You have often heard that the most important factor in determining cost in real estate is “Location, Location, Location.” Although the location of a property is always an important consideration to buyers, many people don’t understand their real estate agent’s singular obsession with the topic.
Image: Manitoba Historical Maps / Flickr
The reason why real estate agents are obsessed with the topic is because location is very important, and it is usually the number one influence on a house’s price.
Think about it this way. Imagine that you are buying a home in a city. You have an option between two identical homes: one is on the centre of a block and one is near a corner. Do you think they should have a different price? Which one is more expensive? The answer is that the one in the middle of the block will be worth more, because it is more secluded from traffic.
Identical houses may sound like an unreal situation. However, in most cities, since houses on a block were likely built at the same time, and owned and maintained by similar people, they will be largely identical. That’s why, when there are differences in price, it is usually due to location.
Cost will also be affected by the homogeneity of the surrounding neighbourhood. A detached home on a street with other similar homes will cost more than an identical home that is surrounded by businesses or apartment buildings. This is not because the other properties will produce negative effects – it is simply because the homogeneity of the tract improves its value. It makes the tract look more residential, which will improve its appeal to buyers.
And then there are more obvious factors: a home next to a good school on a quiet residential street will go for more than a similar house in a rundown part of town where there is a lack of jobs and the schools are not as well-run.
In the long run, then, if you are considering purchasing a home, you should keep in mind its location – no matter how desirable you find a property. Its location will help determine how much you get for the property when you decide to resell.
A great way to take advantage of the fact that location is such a strong determiner of price is by using a Comparative Market Analysis (CMA). A CMA report will give you an idea of how much similar homes in the neighbourhood went for. If you are a buyer, this can be invaluable information, particularly if you are looking for a deal. A home that is high-priced compared to its neighbours will likely not last at that price point, and the sellers will likely be responsive to low-ball bids.
If that isn’t a great reason to be obsessed about location, I don’t know what is.
Nelson Goulart
Broker of Record with Signature Service GMAC Real Estate
www.ssgmac.ca
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