What Causes Property Values to Decrease?

There are a lot of factors that affect the property value, whether it’s a house or an apartment. What makes property value decrease?

Some of the main causes are undesirable location, insufficient bedrooms or bathrooms, neglected property, old paint, cracks, rot, exposed wiring, bad DIY projects, missing a garage/driveway or kitchen countertops, or an overgrown yard.

Keep in mind that while room additions can increase the value, they never have a good ROI (return on investment). So only do them if the home is seriously deficient in some important area.

Most of the time you’ll get back only a percentage of the renovations you put in, but there are still a lot of ways that can boost net home value cheaply and efficiently.

What Factors Affect Property Value the Most?

a beautiful home property in north carolina

An appraiser will tell you that property value is determined by these three questions:

  1. What would be the cost to build something similar?
  2. What do similar properties sell for?
  3. How much income does it generate? (except for owner-occupied)

One of the main factors that affect the value of a property is square footage (only if used well), utility, and upgrades, which also depend on your location. For example, not every upgrade is valued the same in all parts of the country. Pools may add a lot of value in Arizona, but not so much in Minnesota. If there’s a demand for it on the market, then the market will determine the value.

Anything demanded locally that a property doesn’t have hurts property value. Your home should have some or all of the main additions that the comps (comparable sales) have in your area.

You can figure out what is common in your area by visiting open houses and checking out places online. The only thing to keep in mind is that you don’t need to upgrade everything, because not all buyers will want everything. You upgrade a kitchen and some will like it, but if you upgrade the bathroom and the floors they may not like it and now you’re narrowing the pool of buyers.

But there are always things you can do to affect the value of your property positively, and it doesn’t have to cost a lot.

Do Houses Depreciate Over Time?

Typically, houses or buildings do not go up in value. They depreciate as they slowly fall apart as everything else does. What goes up in value is the land underneath the house. And for that, you need a house in a desirable location.

Home values keep dropping over time unless the owners keep pumping money into it for maintenance and renovations. In any case, you shouldn’t make your home your primary investment vehicle, let alone the only one.

If you’re looking to buy a house and then sell it for a profit shortly after, then this can be a concern because no one can predict the housing market. Therefore, trying to bank on appreciation as an investment strategy is fairly risky unless you’re in an especially good area, such as California.

Factors that affect house prices the most

Looking at the market these days, what affects housing prices and creates a housing bubble are:

  • Mortgage rates. When we reduce interest rates it increases demand, which increases house prices
  • The supply of houses. Since the pandemic, the housing supply has fallen dramatically, relative to demand.
  • Population growth in the US. The population keeps growing, while the amount of land remains the same.

Whether there will be a crash is uncertain, however, it’s more likely that home prices will rise more slowly in the future, and the prices will decrease slowly.

As far as house additions go, since bedrooms and bathrooms are impactful, you should make sure you have enough to meet the market tastes.

The style of the home is also important and can affect the price. The layout is important, as buyers are looking for rooms large enough to do the activities designed for them, and they want a specific amount of rooms to meet their needs. Square footage is a secondary number and isn’t useful in and of itself. It needs to be used well.

Do apartment buildings devalue homes?

Apartment buildings don’t typically devalue homes, but it depends on the area and the type of complex. An upscale complex shouldn’t be an issue, though a low-end complex with a lot of traffic may have a negative impact. It also depends on how that complex and traffic impact the area. 

Generally, what devalues homes is poorly managed property near that home.

apartment complex in Phoenix

What Causes Land Value to Decrease?

The value of the land generally goes up over time, but if the land isn’t in a desirable location, the value will go down. What makes the location undesirable is usually the scarcity of jobs or people or any of the necessary elements such as clean water.

During the appraisal, the value of the house and the value of the land are calculated separately, then added up.

What Adds the Most Value to Your Home?

The kitchen and bathrooms add a lot of value, as well as having enough bedrooms. Anything that is demanded in the market with similar homes where you live, such as a garage in snow areas, or a pool in the hot areas will add value if you have them, or decrease value if you don’t.

The easiest way to add value to your home without investing a lot is to clean it, fix it and plant grass. Simply fix broken things, and clean dirty things. These are going to return much more than they’ll cost.

Replace beige outlets, dinged or dirty wall vents, patch and paint walls, fix broken tiles, and clean the gutters. All these things are easy to do, cost very little, and add more value.

Look at new homes in your area, and what’s in demand. A home that feels comfortable, well maintained, and clean will add a lot of value.

If you rent, then any additions that also increase the quality of the entire investment, such as being able to raise the rent, will increase the value. If you can increase your profits, then it would directly increase your appraisal.

If nothing in your home is deficient compared to current standards, then there may not be a need to spend money on renovations just to improve value. And if you’re the owner, remember that you shouldn’t live in the next owner’s house – build what makes you happy and let the next person change it to make them happy.

Does landscaping affect the overall property value?

While nice grass is always a plus, landscaping usually has a declining return. Most people don’t care too much past the basic level of shrubbery and grass. So be sure to plant new grass before a sale, and you can use a sod cutter for removing grass, and a roundup for removing weeds.

Do gardens or plants increase property value?

While a nice garden adds a bit to the value, a meticulous garden can be a turn-off for some people. You’d want to be as new and as clean-looking as possible, with high curb appeal. While the fence may not add much value to the property, some lovely plants and mulch probably will. 

Do trees increase property value?

While a tree may not be worth its price in terms of property value, there is something called ‘replacement value’. If you plant a tree, and someone cuts down your tree, they need to replace that tree to make you whole again under the law.

If the tree is a few years old, then that’s easy to replace. However, if it’s an old tree planted by your grandparent, then they can’t possibly replace that tree so monetary reparations are most practical. This can sometimes triple the estimated cost of the repair-replace-replant system. Additionally, you also get paid for any damage to your property value.

Do floors increase home value?

You most likely won’t see a good return if you did your floors, but if you want to sell your place quickly and get full value, then do your floors, especially for a condo. Hardwood will add more value, but it depends on personal preference.

Do roofs increase property value?

Roofs generally don’t add value and don’t decrease it unless in disrepair. Houses are expected to have a functioning roof. Check this article on roof flashing and the cost. During an appraisal, if your roof is $20k new and is 25% used up, then it has about $5k of physical depreciation.

How much value does adding a second bathroom add to a house?

If you have a 3-bedroom 1-bath home, then adding another one will probably be a good bang for the buck. Adding rooms should only be done if the home requires it, in which case it is always a good investment.

Can Neighbors Bring Down Your Property Value?

Bad neighbors next door don’t typically affect the property value, as much as they can make it harder to sell. An irritating neighbor probably won’t affect the value, but if the outside of your neighbor’s house looks like trash, then it will most probably affect your property value as well.

Bad neighborhoods can affect this even more. People will skip an entire neighborhood if it seems sketchy or economically depressing.

Can you sue your neighbor for devaluing your property?

This will depend on what you consider your neighbor is guilty of devaluing your property. If a neighbor is directly doing some kind of obvious damage then you can probably sue your neighbor.

Do you have to tell buyers about neighbors?

In general, you’d want to disclose anything that may impact property value or desirability. Depending on your area, you may or may not be required to disclose your neighbors. If you feel morally obligated, then consider who is moving in and whether it’s legally or morally right to withhold this information.

Why is your house value lower than your neighbors?

This could be because there was an increase of recently sold houses that are more similar to neighbor’s house than yours. It could also be that you put more value into your house than you should. 

Maybe your house needs an update? A new paint perhaps? Clearing the clutter, or purging?. All this will make it look more spacious and updated which will increase its value.

What Negatively Affects an Appraisal?

Anything common in the comps in your local market that your property doesn’t have may negatively affect the appraisal. If the property is cluttered, has old paint, and has an overgrown yard, then it may lower the value.

Additionally, making changes to your house that aren’t in demand or logically sound, could negatively affect an appraisal. Do you need 15 bedrooms or an elevator? A pool in a snowy region? All of this may affect your house’s desirability and property value.

To reduce the probability of having your property badly appraised, make sure to get a local appraiser, someone who is in your market to do the appraising. This will make sure that you get an accurate appraisal.

What should you not say to an appraiser?

Typically, you shouldn’t list the prices to the appraiser for any kind of renovation or additions to the property. You’d want to let the appraiser do the work of assigning the value. An appraiser typically estimates a higher value than what you paid for.

Just make sure to list the renovations and let them assume you paid top dollar for the work to be done. If it comes way off then you can show them the real costs, but beware that it’s difficult to argue with an appraiser. 

What to tell the appraiser about your property?

Most appraisers love to get as much data as possible, so showing them the improvements you’ve made, the rental income it produces, financials, info on comparable houses sold locally, explanation on anything that isn’t obvious, copies of leases, etc.

Additionally, you should mention all the maintenance tasks that you’ve done, even if they aren’t actual remodeling or upgrades. Painted wood, replastered pool, the big stuff. This makes a good impression on the appraiser.

While not all appraisers are the same, most of them will probably use all of this information to come up with a better appraisal, especially if you can find realistic comparable sales that paint the best picture for your home. 

It may also be a good idea to send this to them way before they come to take a look at the property because a lot of the work is done before the actual appraisal inspection.

By providing useful information, and building rapport and trust with the appraiser you can go a long way. As you build rapport they will want to help you and get the best price for your home. Stick around during the walk-through, treat them as humans, and you’ll do great.

Do Rentals Affect Property Values?

Rentals can both increase and decrease property values, especially for commercial properties of 5+ units. Typically, higher rentals allow for a higher valuation, but some factors may determine a limit, such as the size and comparable sales.

  • Alex Mitch

    Hi, I'm the founder of HowMonk.com! Having been in finance and tech for 10+ years, I was surprised at how hard it can be to find answers to common questions in finance, tech and business in general. Because of this, I decided to create this website to help others!