Individually, most of us know that a particular property is ‘the one’ by making an emotional connection, often within minutes of walking through the front door or even before.
This sudden realisation will probably mean you’re more willing to pay the asking price or even more, but who sets that asking price to begin with?
Supply and demand are at the heart of every commercial enterprise and the property market is no exception. If more people want something, then the price will go up. So understanding prices is really a question of understanding what people want – or what most people want.
Agents have a very good idea of where most demand comes from, and they are the ones who define prices – along with the market and values that have been developed over years.
A property’s value is based on a complex combination of factors that change all the time. But look past the emotional connection and individual taste and look at the majority and you’ll have a better general understanding of prices.
How big is it?
Size is important up to a point, and many people dream of living in a big house. But sheer size and number of rooms is not necessarily best, and particularly when comparing like with like, useful space and layout might be worth more.
A dozen bedrooms and several reception rooms might sound great if you have a very large family, love having guests or plan to open a boutique hotel, but for most people the same space divided into 5 or 6 generous bedrooms and living spaces might be more appealing.
Potential for adding size can also be relevant. Does it have potential for loft conversion or planning permission for an extension? Moving is expensive, so people like to have scope for expanding without leaving home.
Outbuildings can add appeal as they offer more potential for building extra space. Or do the neighbours have extra garden space or land they might sell you in the future, or might you even be able to combine the two properties?
Size also matters if you plan on living smaller. A big garden might give you enough space to build on the land and sell the original property, which gives you a new, more manageable home without really moving.
Outside space is also relevant, and manicured gardens will generally command a higher price than a wilderness, despite the extensive and ongoing maintenance burden. The same is true of a swimming pool or other interesting feature. The wow factor can’t be underestimated.
Is it in good condition?
In general, if a house is likely to require less investment in the future then buyers will be happy to pay more. Big scale improvements such as a new roof, rewiring or an extension will add value as the cost and hassle have been born by the existing owner – and they will want something back.
It’s common to hear buyers saying that by spending a little to spruce up a property they will be able to add much more to the asking price. This is not wrong, as cleaning up the garden, painting the windows and redecorating can all raise the price.
Cosmetic factors can have a positive effect as buyers respond well to clean, tidy, welcoming houses that showcase the spaces. Even things that will not be there after they buy – like furniture and pictures – can persuade an agent to value a house at a higher level as he or she knows they present the positive lifestyle that is achievable when living in the property.
Of course, even the most ramshackle and derelict property can be worth a fortune if it is in the right place, but what makes a good location?
Is location everything?
Again, everyone has their own idea of the perfect location. A clifftop retreat can appeal to some, while a home in the heart of the city might be ideal for others. Again, as long as these locations appeal to enough people, then prices will be higher.
What you are close to can have a significant effect, both in terms of buying and (by association) for rental potential. The following are generally very popular:
- Transport – road, rail, trams, buses, cycle routes, airports, main roads, bridges, parking
- Education – nurseries and playgroups, secondary schools, colleges and universities
- Shops – city centres, shopping centres, retail parks, hypermarkets, garden centres
- Business districts – easy access to jobs and the workplace
- Entertainment – cinemas, restaurants, pubs, entertainment centres
- Nature – parks, playgrounds, lakes and rivers, the beach, walks, woods, peace and tranquillity
What’s the best location?
Some locations have historically been in high demand and prices have reached stratospheric levels, but it’s important to remember that the appeal of any location can change, and this can have a significant effect on prices.
Change is inevitable, and to understand property prices it’s important to realise the value of research and try and work out what the future holds.
Going up or going down?
Some changes will have a positive effect on prices – new schools, pedestrianisation, a leisure complex, sports fields, a new rail line or station. These are all good. And if everyone knows about them then the added value may well already be factored into the price of local properties.
A little extra digging can sometimes uncover plans that may not be common knowledge. This will often require some vision as well as evidence.
- An area that is in the centre of town but seems strangely undeveloped might become the next big thing if gentrification has already started elsewhere
- A company might have the local area on a short list to build a new HQ, or a large flagship store
- Other houses in the street are being improved and extended, which suggests people are here to stay and improves its overall appeal
On the other hand, sometimes the omens are not so good.
- That extra runway at the airport might finally go ahead
- Businesses may be pulling out of the local area – newly-empty shop fronts do not bode well
- Shiny leisure parks might be looking tired and overgrown
How will I know?
Research is everything, and these are the key areas to look at:
- Local prices – find out how the price of a property compares to other similar ones in the neighbourhood
- Historic prices – see how today’s pricess compare to those of years gone by – what are the trends? Are they going up or down? When did the market last turn – either for better or worse?
- Local changes – what’s happening, or is about to happen, in the area? What plans have been submitted or approved and will the effect be positive (new fast rail station) or negative (recycling plant, wind turbines, nuclear power station)
- Legislation – changes in Stamp Duty and other tax levels can hit certain levels of the market for good and bad
What about me?
Despite the reality of prices being broadly based on the needs and wants of the many, your individual taste and requirements will ultimately define how you ‘value’ the property emotionally and how much you are prepared to pay in financial terms.
Whether it’s worth paying extra for something other people want but you don’t is up to you. For example, you might not need to be near schools, but you might like being in a good school area because it’s near the park. Whether it’s for the park or the schools, prices in your area will probably be higher.
In the end, the market is really an aggregate indication of how lots of individuals feel about a very complex set of characteristics, the relative values they place on them and how many elements a particular property offers.