What influences a property’s value?

It's impossible to perfectly predict a property's value. It ultimately comes down to what people are willing to pay when the property is up for sale. But you can better estimate the value by understand how various factors influence a property's desirability, like location, broad market performance, future infrastructure projects and the features of the home itself.

11 factors that affect property value

1. Location

The location of a property is the most obvious factor that affects how much a property is worth. Is the property close to the city centre? Is it in a sought-after waterfront location? Is it close to public transport, shops, schools and restaurants? People generally want to live close to where they work and where they enjoy their free time, so properties in these areas will be more expensive.

Then there’s also the fact that some suburbs simply have a better reputation than others due to factors such as unemployment or crime rates. Two homes just streets apart can differ substantially in value if they’re simply located in different postcodes.

2. Supply and demand

If demand exceeds supply in a given market, property prices will increase. This is because there are more people in the market for a smaller number of properties and the competition to secure a home drives prices up. If you own an apartment in an area that has seen the construction of a large number of new apartment buildings recently, then supply may outstrip demand. This could limit the growth in value of your apartment.

3. Interest rates

When the Reserve Bank changes monetary policy, this can affect the value of property. Low interest rates mean money is cheaper to borrow. This tends to drive up prices because people can stretch budgets further by borrowing more money.

If rates rise, borrowing gets more expensive. This can slow price growth and force borrowers to tighten their belts.

4. Economic outlook

The overall performance of the economy can also have an impact on the property market. If the economy is experiencing strong growth, employment and labour conditions, more Australians can afford to purchase a property, which leads to rising property values.

5. Property market performance

The performance of the real estate market in your local area can also affect how much your property is worth. If there’s little demand for houses in the neighbourhood and the properties listed are selling for well below the asking price, expect values to fall.

The overall performance of the property market matters too. If prices are rising across the board, this can only benefit homeowners, broadly speaking. But it is important to remember that Australia's property market is really a series of city and regional markets.

6. Population and demographics

The more people who want to live in a particular suburb, the greater the demand for properties in that suburb. At the same time, the type of people living in the area will also influence property values. For example, if young families are the dominant demographic group in the area, multi-bedroom houses will be more sought-after than small apartments.

An increase in immigration also drives demand for homes, as the population grows. This drives prices up too.

7. Property size and features

The features and overall size of a property also influence its value. A four-bedroom house is likely to fetch more than a two-bedroom house in the same area, while features such as extra bathrooms, garages, swimming pools and outdoor entertaining areas can all have an impact on property value. In busy cities, the absence or abundance of parking opportunities is another critical factor, while the functionality of a home’s layout is always important.

8. Aesthetics

The street appeal of a property should never be underestimated. First impressions are very important in real estate, so the way a house looks from the outside can instantly add or subtract tens of thousands of dollars from its value.

9. Renovation potential

The potential for growth is important for both homebuyers and investors — the potential to add an extra bedroom or extra storey, the potential to increase the floorspace, or the potential to add a pool or outdoor patio. If there’s scope for a buyer to improve and personalise a property through home renovation, the re-sale value of that property will increase.

10. Investment potential

The value of a property is also influenced by the potential it presents to investors. Factors such as the rental income an investor can expect from a property and the capital growth they will enjoy when they later sell the property all play their part.

11. Energy efficiency

A property made of high quality materials is likely to have a higher value, in part because this makes the property easier to heat and cool. Given the high price of electricity and gas bills, items like solar panels, insulation and double-glazed windows can add value and appeal.

Bank valuations vs market valuations

When you apply for a home loan, your bank or lender will arrange to have the property you are purchasing professionally valued. But many home buyers are surprised when their bank’s valuation doesn’t match the property sale price.

In many cases, the bank’s valuation of a property will come out lower than its market value. This is because the bank valuation of your property’s value is a conservative estimate of how much a home is worth. The bank uses this valuation to work out how much it can responsibly lend you and how much money it can reasonably expect to recoup if you default on your loan.

A market valuation, on the other hand, reflects the best case scenario: The value of a property when sold at the right time and under the right market conditions.

Australian property values

Property prices have risen across most of the Australia recently. According to Corelogic figures from December, Australian property prices rose 22.2% through 2021. The median house price would, theoretically, have risen in value by a figure of $126,700 in that time.

While you shouldn't try to "time" the property market (the best time to buy and sell is usually when you are ready to do so), keeping an eye on market trends is very important. Knowing how the market is performing can help you judge your property's value more accurately.

How to find out the value of your home

If you’re looking to buy a home or sell your current residence, you need an estimate on how much your property is worth.

While online tools can be useful, they won’t always give you an accurate quote. Although these services sometimes take into account factors such as the size of the property and recent market trends, there are many other factors that can have an impact on property value, which are not included in the calculations.

With this in mind, the best way to work out the value of your property is to enlist the services of two or three independent agents who can provide a professional valuation. Agents have expert knowledge and experience when it comes to working out property values in your local area, and they can give you a much more accurate idea of the true value of your bricks and mortar.

You can also judge for yourself by comparing the sales prices of similar homes to yours in the same neighbourhood. Looking at comparable sales is a key part of how real estate agents value homes too.

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Written by

Richard Whitten

Editor

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio

Richard's expertise

Richard has written 529 Finder guides across topics including:

• Home loans
• Property
• Personal finance
• Money-saving tips