Okay, we’ve all heard the phrase: Location, location, location! That’s what it is all about right? Whether you live in a condominium, a townhome, or a single-family home, it is a simple rule of thumb. The location of your unit, your townhome or your home often has a significant impact on its value. Most homeowners, most buyers and sellers are perfectly aware of this. Not everyone realizes, however, how much this can come in to play on an appraisal. Let’s take a look:
Example 1–You live in a great starter or family neighborhood, low to mid-range on the price spectrum, homes are somewhat uniform in size, age and style. Your home is near the west end of the street where there is a highway behind a noise-reduction wall. Even with the wall in place (an eyesore) highway noise can be heard. Although homes are very well kept at your end of the road, yards maintained, pride of ownership apparent everywhere, houses two blocks to the east are selling 15% higher…same type of house, same lot size, etcetera. Why? Because the average buyer, does not want to live next to the highway and more importantly will pay more to not be there.
Example 2—You live in an oceanfront condominium highrise building on Singer Island in a complex with twin buildings. Your building is closer to the ocean than Building 2. You have a corner unit with direct southeast ocean views. Your unit is in good condition overall. With these factors at play, your unit will almost certainly sell at a significant premium as compared to a corner unit in Building 2 which sits farther back from the beach. Why? There are a multitude of very subtle factors that can be at play here—The southeast view is typically the most desirable view in South Florida beachfront complexes. Building two is farther from the beach and somewhat to the side/behind of Building One, therefore views could be partially impacted. Unit owners in building two must look over land and ocean, whereas building one looks over only the beach and ocean. Its possible that part of the day Building 2 is in the shadow of Building 1. These are very subtle factors, however the bottom line is that the location in Building 1 would be considered superior than Building 2 and that would have a positive impact on value.
On your appraisal it is entirely possible that you will see a line-item adjustment for location. Sometimes it is significant. A location adjustment can work in your favor, or it can have a negative impact on the value of your property. If you are that person in the southeast corner unit on the beach, you are applauding the location adjustment that would typically boost your unit’s value. However, if you are the owner of a house that backs up to a corner convenience store parking lot, with steady car and foot traffic, and you see location adjustments on your appraisal for homes that are located in more quiet, more private areas in your neighborhood, you have noted the negative impact on value due to your home’s location.
This is part of the analysis that we, as residential appraisers, are obligated to do on every job. It would be a disservice to our clients to ignore the impact that location has in value. In particular, if you are buying or selling a residential property, it pays to be aware of the locational aspects of the property in question. If you are buying, even if the home is perfect inside and out but has a negative locational feature, I would counsel caution. According to the National Association of Realtors 2020 Profile of Homebuyers and Sellers the average time that people stay in their homes is 10 years. This means that many of you will be selling at some point in the foreseeable future. Locational attributes come into play when you are marketing your home at that point, and it can mean the difference between an easy quick sale or potential buyers “kicking the tires” even more so than usual because of a negative location.
In the past several years, I have observed a trend with a large percentage of homebuyers who are hunting for properties that are updated and “perfect” inside. I will explore this topic in a later article, because there is a whole mindset change from ten or twenty years earlier, when buyers were more than willing to purchase and fix/update in favor of being in a better location. Now, I see a trend of buyers who are more than willing to sacrifice location in favor of spending more money on a property that is updated or fixed up. From a value standpoint, I think this mindset is a mistake in the long run. It is much easier to update a home or townhome, and especially a condominium after a purchase. You cannot change location. So, give it some good thought. If you are in a position to buy or sell and will have to have an appraisal done, don’t forget about the impact that location will have on your property’s value!