What is property value?
Property value refers to the worth of a piece of real estate based on the price that a buyer and seller agree upon. According to economic theory, the value of a property converges at the point where the forces of supply meet the forces of demand. In other words, the value of a property at any given time is determined by what the market will bear.
What buyers are willing to pay for property depends on a number of issues, including how motivated they are is to make the purchase, their negotiating skills and the condition of other properties in the area. For example, a nearby neighbor with a kennel full of barking dogs can impact the ultimate value of the properties around it.
If you were to put your property on the market today, the first step toward determining its value would lie in the completion of a comparative analysis.
A comparative analysis locates the property most similar to yours that has recently sold in your area. Then, the amenities of your home are compared to those of the recently sold property. This analysis gives you a rough idea of value.
That said, if the property used for comparative analysis sold three months earlier and interest rates have risen since that time, the value of your home might not demand as great a price.
The same is true if something positive happens, like news that a highway is due to be built that will cut down dramatically on commute times. In that case, the value of your home may become greater.
Are you thinking of purchasing a home? Compare home values in different states.
Property value example
The value of your property matters in terms of how much you will be able to sell it for, but there are other issues to consider. Property value impacts:
- Your ability to refinance your mortgage or take out a line-of-credit, using your property as collateral.
- Property taxes, pushing them higher or lower.
- The overall value of your neighborhood.