Buying or selling a home can be a stressful experience and requires a balancing act. As a buyer, if your offer is higher than what the property is valued at, you may not get financing from the bank. Conversely, if your offer is too low, you may lose out on the home of your dreams. Equally for a seller, if the price is too high, you run the risk of scaring off purchasers; too low, and you could potentially leave money on the table. As a first step, we recommend you have the property valued, and understanding some of the things that affect residential market value is crucial during this process:
Your current home may be in the ideal location for you, but when assessing the value of your property a Valuer will consider, among other things, the potential for growth and development of the location. This is based on the Barbados Physical Development Plan and Town & Country Planning Guidelines which stipulate what types of development are permitted across the island. Different types of development can have a positive or negative impact on the value of your property e.g. the construction of a power plant or dump site within proximity to the home will result in lower demand for the area and a decline in value, while a new shopping mall would likely have the opposite effect. Valuers also consider the ease of access to public transportation and the highway, and the property’s proximity to amenities such as supermarkets, entertainment and recreational centres and schools etc. The more positive elements that a location has, the higher the potential value of the property. Remember that a house can be renovated to increase its value, but changing its location is virtually impossible.
When estimating your home’s market value, size is an important element to consider, since a bigger home can both positively and negatively impact its valuation. Under one of the approaches to value – the Cost Approach, the value of a home is based on the cost per square foot to build a home of similar quality and utility. For example, a new 2,000-sq. ft. house with finishes such as decoran counters and ceramic floors may cost US$125 per sq. ft. to be built on land valued at US$50,000. Under this approach, the value of the house is the (size x cost) + land value = (2,000 x 125) + 50,000 = $300,000. However, if the 2,000-sq. ft. home has a 500-sq. ft. garage, the house really has 1,500 sq. ft. of livable space and the Valuer will be comparing your house to other 1,500 sq. ft. properties with similar finishes. Of note, the Valuer will also consider whether the property has been built in accordance with Town and Country Planning Guidelines which state that the ground floor of a residential property should not exceed 40% of the land area. In our example above, the minimum land area needed to support the property would be 5,000 sq. ft. If the land is smaller than 5,000 sq. ft. the property would be considered an over-improvement for the site which has a negative impact on its overall value.
Age and Condition
From the moment you receive the keys, or the last wall is painted, your house will require maintenance. Typically, homes which have been well maintained will be valued higher than those of the same age, with the same finishes, but where little to no maintenance has occurred. Valuers consider whether the roof is in good condition, whether paint is chipped, faded or showing signs of moisture damage, mould or termite trails, whether landscaping is new, mature, or non-existent, and the age of plumbing, the roof and electrics. These are just a few of the maintenance issues that should be given attention over the property’s lifespan. A prudent homeowner should continuously set aside funds for future maintenance, as and when required.
The quality of finishes in the home also impacts the value – a quick example is the use of decoran versus quartz for counters, or ceramic tiles vs stone tiles for flooring. Unique finishes can reduce the potential pool of buyers for your property which means the Valuer has fewer properties with which to compare your home. This will require more adjustments and assumptions to be made, in order to determine a final value.
Usually, renovations are done with the aim of increasing the value of your home, however not all renovations are created equal! Upgrades to bathrooms and kitchens along with general upkeep of plumbing and electrical fittings will have positive adjustments. Though you may consider your property to be your forever home, circumstances can change over time, so it is important when making any changes, to consider finishes that will have a broad appeal.
The real estate market and the economy often mirror one another, so when things aren’t good economically, the housing market may also be slow. Even if your home is in the best location, in excellent condition, and has premium finishes, the availability of properties for sale in your area can also impact property value. If there are a lot of buyers competing for a small number of homes, it’s a seller’s market in which buyers have only a set number of homes to choose from. Consequently, bids may be pushed above current market prices, thereby increasing home values. In our current buyer’s market however, there are many houses for sale, without the corresponding number of buyers. This gives rise to fewer transactions, and/or negotiations, resulting in a lower price being achieved at sale. Fewer transactions coupled with lower achieved sale prices can negatively impact the value of your property. As such, a valuer also considers the current market, historical trends, and any proposed developments when evaluating any property.
While this list is by no means exhaustive, it should give you an inkling of key factors which can influence your home’s value.