How is a home's value calculated?


Quick Answer

A home's value is affected by certain factors including the home's physical structure, land value, location and future prospects, according to Investopedia. Although many home buyers and real estate investors often focus on the size, functionality and style of the physical structure of a home, this is only one factor.

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How is a home's value calculated?
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Full Answer

While the physical structure of a home depreciates, land value appreciates, explains Investopedia. The reason for this is simple: supply and demand. Land is in short supply, and no more is being made. The big question on the value of a home, therefore, is not just how much the land is worth in the present, but how much it is likely to appreciate. A few factors affect such future prospects, among the most important is the location of the land.

Locations within neighborhoods affect values, notes Investopedia. For instance, homes in cul-de-sacs where there is less traffic nearby and greater safety for children are more coveted than houses on busy streets or roads. The neighborhood itself is likely to greatly influence how much a home's value appreciates. Many single-family-home neighborhoods restrict construction after a certain point, almost ensuring appreciation of property value under most economic conditions. Future plans for development can also affect a property's value for better or worse. Buyers must be cognizant, not just of present conditions, but what lies ahead in commercial and governmental development.

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