How Buyers and Realtors Determine the Value of a Home in Houston

Norhill Realty October 17, 2017

In residential real estate, it’s often said that a home is only worth what a Buyer is willing to pay for it.  As we look at the market in Houston, in particular, the Inner Loop and Neartown neighborhoods such as Houston Heights, buyers and Realtors will typically use a number of factors to decide what they would be willing to pay for a home.  Here’s how we rank them when we advise our clients.

Location

Location is still king in real estate and it is the number one factor in determining value.  We obviously want to look at the neighborhood and compare the home to other similar homes but we also want to study other location factors that might affect value.  These can include schools, walk-ability, nearby amenities, and parks.  Negative location factors can include a location on a busy street, adjacent commercial or undesirable properties, utility easements, or proximity to freeway noise.

Home and Lot Size

The size of the home and lot typically rank second on the list of factors that determine a home’s value.  It may seem obvious that a larger home will sell for a higher price but that isn’t always the case.  The difference is size needs to be impactful so that the function and usefulness of the home is significant.  A home that is only 100 SF bigger than a comparable home may not command much of an increase in price if that additional square footage doesn’t add a functional space like a study or playroom.  Buyers will typically pay a little more for a home that is on a 6600 SF lot vs a similar home on a 5000 SF lot.  This extra space can add valuable yard space and functionality to a home.

Floor Plan and Functionality

Ranking third on the list of factors is the floor plan and functionality of a home.  Most buyers in the Houston market now prefer an open floor plan in which the kitchen is open to the main entertaining or family spaces.  Buyers would likely be willing to pay a higher price for a home like this over a home that has a quirky or less functional layout.  Also the number of bedrooms, size of rooms, closet space, and bathrooms can also impact the value.  A 4 bedroom home with an open floor plan will likely sell for a higher price than a 3 bedroom home with a closed-off floor plan if all other factors are the same.  Buyers would view this home as having more functionality.

Quality and Finishes

Ranking fourth on this list is the quality and finishes of the home.  We typically start with the more expensive items like foundation, roof, HVAC, electrical, and plumbing.  Unless a home is new or recently renovated, these items would likely have been updated at various points during the lifespan of the home.  Determining the age of these items and systems can help a buyer understand how much life is left on each and when an upgrade will be needed in the future.  After we study the bigger items, we then look at the finishes and detail in the kitchen, bathrooms, floors and siding.  All of these things will factor into how much a buyer is willing to pay for a house in Houston.

A Note About Price/SF

The price/SF of a home is a common number that buyers look at but in reality it’s typically not the top determining factor especially in older Houston neighborhoods like the Heights.  Price/SF can vary widely and it’s really only effective when you are comparing two identical homes.  It works well in the suburbs where the homes tend to be very similar, but it can be difficult to find two identical homes in the Inner Loop that have sold within six months of one another.  When analyzing this data on an Inner Loop home, we typically will look at a price/SF range vs trying to pinpoint the exact value based on this number.