Location, Location, Location: What's the Impact on Value?

by Kenneth R. Harney
What key characteristics of a home's location -- not the features inside -- push sales values up or down most dramatically?

Just about anybody who's bought real estate or is in the business knows the mantra "location, location, location," and has opinions on what matters most. But new research by the National Association of Home Builders uses sophisticated statistical analysis techniques on a massive housing database to come up with a definitive list of the top locational characteristics that raise and depress property values the most.

The database consists of a nationally-representative sample of 60,000 homes from the biannual American Housing Survey conducted by the U.S. Census Bureau and funded by HUD. Using what's known as a "hedonic regression" -- a statistical methodology that allows analysis of the impact of single characteristics on the overall valuation of a house -- NAHB economists Paul Emrath identified the top value-enhancers and depressants.

The study looks at a "standard" newly-constructed house in four regions -- the Northeast, South, Midwest, West, and in a major sub-region known as "large California metros" where home prices are far above national averages.

The "standard" home for the purposes of the analysis is defined as being constructed after 2003, with 1,850 square feet of living space, two full baths, three bedrooms, dining room, kitchen and a "miscellaneous" room, a basement, garage, fireplace, and "no special (locational) amenity or disamenity."

The starting valuation of the "standard" or baseline new house ranged from $163,540 in a non-metropolitan area in the Midwest to $589,551 in a large southern California metro area. The study then examines what happens to that valuation when positive and negative locational characteristics are introduced into the equation.

For example, in a Midwest suburb the baseline house with no special locational amenity would be valued for sale at $212,137. Put that same house in a location that has parkland or open spaces nearby and the value rises to $215,510. Put the house in a gated community and the value rises to $225,772. Put it in an area that is convenient to public transportation and the value jumps to $238,340. And locate it on waterfront and you get the biggest positive impact of all -- its soars in value to $303,760.

Same house, same basic features inside, but in different locations.
The flip side of the equation is Emrath's analysis of "neighborhood disamenities. The baseline $212,137 Midwestern suburban house drops to $209,175 if it is served by "bad roads," $205,729 if it has "inadequate shopping," $197,699 if there are industrial buildings in the vicinity, and to $185,805 if there are "abandoned buildings" anywhere nearby.

The results vary somewhat from region to region, but in every part of the country the number one value enhancer, according to Emrath is: waterfront. In California, a waterfront setting increases the selling value of the baseline house by 41 percent -- to $831,275. Everywhere else the value enhancement from waterfront is in roughly the same percentage range, from 43 to 44 percent, but on a lower price baseline.

The number one locational depressant, anywhere you go in the U.S.: abandoned buildings within half a block or 300 feet of the house. Trash in the area, industrial buildings and lack of shopping facilities are also significant negatives in all regions.

source: realtytimes.com