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5 Aspects Of Location Location Location
One of the tenseless phrases in the world of real estate is “location location location”.
While there is no definitive answer to who first coined these famous words, there is no doubt that this one word used 3 times in a witty phrase is the essence of valuing real estate.
It’s profound how a phrase like this can capture so much meaning in the world of buyer, selling, and investing in real estate.
The location of a house can give it such great or low value that makes all property valuation models appear like a joke.
When the value of a property does not transact at what it’s supposed to be, the answer usually goes down to location.
But what does location location location entail?
From a macro perspective, the region of a country can give an indication of the magnitude of how much properties will be valued.
Taking region into account can be made in terms of city, town, and even which state.
For example, if we look at China, the most commercialized provinces are Shanghai, Beijing, Guangzhou, and Shenzhen. They can also be viewed at cities in the eastern and southern regions of China.
While this is a broad way to get a feel of how high real estate values will be in these cities, it is generally safe to say that a penthouse in Shanghai will be worth more than a similar-sized penthouse in a lesser known city like Hangzhou.
In fact many countries around the world, including the United States, segment national housing statistics by regions.
As we start to zoom in for more specificity, the next aspect to look at is the town.
It’s not surprising to find real estate in different towns have very different ranges of values even when they are side-by-side next to each other.
A bustling town that is being nudged forward economically by a forward-looking government will usually have better real estate values compared to one that is fully content with staying stagnant.
It is important to acknowledge that there will always be outliers found in every city. And it can go both ways in terms of value.
For example, there will always be houses or apartments that is valued much more than what the average house in the area is fetching. And there will always be houses priced oddly low compared to other houses in the area too.
While these things don’t always explain themselves on the surface, there will always be justified reasons for value outliers in real estate markets.
Maybe it has special zoning, maybe it has something to do with the title, maybe the area has been earmarked for development in the town’s master plan, etc.
As we get more specific into locations, this is when more particular infrastructure, amenities and other factors come into play.
Easy access to highways could be invaluable to families who reside on the outskirts of the city, proximity to subway stations will be precious for those living in urban areas for easy traveling to and from work, located near school will give parents more peace of mind over the safety of children, etc.
It is also a fact that some neighborhoods will have higher crime rate compared to others.
Other establishments that might bring up the value of real estate in a neighborhood include:
- Shopping malls
- Supermarkets and hypermarkets
- Places of worship
If for example, a residential apartment is part of a shopping mall in a mixed development, you can bet that it will be more expensive per square foot compared to houses surrounded by nothing but more houses around it.
Two houses situated in the same street can have varying values, let alone the neighborhood.
For example, a house facing a busy street will be subject to more noise and air pollution compared to one situated on the other end of the street away from all the chaos.
The second house will definitely be more valuable even if the first house is closer to the mall.
This might work differently when it comes to commercial properties. But for residences, is almost always exclusively the case.
By the same logic, a house located next to a school might have a good value as it provides so much convenience to students. But a house a little further away would sacrifice little of that convenience yet offer more respite from the noise that a school might generate.
In the end, this can be subjective and could be down to personal preference.
Some people might find a home as close to the school more valuable, while another homeowner might find it a nuisance.
Conformity is a subject that can be counter-intuitive.
It is one of the mysteries of real estate. Yet it totally makes sense.
If a neighborhood is made of of lavish houses a run-down house can really look out of place and thus affecting it’s value.
There are 4 factors of conformity that comes into play:
They are discussed in greater detail here.
All in all, location location location can be a primary factor that paints a pretty good picture of demand and supply of real estate in general for a particular area.
While it is a good indication of how high or low properties are being traded, it should only be one of the many indicators for property valuation.
Solely depending on it to make investment decisions can be a huge mistake in an industry that takes no prisoners.