Influences on Real Estate Value: Economic, Governmental & Social

Instructor: Eileen Cappelloni

Eileen worked for the Orange County Asssociation of Realtors for 31 years. She has written real estate courses and exams for other publishing companies

Despite real estate being available for purchase, sale or lease all over the world, the value of real estate is mostly controlled by local factors. The area's social, economic, and governmental conditions all contribute to the determination of real estate value.

Factors of Real Estate

A house located in rural Pennsylvania can be exactly the same size, style, age and quality as another house located in New York City, but its value can vary by hundreds of thousands of dollars because of where the house is located.

To be able to evaluate and appraise the value of a particular structure or even land, an appraiser must take into consideration many different influences. Economic factors, governmental regulations and social factors need to be assessed to conduct an accurate examination and determination of value.

Economic Factors

The ability of a local population to be financially able to purchase real estate in their area is a major factor affecting the real estate market. These sort of economic factors that affect the value of real estate include vacancy rates in the area, material and labor costs, the availability of credit, interest rate, and earnings levels.

Say Darryl has a job in New York City that pays him $200,000 annually, and he wishes to purchase a new four bedroom home to live in. The cost of housing an hour and a half away is considerably less than it is right in New York City. He will have to consider either purchasing a smaller home or moving to a suburb outside the city limits with a longer commute.

Social Factors

There are also a number of social factors that affect the appraiser's determination of value, such as the number and ages of people moving into or out of the area, and the composition of households.

For example, say Mary and Dave Jones purchased their home in 1980, when the composition of the 'family' unit at that time was 1.7 children and the adults' ages averaged 35 years old. Forty years later, their three bedroom home may now be worth considerably less, as most of the children in the area have moved out, and the adults currently living there are looking to downsize their home, or perhaps move to a warmer climate.

Governmental Factors

Governmental factors include state, regional and municipal codes that often place restrictions on what be constructed in a particular area. These are generally implemented to protect the consumer, but may also ultimately restrict development. Each specific area in the country has its own zoning codes. Local municipality rules and codes limit or restrict what can be erected in their specific area.

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