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How Home Value Works


The real estate market in the United States is on its way up again. You can see prices rising in most cities. Real estate is similar to the stock market; stock that rises can fall as well. As opposed to the Stock Market, the best thing with real estate is that if the real estate market crashes, you have something tangible to hold onto rather than valueless pieces of paper. The main thing you should be mindful of in real estate is to know the value of your real estate at all times. Like the stock market, many things can influence the rise and fall in the market value of real estate. Real estate can rise when the demographics changes from a predominantly low-income renter’s occupied property to owner’s occupied property. It also has to do with the income bracket of the owners. Frequently some may think it is the real estate property and the improvements that add real estate value to the real estate property, which is not entirely true. 

The most significant influence on real estate property value is the income and status of the real estate property occupants. Take, for instance, Harlem, New York; former President Bill Clinton located his office in Harlem, New York, and the real estate property value of the area went up 52 percent. That means the real estate base price went up 52 percent across the board based on the location. Therefore, even if your real estate property needed improvements and you did nothing to it, the real estate value would still increase. Also, data shows that real estate properties in Harlem, NY, that got improvements increase significantly beyond 52 percent. Some people with high income were willing to compete to pay the increased real estate value for the status of living near the personal office of the former president of the United States.

A person or group with high income can insight a real estate trend in a low-value real estate market. To influence a pattern in that real estate market, that person would buy a real estate property at a low price then sell it to a cash buyer for a higher rate than is usual for that market. No laws are stating that you cannot sell a property more elevated than the appraisal value to a willing buyer. If a real estate property is sold higher than the appraisal value, then the purchaser using a loan will have to make the difference in cash as a down payment to make up the purchase contract sales price. 

The sale of that real estate property will influence future appraisals of other real estate properties in that real estate market. When other owners in that particular real estate market see that the house value sold is higher, it will influence them to either sell or improve their real estate property. At each stage of an increasing real estate property sold price, the real estate value goes up in that particular real estate market. Also, the income of the demographics of that real estate area will eventually change as the price increases based on the financial qualification a mortgage lender requires the purchasers for that real estate market. The higher the loan amount to purchase real estate property is, the higher the income is expected for that real estate market.

In the stock market, they say you need to recognize trends to know when to buy and sell. Thus, the same situation applies to real estate. Though the real estate market may go up 52 percent, as in the Harlem New York scenario, that does not mean you will get 90 percent for your real estate property without improving the real estate property. Some people who do not understand how real estate value works may have the wrong belief. 

In the District of Columbia, some people may think that they are supposed to get the same for their property because the house across their street sold for $900,000. However, you have to compare apples to apples, not apples to oranges. Not because a recently renovated house across the street sold for $900,000 means that your house without similar improvements will still increase to the same amount based on the income status of that neighbor that moves in. Your home will not increase in value to $900,000 without similar improvements as the other property. 

Real estate consists of land and improvements; Land means location, location, location. Location value is equivalent to status. 

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