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Understanding Appreciation and Depreciation of Home Values

| Home Buyer Guidance

Buying a home can provide many benefits for homeowners, including stability, personalization, protection of financial resources, and the possibility for home value appreciation.

On the other hand, there is a possibility for the home to depreciate.  Depreciation occurs when home prices fall. Various things can contribute to depreciation, including:

  • overall decline in the market
  • lack of maintenance to the home
  • localized changes in the neighborhood

Road improvements, nearby construction and other surrounding developments can impact home values positively or negatively.

What Can Homeowners Do to Maximize Home Appreciation?

Location is one of the biggest factors in a home’s value. Homes in neighborhoods that are near good schools, convenient shopping, social activities and green spaces generally appreciate faster than similar homes in commercial areas.

Another way to help a home appreciate is to make property improvements with lasting value. However, this doesn’t mean creating a Taj Mahal. It’s best to be the moderate home on the block, rather than the most or least expensive home. When choosing improvement projects, consider the value of homes in the neighborhood and plan upgrades that will fit in with the style and feel of the community. This is a time when standing out in the crowd is not necessarily a good thing. Buyers are looking for homes with updated features on par with surrounding properties.

Planning to invest your own sweat equity can be cost-effective when it comes to buying a house that needs improvements. Making upgrades to the property to bring the home in line with others in the neighborhood may increase its value faster than time and inflation alone. It does, of course, takes time and money to complete the necessary projects to boost appreciation.

What Can Homeowners Do to Minimize Home Depreciation?

To maintain the home’s value, you must make repairs and improvements as needed. With regular maintenance, when you’re ready to move, the home may have appreciated enough to cover the costs of selling and moving, and possibly bring additional profits.

Owners have little control over certain aspects of a home’s value, such as market fluctuations and declines. When a major employer in a small town closes its factory, jobs, home values and many other financial components of the community may be negatively impacted. When cities build new roads, shopping centers and businesses, these can impact existing neighborhoods. This can either add or reduce value, depending on neighborhood trends. These factors should be considered when choosing the location of your next home.

Once the home is purchased, the factor that most impacts value is the home’s condition. Regular maintenance and upkeep can help prevent depreciation. This might include updating appliances and home decor. For example, wood paneling and wallpaper were popular for walls in the ‘70s and ‘80s. If your home has these old-fashioned features, buyers may be willing to pay less for your home than for others because they factor in the costs and hassle of renovation.

When renovating, rather than chasing short-term trends, homeowners can benefit from retaining the vibe of the neighborhood and completing upgrades and repairs that improve the value of the home.

While there’s no guarantee of how much a home will appreciate during the time of ownership, buying in a desirable location and maintaining your property can pay big dividends when it comes time to sell. A home is the largest investment most people make. Caring for that investment will help keep the value as high as possible.

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