In Part 1, we discussed how location affects the market value of a home. In Part 2, we take a look at how physical characteristics are factored into determining property value. Everything from the orientation of a property to the type of windows or floor level is going to affect the relative value of a home. Just because you have a countertop made of gold, however, the addition might not necessarily hold its value and appeal to buyers in a specific neighborhood, based on the principle of conformity.
Conformity is an appraisal principle that holds that the greater the similarity among properties in a defined area, the better they will hold their value. Properties should be similar in design, construction, age, condition, and market appeal to other buildings in the area. The gold countertop would be considered an ‘over-improvement’, whereas a countertop made of unfinished plywood might be considered an ‘under-improvement’. Placing a value on individual items therefore becomes an art, as it will vary depending on the characteristics of the entire neighborhood.
Nonconformity, on the other hand, can possibly make a home that has not been well-maintained, have its value raised if the neighboring properties consist of well-kept homes. These ‘fixer-uppers’ stand out to investors, as the potential of what the home can look like and what it can sell for is demonstrated by these improved properties. This is an example of the principle of progression, where the home benefits from the overall impression created by the neighborhood and its probable desirability.
So how are the values of different components calculated? Mostly, the market and the principle of substitution determine it. Say for example there are two recently sold properties that are nearly identical except for a double garage. If Property A sold for $750,000, and Property B, the one with the double garage, sold for $775,000, the difference of $25,000 would be the value attributed to the double garage. While this is a fairly straightforward method, the substitution principle can be difficult to apply should there be unique items not found in similar properties.
Below is a list of common attributes and their approximate adjusted range of values that will bring comparable properties in line with the subject property (based on Vancouver adjustments).
There are obvious benefits to living on higher floors. Traffic noise decreases, the view can improve, and there is added security from intruders by not being on the ground floor. There are also undesirable reasons to live higher up such as; access to ground floor, evacuation, or acrophobia (fear of heights). Regardless, there is a proportional value increase the higher the unit.
- Value range: 1% or $1,000 to $5,000 per floor.
You might think there is a significant value increase for a unit at the top of the totem pole, however top floor units can also present issues such as roof leaks and heat problems. And while the top floor, or penthouse unit, doesn’t suffer from those pesky loud footsteps above, it may have the best view and layout of any floor in the building. If it is similar to the unit below, there is no overarching benefit, thus a moderate adjustment is applied.
- Value range: $5,000.
The location of the parcel of land can either have neighboring properties to the left and right, also known as an inside or interior lot, or it can be located on the corner of two streets, also known as a corner lot. There are a few implications that a corner lot would hold more value, as it can possibly be larger, offer more street parking, and be more attractive to developers. The downsides could mean more front yard maintenance, street noise, and smaller backyards. Inside lots generally have larger backyards and are subject to less traffic noise, but may suffer from less privacy and parking access. The value adjustment is fairly moderate.
- Value range: $5,000 to $10,000.
Parking is a very important consideration for some homebuyers, especially the closer to the city where it can be relatively scarce and expensive. A secured underground parking spot for a condo can add value up to 5 figures, whereas a single or double garage for a house may amount to less.
- Value range for secured underground: $10,000 to $20,000.
- Value range for carport/single/double garage: $5,000 to $20,000.
Gross Living Area
Adhering to the principle of conformity, more living space might not be as desirable as more yard space. Thus the law of diminishing returns comes into play where the increase in size can add value up until a certain point where the value increase becomes increasingly smaller. The value adjustment will be different for a condo than for a house.
- Value range for house: $50 to $300 per square foot.
- Value range for condo: $800 to $1,000 per square foot.
Once again, conformity denotes that bigger doesn’t necessarily mean better, according to the surrounding uses. Lot size adjustments are taken into account by value per foot of depth, or value per foot of width.
- Value range for depth: $1,000 per foot.
- Value range for width: $6,000 to $8,000 per foot.
Upgrading a home’s finishings is a simple, cosmetic way to increase the value of a home. Materials such as marble countertops, tiles, and wood flooring increase the quality of the overall construction, therefore raising the appeal. These adjustments may be arbitrary, and a suitable range will vary according to perception.
- Value range: $5,000 to $20,000.
This adjustment is fairly straightforward, however remaining economic life states that even though a home may be old, if it has undergone a rehabilitation, its life span is therefore extended. Again, this is based on perception, but typically the newer the property, the higher the value.
- Value range: $1,000 to $5,000 per year.
Basement square footage isn’t actually included in the overall living space, but there is a moderate increase in value per square foot. Whether a basement is finished or not, or whether it has an included suite will also determine the adjustment amount.
- Value range for unfinished basement: $10 to $20 per square foot.
- Value range for finished basement: $20 to $40 per square foot.
- Value for basement suite: $3,000 to $5,000.