While buying a house, we often think simultaneously of selling it. We think,” If I buy this house, will someone want to buy it from me in 5 – 10 years? If I buy it and decide to renovate or enlarge it, will I recoup my investment in it? Bottom line, if I buy this house, will I be able to make a big profit, a little profit, or will I even break even when I sell it?”
Realtor.com researched millions of listings between 2011 and 2016 to calculate annual price growth rates of homes in general and to calculate the annual price growth rates of particular features in homes specifically. The research reveals which styles of homes are getting the bigger returns and what things you and your clients should spend money on (inside or outside) to get the biggest bang for your buck?
Know from the outset that, on average, home prices appreciated by 6.3% between 2011 and 2016. This percentage increase is well above the annual appreciation of approximately 3 – 4% during a period of a strong economy. What things should you (or your client) consider when factoring in profit to the final purchasing decision?
- Know that small is beautiful. A smaller than 1,200 square foot home appreciated at an annual rate of 7.5% between 2011-2016. A larger than 2,400 square foot home during this time period appreciated 3.8%. The reason? Demand. First time, usually millennial buyers between 18-34 years old want and are able to buy an affordable house, which typically means a smaller starter home. Boomers who are looking to downsize sell their larger homes in order to build a nest egg for their smaller home and decreased earnings.
- Fewer bedrooms are more desirable than more bedrooms. Why? People are having fewer children. One bedroom homes appreciated 7.2% between 2011 and 2016; two bedroom homes appreciated 6.6% during this period; four and five bedroom homes appreciated 4.9% and 4.3% respectively.
- What rooms/areas/accessories offer the biggest bang for the buck? Homes with open floor plans appreciated 7.4% during this 2011-2016 period. Homes with patios appreciated 6.8%. Homes with hardwood floors appreciated 5.7%. And homes with stainless steel appliances and granite counter tops appreciated 3.0% and 2.5% respectively.
- How does the style of the home affect appreciation? Modernity rules…modern homes with simple shapes, large windows and transitional inside/outside blending appreciated the most at 7.7%. Craftsman bungalow appreciated at the rate of 3.7% and Victorian style homes appreciated at 2.2% for this time period.
- The most important thing, as always, is location. Homes in urban areas that are near public transportation are highly desirable. Homes with proximity to good schools are also desirable. Their respective appreciation rates were 8.4% for public transportation and 7.2% for good schools.
- Some window views are better than others. During this 2011-2016 time period, homes with views of a nearby park appreciated at a rate of 7.9%. Homes with views of nearby mountains appreciated 5.1%. Homes with views of golf courses appreciated by approximately 4.3%. And homes with ocean views appreciated 3.6%. (The median price of an ocean view home, according to Realtor.com, is $699,000. Perhaps the relatively high price of homes with ocean views is the reason the appreciation level on these homes is relatively low.)