The Value of A Neighborhood

The value of a neighborhood  can affect the  affect the value of a property – pulling it to the standard or prevailing value for that neighborhood. It is always location specific and can be affected by good and bad location factors.

 Can properties be worth more than the highest sale in the area?  Yes, the quality may be newer or superior  to those properties that were originally established. Or there may be other homes in the area that haven’t sold yet.  If there are no sales similar to the quality or size of the home it would have to be compared to other competing neighborhoods with similar neighborhood influences.  Good influences would be a good school district and or close to schools, local shopping and employment. Bad influences would be nearby location to power plants, landfills, areas adjacent to large airports, etc.  Neighborhoods located near power plants experienced reduced property values of 4-  7% from those neighborhoods that were not.  Homes near landfills were valued at 6-10 % below homes than those that were not.

 Many appraisers  believe  that the house is a function of the land  and building value ratios are used to support the highest value that the lot can support . Ratios are developed and used when developing the highest and best use for a new site.

Is there such a thing as an under- improvement for the neighborhood?

Yes ,  happily this is a better situation.  The least expensive home can enjoy the benefits of the higher priced homes amenities.  Potential buyers will tend to purchase  a smaller home in the neighborhood they like as opposed to a larger, nicer home in an area they don’t.  Also, under- improvements can be added to and its value will improve based on the nature and quality of the improvements.

What is an over- improvement?

The Dictionary or of Appraisal , Third Edition states ” an improvement that does not represent the most  profitable use for the site on which it is placed because it is too large or too costly and cannot develop the highest possible land value, may be temporary or permanent”. 

After looking at the building to land ratios, active and sold prices as well as location factors, an appraiser will determine if a property is an over- improvement for a particular area.  In most cases , there are competing neighborhoods that can support  larger homes, however if your home is a $300,000 home and the majority of the homes are $100,000, it is likely the property will suffer some loss .

How does the condition of the physical neighborhood affect the property value?

 Conditions of the streets, sidewalks drainage ways and street signs, affect the demand, marketability  and  value of the subject. Whether the property is a condo, PUD or detached home, streets that are in poor condition can indicate that the municipality is unable to generate enough income to do the repairs.  If the roads are private, who maintains them?  Do the roads all weather surface and can the mail carriers, school buses and garbage trucks have access and use the roads?

Other  factors such as, the general appearances of homes, number of vacant homes, how well they are maintained  can be considered  either having a positive or negative  influence.  Is there  availability and access to local parks and public areas? Do these local amenities maintained or run down? Lack luster landscaping also tends to detract from values of homes in their vicinity while landscaping that shows “pride of ownership” tend to have a positive effect on the other homes in the neighborhood.