What Really Makes a Property Appreciate
What Really Makes a Property Appreciate
A home’s value generally appreciates 3 percent to 4 percent every year, which is attributed mostly to population growth and inflation. However in 2016, homeowners saw appreciation jump to an average of 6.3 percent.
Read more: Study: Small Homes Appreciate Faster
Realtor.com®’s research team sought to find out what would boost a home’s value even more and what home features buyers may be willing to pay more for. Researchers analyzed millions of listings on realtor.com® from 2011 to 2016 to calculate the annual price growth rate of homes with certain features.
Here are some of the clear winners in housing appreciation:
Small homes: Homes smaller than 1,200 square feet appreciated by an average rate of 7.5 percent a year for the past five years. On the other hand, larger homes of 2,400 square feet or more rose by 3.8 percent a year. The smaller-home demand is being driven by millennials wanting to enter the market with a more affordable starter home and baby boomers who are looking to downsize, realtor.com® notes. Further, smaller homes are in shorter supply, which is prompting prices to increase more due to the high demand, says Jonathan Miller, president of Miller Samuel, a real estate appraisal firm.
Two-bedroom homes: Homes with two bedrooms appreciate at a rate of 6.6 percent a year, compared to homes with five bedrooms that appreciate at 4.3 percent a year, realtor.com®’s research team found.
The Hottest Home Features
(Noted below with the annual appreciation rate from 2011-2016.)
- Open floor plan: 7.4%
- Patio: 6.8%
- Hardwood floors: 5.7%
- Fireplace: 5.3%
- Finished basement: 4.6%
- Hot tub: 3.9%
- Stainless steel appliances: 3%
- Granite countertop: 2.5%
Open floor plans: Homes with open floor plans appreciate 7.4 percent a year. It’s the hottest appreciating home feature that realtor.com® studied (see side for full list). As for features like stainless steel and granite, Miller says those amenities don’t really add any value to a home. "Those are what I call 'have-to-have' features,” Miller says. “A home needs to have them in a competitive market. But they don't add long-term value. … Ten years from now, when you update your kitchen, they'll be replaced."
Modern and contemporary homes: Modern and contemporary architectural styles have the highest potential for appreciation, increasing at about 7.7 percent annually. This style of home is known for simple, geometric shapes, and large windows. Newly constructed modern homes also tend to be energy efficient. Bungalows and Traditional are the next highest appreciating styles at 6.5 percent and 5.6 percent, respectively. Meanwhile, niche styles like Craftsman bungalows and Victorians are among the lowest appreciating architectural styles, at 3.7 percent and 2.2 percent, respectively. Researchers speculate that may be due to some of the maintenance responsibilities in staying true to the home’s historical architecture that is often connected to these styles of homes.
Green space views: Homes with a park view appreciate at 7.9 percent a year, realtor.com®’s research team found. "[They] hold value over a longer period of time, and they recover quickly from a downturn," says Michael Minson, a real estate pro in San Francisco at Keller Williams. "Buyers appreciate the tranquility and outdoor activities. They like being close to nature." Indeed, homes with mountain views appreciated on average by 5.1 percent, and homes with a lake view at 4.9 percent. Ocean views appreciated the least of the “home views” studied, at just 3.6 percent a year. Recent storms may have spooked buyers from oceanfront properties as well as the fact that the highest-cost homes tend to be along the ocean, realtor.com®’s research team notes.
Source: “Appreciation Sensation: The Real Factors That Boost Your Home’s Bottom Line,” realtor.com® (April 17, 2017)