THE VALUE OF HOUSING CHARACTERISTICS

By Paul Bishop, Director, National Center for Real Estate Research

A home is made up of a number of attributes that determine its value or selling price.  Because all properties are unique in any number of ways, determining how all of the physical and locational characteristics affect the value of a home can be difficult.  Recent research provides some insight into which characteristics add or detract from a home’s value.

A new study supported by NAR’s National Center for Real Estate Research measures how different physical attributes of a home can influence the value, and therefore the selling price, of a home.  The Value of Housing Characteristics by G. Stacy Sirmans and David A. Macpherson of Florida State University examines specific property attributes such as size, number of bedrooms and bathrooms, and height of ceilings and how each of these increases the actual selling (not listing) price of a home.

The Study 

This study uses data encompassing more than 28,800 residential property sales from 21 counties in the Philadelphia area (TreND MLS) over the period of 1996 through the first quarter of 2003.  The authors used a statistical analysis method called hedonic regression to disentangle the relative effects of property characteristics on a home’s selling price.  The study also examines how these characteristics differentially effect selling price across several counties.

Major Findings 

The results of the study generally are consistent with the conclusions of earlier research done in this area, although this analysis provides a far greater level of detail.  Larger homes and homes with more bedrooms and bathrooms tend to sell for more, even after controlling for other physical, locational and quality features.  More importantly, the study also provides estimates on how much more (or less) homes with particular characteristics can be expected to sell for.

Items that tend to increase the selling price of a home include central air conditioning, basements, 9-foot ceilings, fireplaces, garages, and bathrooms.  In fact, the study found that bathrooms have a huge impact on selling price, with each full bath adding about 24 percent.  Internal features that add the most value include a family room, a dining room, a whirlpool, and a security system.

Among the other findings of the study:

· A basement increases the value of a home by nine percent.

· Nine-foot ceilings add about six percent to the price.  Cathedral ceilings add 2.4 percent to the price.

·  Each additional 1,000 square feet of living space increases the selling price by about 3.3 percent.

·  While an in-ground swimming pool adds eight percent to the selling price, an above-ground pool adds no value.

·  A fireplace adds 12 percent to the selling price of a home.  Each additional fireplace adds approximately 10 to 16 percent.

Some location characteristics add to the selling price of a home.  Close proximity to golf adds about eight percent to the selling price.  Any location on water, or with a water view, adds value.

The study also found that certain attributes actually detract from a home’s selling price.

·        Houses with vinyl and aluminum exteriors sell for about four percent less than those with brick.

·        Houses with flat roofs sell for around 10 percent less than those with pitched roofs.

·        Houses advertised as fixer-uppers sell, on average, for 24 percent less than other houses.

·        While a basement laundry decreases the selling price of a home by 2 percent, a home with no laundry sells for 15 percent less.

Important for Realtor 

Homeowners invest a significant amount in their homes.  The Census Bureau reports that homeowners spent $121.5 billion in 2002 on maintenance, repairs and improvements to owner-occupied properties.  Nearly 60 percent of that total was for additions and alterations to the home or property.

Determining how different attributes of a home affect its value is important when selling or buying a home, as well as in the financing (or refinancing) of the home.  Homeowners must be keenly aware of the trade-offs when making remodeling decisions, especially if those renovations are done in anticipation of selling.  NAR’s most recent profile of homebuyers and sellers shows that 25 percent of sellers most want their real estate professional to help them price their home competitively.  Seven percent want their agent to tell them how to fix up their home and sell it for more money.  Being able to determine which attributes of a home add or detract value is a useful tool for REALTORS in developing a marketing plan for selling a home.

“Reprinted from Real Estate Outlook: Market Trends and Insights, Copyright, 2004 NATIONAL ASSOCIATION OF REALTORS.  Used with permission.  Reproduction, reprinting, or retransmission of this article in any form (electronic media included) is prohibited without written permission.  For subscription information please call 1-800-874-6500.”