types of extras affect the value of the home?  And more, importantly, will these features translate into a higher sales price?

A recent research project sponsored by the National Association of REALTORS® National Center for Real Estate Research, addresses the actual value of certain amenities as well as whether those values translate into cash for the seller.

Some major conclusions are: each additional 1,000 square feet of living space increases selling price by about 3.3 percent;  each additional bedroom adds about four percent to price;  bathrooms have a dramatic effect on selling price with each full bath adding about 24 percent; central air conditioning adds about 12 percent to price;  nine foot ceilings add about six percent to price;  a basement increases value by nine percent;  a laundry in the basement decreases value by two percent;  fireplaces have a strong, positive effect on selling price with each fireplace adding about 12 percent;  a garage adds about 13 percent to selling price;  an in-ground swimming pool adds about eight percent to value while an above ground pool adds no value;  close proximity to golf adds eight percent to the selling price.

Click here to view Housing Characteristics Summary Table Click here to view the full 86-page report.

Estimating how various attributes of a home affect is value is important when selling or buying a home as well as in the financing (or refinancing) of the home.  For REALTORS®, determining which attributes add value (or detract from the home?s value) is an important aspect of the service you provide.

The data used was based on 28,828 observations from twenty-one counties in the Philadelphia area (TReND MLS) from 1996 to 2003.  This study is unique in that it includes far more detailed collection of property characteristics and focuses on actual selling price - not listing price.

Structural Variables 
Of the basic structural variables, the characteristics that have the greatest impact on selling price are not surprising and include square feet, lot size, bedrooms, bathrooms, central air conditioning, nine-foot ceilings, and having a den/study.

Selling price increases with square feet but it increases at a decreasing rate. Selling price also increases with land size as measured by total acres. Each additional bedroom adds about four percent to selling price.

Bathrooms tend to be highly valued with each additional bathroom adding over 20 percent to selling price. Partial bathrooms are also valued significantly. Most of the other structural variables have the expected positive effect on selling price.

Characteristics that are not significant are a walk-in closet in the master bedroom, a loft, or an elevator.
 
Other Structural Variables 
Having a basement adds about nine percent to the house value. Having a laundry in the basement versus on the first floor reduces the value of the house by about two percent.  

Homebuyers prefer brick, stucco, or wood exteriors. Houses with vinyl or aluminum siding tend to sell for less. 

In terms of house style, Victorian houses seem to be valued least with contemporary and Tudor styles valued most.  Wood shake and slate roofs are most preferred by homebuyers while houses with metal or tin roofs sell for less. Also, homebuyers seem to value houses with pitched roofs over those with flat roofs.  

Electrical wiring capacity seems to be valued with more being better. Houses wired for at least 400 amps are valued most.  Homebuyers do not seem to care if their energy source for hot water or heat is gas, oil, or electric. However, they seem to prefer electricity as their energy source for cooking.

Internal Features 
General features inside the house that seem to add the most value are a family room, a dining room, a whirlpool, and a security system. Fireplaces are clearly valued with each additional fireplace adding about as much value as the previous one. Wood and tile floors are preferred to carpet.  A number of kitchen features affect selling price with a built-in refrigerator and a double oven being the most significant.

External Features  
The two most typical external features of a house are a garage and a swimming pool. Homebuyers value a garage but they value an over-sized garage only slightly more than a regular garage. The presence of a carport does not seem to add value.  An in-ground pool adds value to the house whereas an above ground pool does not.  

Other external features that are highly valued are a sprinkler system, a paddock, a greenhouse, and a dock.

Natural Environment 
Homebuyers apparently do not to distinguish between a flat lot and a sloping lot. A wooded lot, however, is valued more highly than an open lot. Being located on, or in view of, water is, of course, valued highly.

Neighborhood and Location Characteristics
A location in close proximity to golf increases the value of a property. Being located on a corner lot, which could indicate heavier traffic flow, decreases property value whereas being located on a cul-de-sac increases value.

Age of House 
The age variables show that age does not affect selling price for houses up to five years old. Then age has a negative effect on price up to 100 years old. Houses more than a century old are likely to be historic properties and may have a price premium attached to them. Age has the greatest negative effect among houses that are 21 to 30 years old.

Estimating values over time
The research data was segmented into two parts - the early years (1996-1999) and the later years (2000-2003) - to see if the value of any housing characteristics changed from one period to the next.  Noticeable changes could then possibly indicate upcoming trends.

Overall, the effect of most characteristics on selling price did not change significantly across the two periods. There was no difference in pricing relative to the number of days a house was on the market. The effect of square footage on price declined in the 2000s but the effect of lot size did not change. Bedrooms and bathrooms did not seem to be priced differently across the two periods; however, central air conditioning had an increasing effect on price.

The market did not differentiate between house styles or type across the two periods. Likewise there was no differential pricing on basements and swimming pools. Fireplaces did have a greater effect on selling price in the 2000s period than in the nineties. There was a decreasing effect on selling price of some internal features such as a dining room and a built-in refrigerator and an increasing effect of some characteristics such as an eat-in kitchen and an utility/mud room.

This study, although based on data from only one metropolitan area, is consistent with earlier, less detailed, studies of home price determination. Consequently, the conclusions from this study can be used as a guide, along with local market expertise, in determining how different attributes of a home affect its value.